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How Will the US Debt Exceeding GDP Affect Real Estate Prices?

By Troy Corman, t2 Real Estate / T2 Ranches

us debt to exceed gdp in 2021
Courtesy of the Wall Street Journal

An alarming article by the Wall Street Journal indicated that the US debt will exceed the US Gross Domestic Product (GDP) in 2021. In fact, they forecast it to reach 98% of GDP this year.  The combination of lower tax receipts and the $3.3 trillion pledged since March, to combat the effects of the coronavirus, have pushed the debt from $17.7 trillion in March to $20.5 trillion at the end of June.  Next year will be the first time that the federal debt has exceeded GDP since 1946, when the US was financing military operations to end World War 2.

Surprisingly, ultra-low interest rates so far have resulted in net interest costs on the debt to be 10% less than a year ago, despite the increased debt load.  Economists are now forecasting even lower interest rates in the years ahead, but expect the interest on the debt to cost $1 trillion annually by end of the decade.  They also are forecasting low inflation, which I always find laughable, when you look at how much real estate values have increased during these “low inflation” years.

The low-interest rates have been jet fuel for home purchases and a rapidly rising stock market, although the market’s had a couple of rough days most recently.  If interest rates remain incredibly low, and the “new norm” for the next several years, when do they become less of a booster for the real estate and stock markets, as they become taken for granted?

What will the US then be able to do, to spur the economy during downturns when interest rates can’t go any lower?  I certainly have no idea, but increasing taxes, or reducing government spending, are two ways to whittle away at the debt, and the most painful for politicians.  More likely, in my humble opinion, they will let the value of the dollar decline whenever possible, thus monetizing the debt.  This, in turn, will make hard assets, like real estate increase in value.

It will be interesting to see how it all plays out.

Troy Corman has had a real estate brokerage practice since 2009, and focuses on land sales surrounding Houston, Dallas – Fort Worth and Austin TX. Reach him at 214-690-9682 or 832-759-1523.

Posted in: Blog, Ranch Investing Tagged: economy and real estate, how has us government spending affecting us debt total, how will rising us debt affect real estate prices, us debt to exceed us gdp in 2021, what are long term effects of low interest rates on real estate prices, what is us debt compared to us gdp

Ken McElroy Details Why The Wealthy Invest in Natural Resources

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  • Where do the rich store their wealth...

    Where do the rich store their wealth...

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Posted in: Ranch Investing Tagged: how middle class invests versus how the wealthy invests, how the wealthy invest, investing video by ken mcelroy, why the wealthy invest in natural resources

Texas Farm & Ranch, Land Sales Slowed Versus A Year Ago Outside Dallas-Fort Worth, Houston and Austin

By Troy Corman, t2Ranches.com

View this 71 acres for sale at t2ranches.com

The effects of Covid-19 have dramatically affected the sales of small and large acreage tracts in rural areas surrounding Dallas – Fort Worth, Houston and Austin.  While some buyers have no problem viewing farm and ranch properties, we’ve experienced a few that want to wait until the spread of the virus slows further.  Sales that closed in April and early May could have been properties put under contract before the dangers of the COVID-19 virus were realized.

The following data was harvested from Multiple Listing Services in Houston, Dallas – Fort Worth, and Austin TX ninety miles from downtown Houston, Austin and Arlington.  We’ve compared sales in the last 30 days versus a year ago.

Below are the number of sales of tracts and homes with ten to twenty acres that sold in the last 30 days versus last year.

  • Austin – 51 last year / 25 this year
  • Dallas /Fort Worth – 82 last year / 52 this year
  • Houston – 54 last year / 41 this year

Below are tracts and homes with twenty to fifty acres that sold.

  • Austin – 21 last year / 18 this year
  • Dallas / Fort Worth – 64 last year / 25 this year
  • Houston – 38 last year / 23 this year

Below are tracts and homes with fifty to one hundred acres that sold.

  • Austin – 12 last year / 7 this year
  • Dallas / Fort Worth – 30 last year / 16 this year
  • Houston – 17 last year / 11 this year

Below are tracts and homes with one hundred to two hundred fifty acres that sold.

  • Austin – 16 last year / 2 this year
  • Dallas / Fort Worth – 15 last year / 6 this year
  • Houston – 9 last year / 6 this year

Below are tracts and homes with two hundred fifty acres and more that sold.

  • Austin – 7 last year / 3 this year
  • Dallas / Fort Worth – 4 last year / 0 this year
  • Houston – 0 last year / 1 this year

With Covid-19 cases appearing to be on the downslide in Texas, and with more Texas businesses opening up, hopefully, we’ve seen the slowest period for real estate sales in the near term.  Reports indicate that buyer traffic is increasing and low mortgage rates are flirting with going sub 3% on the 15-year mortgage loan.

