Avoiding Debt

Will A Land Loan Make You Rich?

Can you get rich buying raw land

Owning land has always been a dream of mine and, over the past few years, my wife has jumped on board as well.

In 2016, we purchased a 52 acre property with an updated home.  Total cost, $325,000.  Honestly, that’s super cheap when you look at what $325,000 can buy you elsewhere.  In some places, it’s not much!

Back in 2016, we were paying off debt and not really thinking about financial independence.

Now that we are debt-free, we are running full speed at financial independence.  We have opened a post-tax brokerage account with Vanguard and are feeding it with about $5,000 a month, and we have increased our 401k contributions to max out our accounts.

We are in a good place, but the desire to own more land is appealing to my wife and I.  Getting into real estate is a goal, being a land lord isn’t. So, what can we do?  Well, we would like to upgrade our 52 acre “farm” to 100-200 acres in the next 5 years.

Is it still possible to achieve FI and upgrade the farm?  I’m not sure…  I’d like to say yes, but land is expensive and the income is hard to come by.

I’ve got some plans though, let’s see if it’ll work…

Land Appreciates

Graph of land value

I’m sure this isn’t a huge surprise, but land has steadily appreciated over the years.  Depending on the soil quality and population, values have grown 2.2%-13%.

Granted, appreciation can’t always be counted on.  I think the 2008 market crash and rising interest rates have taught us all that lesson.

Given our geographic location, purchasing land is a solid investment from an appreciation standpoint.  Columbus, Ohio is growing rapidly and many folks are moving into the “sticks” to commute.

Housing costs are rising as a result and land values have held steady out here in what was a tough 2017 from a national standpoint.

Buying a large farm could be a gold mine in 30-40 years.  As Columbus swells, we could sell off the farm, or parcels for a large profit.  Not that I ever want to part ways with land, but at some point we’ll want to “retire”…

Truly Passive Income

open land

I love listening to the Bigger Pockets podcast.  That site and podcast is what got my wife turned on to generating “passive income”.

Becoming a landlord is wildly unappealing to the both of us though.  Granted, the income can be great, but I don’t know that I consider it to be passive.

I give all landlords credit…it appears to be a ton of work.  Phone calls, needy tenants, and managing repairs.  It’s truly a “business” and it requires a lot of work.

That’s not passive in my opinion…

Land offers many avenues for passive income.  Farm rent, timber, CRP, and mineral rights are just a few of the common options.

The crappy part about these options is that they don’t exactly pay a lot.  Farm rent fluctuates, and currently it’s down.  In my part of the world, you’re looking at about $100-$110/acre.

CRP (Conservation Reservation Program) provides a better income, but still not great.  Depending on the type of program, you can get $116-$150/acre.

These program aren’t guaranteed, but the payment is once you’re in.  Typically, they’re direct deposit and last for 10-15 years!

The programs range from helping to prevent erosion to ensuring honey bees have a plethora of flowers/nectar.

This will require some work, typically you’ll need to prep and seed the areas in the program.  This is something I enjoy doing, so I don’t count this as work for me.  If you don’t have access to the equipment, then this can be an expense as you’ll need to pay someone to prepare the fields for planting.

Once planted, most fields will need to be burned every 1 – 3 years depending on what’s planted.  Again, this can be an expense as some counties require a professional to be onsite while burning (for good reason).

Land Taxes


Owning ground can actually save you a ton in property taxes.  My current “farm” had a crazy tax hike last year.  Our tax bill rose by about 40%!  (barf sound)

That uptick caused me to explore some ways to save money on our taxes and man, was I happy I did!

Ohio has a few CAUV (Current Agriculture Use Value) programs.  The programs range from common agriculture use (corn/beans) to timber programs.

We own mainly timber, so I hired a Forester to write up a timber plan and off to the county auditor’s office I went.

The plan cost $450, and I had to do some timber work (cutting trees and killing invasive plants), but again… I love that stuff.

The plan will reduce our taxes by about 70%!!

We won’t see this tax break until 2020, but I’m really looking forward to that!!

The Downside of Land

RAW land isn’t easy to buy.  It’s expensive and most banks aren’t overly excited about lending for land purchases.

Now, there are banks that willingly lend…you’ll just have to research which bank is right for you.  I’ve found that smaller local banks will do some creative lending on land.

Down payments are higher for land as well.  You’re going to need a minimum of 25% down on RAW land.

If you’re looking to buy property and make it your primary residence, you can get a loan with as little as 5% down without PMI (we did it on this 52 acre property).

Interest rates and loan terms also differ.  The bank I found offered 25 years loans on land, and the interest rate was about 0.5%-1% higher than a primary residence loan.

Finally, appraisals are a pain in the ass.  When we purchased this home in 2016, we almost lost the deal because of the appraisal process.

There aren’t many appraisers that deal with “large properties” and the few that exist are busy.  We were in the midst of buying the property in April, and the appraiser said he had an opening in July…   Yea, that’s not going to work.

Luckily, we were able to get someone to do it, but even then… we had problems.  There weren’t many properties nearby that they could compare our farm to and it caused a lot of delays.

Will Land Help Us Get to FI?

suitcase full of money

So, knowing the good and the bad, we are still interested in acquiring more land.  Will buying land put us closer to FI, or further away?

Well… it depends.  Land isn’t all created equal.  Some parcels have producing oil wells that bring in crazy high income.  Others have timber which can be harvested every 5-7 years if done correctly.  Finally, some produce CRP/Farm rent on an annual basis.

If a parcel has strong income, we can get by with a smaller down payment.  I would like to have the income cover at least 75% of the monthly costs.

Better yet is if it covers 100%, and the best case scenario is we get some income off the ground annually.

Is land as good of an investment as stocks or other real estate?  No, probably not.  The stock market averages about a 9% rate of return, and real estate can be crazy lucrative if you know what you’re doing.

Is it safer than those options?  Potentially…  They aren’t creating any more land, and the swelling Columbus market points to a strong appreciation and future for land in central Ohio.

Land isn’t nearly as volatile as the stock market either.  Land values have steadily increased since about 1983, and has bounced back after each dip…  Slow and steady finances make me very, very happy.

So, we probably won’t get rich quickly from land…  Unless there is another shale boom, or some other desirable mineral.  With that being said, if you can find the right parcel, it can be a solid invest that can be enjoyed physically and financially.

One thought on “Will A Land Loan Make You Rich?

  1. Passive income is the best type of income for multiple reasons: earning money while you do nothing and preferential tax treatment. Buying land (illiquid investment) in an appreciating area with the intent to hold for long periods of time could be a good investment. As long as you are compensated for the illiquidity and have reasonable certainty the land will appreciate over the long term, it could be a savvy move.

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