Rural acreage can offer spectacular profit potential due to arbitrage. Arbitrage simply means “to purchase and sell an asset in different markets in order to profit from price discrepancies.” When you purchase rural properties you are engaging in that type of transaction.
A rancher owns land for its agricultural value—in other words, how many head of cattle the acreage will sustain, and the resulting profit potential. City dwellers, on the other hand, will value the same acreage for its recreational usage and land speculation potential.
For example, on an AUM (animal unit months) basis, 1,000 acres might be worth $125 per acre to a cattle rancher. But to a person who lives in the city, these same 1,000 acres might be worth $500 per acre for recreational purposes or as a land investment. Therefore, there is a price discrepancy in the value of the same property in two entirely different markets.
The secret to making money is to be patient and find ranchers who are willing to sell based on agricultural economics, not land speculation economics. Unlike the stock market, where prices are posted daily in the newspaper, rural acreage prices are not fixed and can fluctuate wildly, depending on the seller’s economic condition and personal perception. It is not uncommon to find two bordering ranches with almost identical agricultural values, one offered for sale at $250 per acre, and the other offered for sale at $400 per acre.
Speculators and investors make money when they buy land, not when they sell land. In other words, if the purchase price and terms are advantageous, then the future will take care of itself, and it would be hard not to make a profit when reselling the acreage.Buying, owning and selling rural acreage can be an exciting, fun and very profitable enterprise. Like anything, however, it requires knowledge that can only acquired through experience.
To view properties for sale, CLICK HERE