Despite tighter lending on home purchases and refinances, farm and ranch loans are not under the same regulations and have not appeared to have been as negatively impacted.

If you need any help with land, or farm and ranch sales outside of Houston, Austin or Dallas – Fort Worth, call or text Troy at 832-759-1523 or 214-690-9682.

Posted in: Lavaca County, Ranch Investing, Texas Land Sales Statistics Tagged: t2 Ranches, Texas land sales affected by covid 19

American City Dwellers Heading to Rural Areas to Escape Covid-19.

2166 County Rd 212 in Hallettsville comprises 71 acres with a cabin and is 92 miles from downtown Austin and just over 1oo miles from Houston.

By Troy Corman, t2ranches.com

There are reports that US citizens are heading to small towns and remote areas to ride out the Covid-19 quarantine.  Many well-to-do Americans have retreated to second homes or ranch properties to escape the more prevalent cases of Covid-19 in America’s major and most populated metros.

But this isn’t just happening with the wealthy.  There is also increased interest in rural properties, particularly in smaller 10-acre to 20-acre tracts, as those that don’t have a rural abode, are now considering the immediate benefits, in case the virus lingers or rebounds in the fall.

I spoke to a lender with Texas Farm Credit, who said that their division that caters to buyers looking for financing for small land tracts is overwhelmed with new loan applications.  In some instances, it’s taking two days just to have the time to return prospective buyers’ phone calls.

The recent collapse in oil prices is also likely to have an impact on rural land sales.  Those in the oil industry are facing layoffs, or 50% salary reductions and may be looking to shed second homes and recreational property for greenbacks.  The oil price collapse is likely to have a larger impact on rural land sales outside of Houston, but it could have an effect, as it reportedly has on the luxury residential market, throughout Texas.

If you are looking for land, ranches or ranchettes, visit our website at t2ranches.com, where you can search for farm and ranch properties outside of Austin, Houston and Dallas – Fort Worth.  You can also set up custom searches and save your favorite properties.  If you have any questions or need any help, feel free to reach me at 832-759-1523, 214-690-9682 or troy@t2ranches.com.

Posted in: Ranch Investing Tagged: 000 in Texas, 2166 CR 212 Hallettsville TX, Capital Farm Credit reporting big demand for Texas rural properties during Covid-19, effects of Covid-19 on rural land sales, land for sale in Lavaca county TX, land for sale under $500, land with cabin for sale in Texas, rural land for sale near Austin TX, rural land for sale near Houston

How Will Massive US Government Stimulus For Covid-19 Affect Real Estate Prices?

Written By Troy Corman

As the US government pledges unprecedented spending to fight off the Coronovirus illness affecting lives and US businesses, it will be interesting to see how the long-term ramifications unfold.

I’ve seen two opposing opinions.  The first response is that long-term, this is more money flooding into the economy, which coupled with expected very low interest rates for some time, will fuel more of the runaway price appreciation that we’ve experienced over the last ten years.  The government will be further motivated to keep interest rates low one would think, as they take on trillions of additional debt on their balance sheet.  In general, as interest rates decrease, real estate purchase demand increases, along with prices.

With so much debt, another motivation would be to devalue the dollar, which thus, reduces the debt burden.  This would naturally lift asset prices and real estate prices across all sectors to a degree.  I watched some of Jerome Powell’s speech after this latest round of stimulus was announced, and always marvel when he says, in essence, we have less inflation than we would like.  That is certainly not the case when you look at mankind’s most expensive need – shelter.  As an example, over the last ten years, Dallas apartment rents, and Texas median new home prices have increased 60% and 66% respectively. Meanwhile, the median income in Dallas has increased 32%.

The opposing argument is that individuals and businesses will spend less as they pay down debts built up over the economic shutdown, and build up larger savings to offset the economic pain they’ve endured.  Business and individual debts are at all-time highs, with federal debts increasing at alarming rates.  Higher taxes, or more taxes and fees, are certainly in the cards, as there may be no other choice.

 

Chart courtesy of the Wall Street Journal
Chart courtesy of the Wall Street Journal

 

Personally, I believe that the combination of the stimulus and low interest rates will spur rising prices and more inflation.

Below are just a few of the ways to fight inflation with real estate investing.

Ranch and recreational land is an investment you can enjoy and use for recreation, business use or shelter.  The benefits of investing in recreational land is that generally the property taxes are very low, compared to urban areas, and you can enjoy time in nature with friends and family.  There is also the chance that you might make money on mineral leases or easements.  Many choose to buy recreational land a few years before retirement, so they can enjoy it and then build a new home once they’ve officially retired and escaped the city.

