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| I get it now, thanks
The problem is nothing is stable - land used to be purchased to provide a stable, if a little low returning, investment. Values didn't change to much and rents and or earnings derived from a 50/50 relationship were pretty stable. However now the ability to return 4% is dependent upon volatile markets and even more volatile weather. So it might work now, but only return 1% in the future. Would the plan be to get someone to buy the ground for whatever price up to $10k, promise 4% return paid in rent for 4 years, lock in prices for 4 years using whatever method (puts, calls, forward contract where available), have good insurance and plan on it working all 4 years? On paper it looks pretty good, but it usually doesn't work out according to plan and I think both parties may find they are taking far more risk than intended.
It seems like land priced with the same number corn is at makes some sense - $2 corn, $2000 +/- land - aggressive guys might bid up price into the low 3's, but that's about it. I'm thinking long term (20 years +) though where the land owner is looking for a steady (but slow) increase in value and a stable return where both parties make money. Right now I wonder if there is more of a 'flip this section' mindset and everyone is looking for ever increasing land values and more or less making it happen (keep bidding and the price will go up).
Thanks,
Pat | |
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Fair value for land?
