The Mobridge Reminder, Jan 13, 2020
The below article was published in the January 13, 2020 edition of the Mobridge Reminder's Bull & Ag insert, found on page 3 of the link below.
https://www.mobridgetribune.com/pageview/viewer/2020-01-12#page=2
I’m not sure why this song from The Clash released in the early 80s popped into my head as I sat down to write about land. I suppose the lyrics about the struggle of whether or not to stick with something could relate to the decision a person may go through when determining if they should sell their land or continue to hold on to it for a bit longer. Should I wait or should I sell now? How do I decide?
The right decision is different for each person and each situation. There are several areas to consider:
- Your reason for selling. Do you have an immediate need for cash? Is there another opportunity where you feel that money could be put to better use for you or your family? Do you own the land with family members that don’t get along? Are there multiple owners of the land getting on in age with heirs that don’t often communicate or know each other well? These can all be reasons to sell. It’s not unusual for land to be held by four siblings, who when they pass on the land would go to 12-16 heirs, many of which may not have ever been to the land. Have you ever tried getting a decision from 16 people? The more decision-makers involved, the more difficult it is to get consensus and the greater risk of creating family strife.
- Your window of time. Land is a desirable investment and I believe there will always be buyers willing to pay a good price. The challenge, as a seller, is how to obtain the best price vs. just a good price. Obtaining the best price is a factor of both timing and marketing. Land values peaked in the early 80s, bottomed out about 1986, and have been on a pretty steady incline ever since. We saw a slight dip around 2009 for a year or two, and again in 2015-2016. Current land values are slightly off the peak in 2013 & 2014, but still well above anything we saw 10 years ago. As a time reference, from the peak in 1980, it took 25 years for land values to recover to those same values seen before the crash. (See USDA NASS chart on Average U.S. Farm Real Estate Value.) Land values in the Dakotas the last couple years have been steady, despite all the forces that seem to be working against the Ag sector. Will that trend continue? Or will we start to see a downward trend in land values? I don’t know the answer to these questions, but the question I would pose to someone considering selling their land is this: How much time do you have to wait and see? If land values should decline and it takes 5, 10, 25 years to recover to the current values, do you have that much time to work with? If you do, then you might hold on to your property. If not, then the decision can become more urgent.
- Tax implications. If you have owned the land for multiple decades, then it has appreciated in value considerably. When you go to sell, there are likely to be capital gains tax consequences which could be significant, depending on how many acres and the level of appreciation in value. The good thing is that there are options to help mitigate or manage these types of taxes, but you will want to be communicating with your tax advisor during your decision-making process in order to maximize the results. I know of folks who have sold some land, kept half of the funds for personal use and invested the other half in a REIT (Real Estate Investment Trust). They are now earning more in dividends on half of the funds in the REIT than they were getting in cash rent on the whole of the land.
"Should I Stay or Should I Go Now? If I go, there will be trouble. And if I stay it will be double. "
Thankfully, when it comes to the decision on what to do with your land, there isn’t guaranteed trouble with either way. In fact, either decision can be a good one. What may be the best decision for you may not be the best decision for the next person. Every situation is different. The challenge is to determine which is the better decision based on your goals and stage in life. Only you can make that call. A professional Ag real estate broker can help you understand the options and possible trade-offs to help bring clarity to your decision.
Kristen Gill, Gill Land Company