Commercial real estate investments can provide streams of income and accelerated depreciation, which greatly reduces your income taxes, particularly if you’re categorized as a real estate professional.  Then, you can write off “paper losses” on your other earned income.

Some of the most successful real investors I know have bought land, rental homes, duplexes and small apartment buildings in the urban core.  They really get massive property appreciation during the real estate booms, particularly if their properties are in the path of development.

Demographically, there is still a massive demand for first-time homes.  The millennials are putting down roots and are the main driver of home sales.  In the immediate term, the lack of housing will continue to drive real estate development, home building and land purchases, particularly, once the economy gets fully rolling again.  Let’s just hope it gets rolling sooner, rather than later.

Stay safe.

Posted in: Ranch Investing Tagged: how coronavirus affects of real estate prices, how will us government spending affect real estate prices

More Rains Needed for Texas Ranchers to Avoid a Drought.

Brief Synopsis of the USA Today original article, by Rick Jervis

Texas cattle ranchers face tough decisions to cull or sell herds as the drought deepens in some regions of Texas. The rains occurring January 21st and 22nd were a welcome relief for some Texas ranchers. Ranchers are hopeful that the lack of recent rains this winter and the dry start of 2020 are not foreshadowing a drought, like the devastatingly dry year experienced in 2011.

Texas is the leading cattle producer in the US, capturing 15% of the market. When droughts persist, non-irrigated pastures that cattle are dependent on don’t produce enough grass to maintain the herds.

Ranchers are often forced to sell off their herds when the rains don’t materialize. The drought in 2011 saw most of Texas average only 15 inches of rain for the year. Ranchers were forced to sell off their herds and coupled with wildfires, the costs were estimated at $8 billion.

Statistics released this week by the U.S. Drought Monitor showed more than half the state as abnormally dry – with 37% of the state in moderate drought conditions and about 11% of the state in severe drought.  So to Mother Nature, we say, let it rain!

Posted in: Ranch Investing Tagged: map of Texas drought areas for January 2020, ranches in Texas in need of rain, t2 Ranches, Texas cattle market, Texas drought 2020, Texas ranchers, texas ranchers need rain, U.S. Drought Monitor

How to Buy a Ranch

Article by Sarah Max, Worth Magazine

In 2002, Washington State investment manager Thomas Hanly, a native of Montana, decided he was ready to fulfill his childhood dream of owning a ranch. He wanted rolling grasslands, live water and mountain views, and searched the big-sky state until in 2002, 2003 and 2004, he bought three adjacent ranches totaling 1,300 acres and bordering national forest on two sides.

Then the real work began. With the help of his wife and his brother, Hanly set about restoring streams, fixing fences and building two houses, one for his family and one for a ranch manager. It was a major undertaking, especially with a demanding job two states away, but Hanly says the investment has already yielded profound returns. “My kids spend every summer in Montana,” says the father of four. “They’ve competed in the rodeo and learned to fly-fish.”

Owning a ranch can provide intangible benefits such as uninterrupted family time and the enjoyment of nature. Choose your property wisely and manage the land carefully, and ranches can provide tangible benefits as well. Well-run working ranches can yield 1 percent to 3 percent of income annually, says Alex Maher, owner of Live Water Properties, a Jackson Hole, Wyo.-based real estate firm that specializes in ranches. “They can more than pay for their expenses and provide returns better than a CD.”

Class-A ranches—those in the best locations, with profitable cattle operations and wildlife habitat—weathered the financial crisis and recovered quickly, says James H. Taylor, managing partner at Hall and Hall, a national ranch and farmland broker. The reasons: rising commodity prices, a limited supply of properties and deep-pocketed owners. “There’s nothing that drives them to sell in a down market,” Taylor says.

Smaller, recreational ranches didn’t fare as well. Prices plunged roughly 40 percent during the crisis and have been slow to recover, according to Carl Palmer, cofounder of Beartooth Capital, a private equity firm that buys and restores ranches. If you’re thinking about buying now, however, that’s good news. “There’s tremendous value in owning land, particularly on streams and rivers,” says Paul Slivon, a San Francisco investment advisor who owns a roughly 200- acre ranch near Steamboat, Colo. “There are some places where you can’t get access to that water unless you own it. That’s a big deal. They can build new golf courses, but they can’t build new rivers.”

Of course, if you don’t know what you’re getting into, ranch ownership can turn into a tedious, time-consuming and costly responsibility. So follow these rules before you heed the call of the wild.

