It is not secret that real estate in Michigan is very disparate. Some cities and towns still hold their middle-class value while the Motor City, Detroit, along with Flint are both near rock bottom. While improvements have occurred in recent years, it is still a little risky investing in Detroit or Flint. Even with home prices as low as the hundreds, it is hard to put a fair value on what could be a prolonged recovery.
However, a bright spot for Michigan land sales and appreciation has been in the its farmland. It has seen increased the past few years and will most likely see at least a few more years of growth. The overall growth rate has slowed, but there are still reasons why land in Michigan will only appreciate.
High Farm Income
The first reason why we should still see appreciation in Michigan land is due to climbing farmland value. The cause of this increase is due to high farm income. By looking at the rent-to-value ratio, you can figure out the overall land return. The upswing of locally focused crops has also helped to increase the income of farms. Consumers are more aware of local agricultural resources, thereby making distribution much shorter than trying to ship across country to reach a major buyer. Direct to consumer crops through distribution channels such as farmer’s markets have made getting crops to consumers so much easier. Generally, this also increases the profit margin because of the lack of middle man needed to distribute product.
Diversity of Land Uses
Another reason why land will only appreciate is due to the diversity of its uses. The primary use of land for profit is farmland. Even within this subset of uses, there is a variety of agricultural uses for farmland. It can play host to a plethora of commodity crops such as grain, corn, and soybean, as well as producing some of the region’s most popular produce like apples. In addition to the farming aspect, the land in Michigan is used for livestock. The livestock land is used for both dairy cows and livestock for meat.
The value of the land is greatly affected by the pricing of these agricultural related uses. While land value has a close correlation to those prices, the diversity does help to offset some of the risk. For example, in 2014, some commodity crops such as corn and soybean saw lower price than in previous years. However, milk and livestock prices were actually very strong.
The land in Michigan also has uses beyond agriculture into the recreational arena.Hunting land is a highly sought after type of land and requires a trained eye to find the best offerings. Hunters looking for a private plot of land have a lot of options in Michigan along with a variety of different game to hunt.
Low Interest Rates and Leasing Potential
Another reason that land in Michigan will continue to appreciate is due to the low interest rates and the availability of leasing.
One of the major factors that affects overall farmland value, other than the prices of the agricultural product, is the interest rates. Short-term interest rates are pretty low due to the Federal Funds Rate held by the Federal Reserve. Overall interest rates for farmland continue to decrease to record lows. While this does raise some eyebrows and skepticism, it is unlikely that you will see a landowner complaining. Once interest rates do eventually begin to rise, and they will, this will begin to affect farmland.
Leasing is and has been a popular tool for controlling farmland. Leasing arrangements accounted for 72 percent of crop acres last year which is a huge increased from the 48 percent ten years ago. Cash rents throughout the entire state of Michigan have increased at incredible rates over the past few years. This means that even if you have no intention of tilling the land yourself, you still can have a means by which to earn money from owning farmland. Leasing to a farmer provides passive income all while the actual land value appreciates.
If you intend to purchase land in Michigan, the better bet is on farmland throughout the state rather than real estate in the crumbling cities. A stroke of luck and some major financial turnarounds could make the city real estate a higher percentage payout, but farmland is a much safer and still highly profitable investment.