So is the notion of laying your claim and letting nature take its course. “Sometimes people buy recreational ranches and think they don’t have to do anything, but grazing and running livestock is an important part of maintaining the land,” says Palmer. These working components are also necessary for maintaining agricultural tax status and grazing rights on nearby public land. “If you come at it thinking that it’s just recreational, you’re missing the boat.”

Water rights are another key consideration. “There are all kinds of nuances with water,” says Maher. Buyers not only need to understand the extent of their water rights but also get a handle on historic flows at their portion of the stream or river. Public access, which varies from state to state and often catches landowners unaware, is also a concern. “If you’re a serious angler, you want to understand access laws and what rights the public has to fish your property,” he adds.

Mineral rights can be even more complicated. Because land rights and mineral rights often don’t go hand-in-hand, it’s important to understand what lies beneath. If another owner has a claim, there is the possibility that they’ll mine or drill on your property at some future time, and you won’t earn a penny.

Another twist is the conservation easement, which protects land from development. You can sell such an easement to an organization with an environmental interest in protecting a portion of your land or donate it for a deduction equal to the difference in the appraised value of the land before and after restrictions. Whether conservation easements detract from the value of the land depends; in some areas, restricting use of the land will have a dollar-for-dollar impact. In other places, it may actually improve the value over time, says Palmer, because future buyers may pay a premium to be near land that can’t be developed.

Get your ranch hands

The acquisition and maintenance of your property may entail hiring a team of experts, from geologists and aqua biologists to irrigation and rangeland specialists. In many cases, owners will hire ranch managers or management firms to handle all the details. A well-run ranch should generate enough income to more than cover the cost of management, says U.S. Trust’s Taylor. A typical management fee is 50 basis points of market value plus 7 percent of income.

Get a lay of the land

A ranch means many different things to many different people. For some, it’s a 25-acre retreat with sweeping views, a couple of horses and easy access to civilization. For others, a ranch is a full-time operation encompassing thousands of acres and multiple sources of income, from cattle and hay production to mineral rights and hunting leases. In states such as Colorado, Idaho and Montana, working ranches typically start around 10,000 acres at a minimum of about $1,000 an acre, says Ben Pierce, a buyer’s broker with Sweetwater Ranches based in Livingston, Mont.

Other buyers are focused on trout fishing and elk hunting out the back door. Good trout-fishing property, says Pierce, can cost anywhere from $3,000 to $12,000 an acre. But if you’re willing to share, fishing and hunting leases can provide additional ranch income. “People will pay $10,000 to $15,000 a head to hunt a bull elk on a unique ranch,” says Pierce.

Most buyers fall somewhere in the middle: They’re not interested in being full-time cowboys but want a recreational ranch with enough income to cover its costs. “You can have a working ranch that’s more passive,” says John Taylor, a managing director who oversees the farm and ranch division at U.S. Trust in Dallas. “In that case you’re leasing out the grazing and hunting rights.”

Buyers who view the transaction in part as a redeployment of cash—and in some cases an opportunity for a tax-advantaged 1031 exchange—tend to pay cash, says Bill Fandel, a broker with Sotheby’s International Realty in Telluride, Colo. Low-interest financing is, however, available via agricultural credit unions and specialized lending groups.

As with any real estate purchase, location is a huge factor, not just for property values but ease of access and amenities. “People often think they want to be in the middle of nowhere and then realize they don’t,” adds Fandel. Convenience typically comes with a price tag. Property within two hours of a prime location tends to command a higher price. It also tends to hold its value.

Wrangle the details

Ranches can be profitable, but there are far easier ways to make money. “I’m a Texas guy and love ranches,” says U.S. Trust’s Taylor. Even so, when clients express interest in buying a ranch, Taylor starts the conversation by trying to talk them out of it. “I want them to understand that in a lot of years they may not make money, and it actually may cost money,” he says.

With the exception of some parts of the country—such as in Texas, where there are five large cities and generally strong demand for ranches—the market is illiquid and inefficient. “It’s a pretty slim market to begin with and to even suggest using a comparable sale is laughable,” says Hall and Hall’s Taylor.

Where ranch owners go wrong, says Sweetwater’s Pierce, is spending on areas that don’t improve the value and may even detract from it. The biggest mistake: spending too much on the main house or superfluous outbuildings and landscaping. “We call these white elephants,” Pierce says: One man’s castle might be another’s $5 million teardown.

“We always tell the clients, own the ranch for a while and start small,” says John Taylor. “If you over-improve the ranch, the only way you get the value out is if someone likes the exact same thing that you like.”

Posted in: Ranch Investing Tagged: are ranches profitable, is buying a ranch a good investment, what is annual return from ranch ownership, what is one of the biggest mistakes ranch owners make, what is typical ranch management fee, why large ranches hold their value, why there is strong demand for ranches in Texas

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