Why the Ultra Wealthy are Buying Up Vacant Land

Dan: Welcome to the real estate investing podcast, where we help you unlock your potential freedom through land investing, real estate investing, and entrepreneurship. Hey everybody, welcome back to the real estate investing podcast. Today’s topic we’re discussing why the rich buy land. I’m your host, Daniel Apke, joined again by my brother and business partner, Ron Apke.

And Ron, I’ve posted some Jeff Bezos, Oprah Winfrey. And other celebrities that are buying land and it’s gotten a ton of interest. And I wanted to kind of attack this topic because everyone seems to be interested. Why are these ultra rich people buying so much land? You’re talking about hundreds of thousands of acres of land that they’re buying.

And not only that, rich people in their local communities are also doing it. That’s just kind of the big, the bigger scale of it. And today, Ron, I really wanted to go over this. And talk about some of the benefits and long term benefits and different things that these celebrities and these ultra rich people are doing.

What are they looking for when they buy land?

Ron: Yeah, I really like this topic. Like you said, it’s been something that’s. It’s been relatively hot, I think in the community, in the land investing community, because people are seeing these people buying thousands and thousands of acres. Um, and it’s not part of their business model.

Like it’s not part of their normal business. So it’s definitely, I think an intriguing conversation for sure. And, uh, like you said, or like, like a lot of people do you follow what the wealthy are doing? Like you do the things that the wealthy are doing. It usually works out pretty well.

Dan: And we’re kind of following that strap too.

We’ve. But 40 acres so far in Cincinnati, greater Cincinnati area that we’re holding for a long term hold. Obviously that’s not hundreds of thousands of acres, not even close to that. But I’m going to continue throughout my journey in my career to buy more land in that area and in other areas, and hopefully expand that portfolio significantly.

But we bought that specifically for the investments and things we’re going to talk about today. It was 40 acres. We bought it under market value. It’s appreciated. And there’s other things we’re going to talk about in that, but Ron, let’s get into it. Let’s talk about some reasons why the rich buy so much land.

Ron: Yeah, I think kind of starting off, I mean, there’s a, there’s a lot of reasons. I think one of the main things is it is an extremely safe asset. Um, where they don’t need to put any time effort work, they just let it sit there. They pay their taxes every year and it’s an extremely safe asset to hold for long term appreciation.

Um, it, it’s going to beat out inflation. It’s going to beat out all of that and it’s going to get, um, quite a bit of appreciation on top of that. And then if you do buy it in the right markets, you could get 15, 20 percent yearly, um, for short periods of times, yearly increase for sure. Um, I think it’s the safe aspect of a Dan.

You have. A couple hundred million dollars buying a couple hundred thousand dollars of land, or a couple hundred thousand acres of land seems like a really good investment. Where that’s going to turn into a, you buy a hundred million dollars worth of land. That’s going to be two, 300 million in 10, 15 years.

Dan: Exactly. And you, you touched on quite a few points there. You talked about safety, you talked about low taxes and you talked about appreciation, which all kind of fit into a multiple reasons why, but in terms of that, like when you’re talking about the ultra rich diversification in terms of the safety aspect is a really, really big part of these.

Millionaire and billionaire portfolios. They’re, they’re trying to diversify and that’s really important for them, especially when you’re talking about an asset that you cannot create more of. I mean, you can’t create more land. It’s scarce. The population is increasing right now or it’s going, it’s increasing with.

The immigrants that we’re leaving in, it’s not increasing in general, but the immigrant, the population’s increasing when you include the immigration. And I think the combination of that, they understand that. And the population’s increasing, which is going to increase the demand long term, which is also going to increase the price long term as well, because it is scarce and there’s not making more of it.

And I think that’s one of the things you were trying to hint there. Let’s go into the appreciation round. Cause I think in. The 20, I think it was the 2020 census that came out. They do every 10 years, they kind of give the reports and they do an annual one, the USDA as well on the, what they see, the appreciation of land, did it increase, did it decrease?

And by what percent they release that every year. And last year, the last two years, last several years have been really, really solid. What we saw, I think this year around, it was around 12 percent gains from last year or from 2021 to 2022, it was about a 12 percent gain.

Ron: Yeah, I mean, that’s pretty substantial, uh, for sure.

You said 12 percent 2020 to 2022 yearly

Dan: 2021 to 2022. So that’s the last one because we’re in 2023 right now. So the 2022 was the last recorded and it was, it was 12 percent up. Yeah.

Ron: And most of those you’re going to see Dan, tell me if I’m wrong or farmland. Um, correct. It’s most of it’s farmland.

Dan: Well, they break it up.

They do cropland, they do woodland, they do farmland, they, they break it into, the average was about farmlands up more than that. Farmland historically appreciates very, and it’s expensive as well. But yeah, they break it up. That’s kind of the average was around 12%.

Ron: Yeah, I think that’s like the, it’s just such a safe asset asset.

Like, I think that’s what, like I said before, I think that’s what drives the ultra wealthy to this asset class. Like you said, it’s diversification, um, it’s safety. It’s all these things combined. That it’s the low maintenance, like you don’t have to do anything to a piece of land. Um, and I think that’s why so many people, it’s becoming a lot more popular for people buying these hundreds and thousands of acres at a time.

Um, just to hold long term. We have buyers all the time who come to us and buy land from us. Not that we’re selling thousands of acres at a time. Um, but who buy a hundred, hundred fifty acres who don’t have a plan for it. They just like the area and they believe in the growth of the area.

Dan: Exactly. And that’s a smaller scale.

A lot of our. People always ask around what we, who are we selling to? And a lot, it’s mom and pops, people who just want land, whether they’re going to hunt, put their house on it. But a lot of times you just hear, yeah, eventually I want to do something with it, but right now I’m just, I’m looking to buy it and I, we can figure that out later.

It’s a good investment. And you hear that so much. And it just talks, it speaks directly to the stable industry of just buying land. I think in the steady growth throughout the years, it speaks a lot on that. And the other one, was low taxes. I really want to touch on that because there’s a lot of, uh, especially like, I don’t know what these ultra rich people are doing in terms of the CUVA and getting into the conservations and things like that.

If they’re really minimizing their taxes, I’m, I’m sure some of them are to really mitigate some tax, but land in general is very, very cheap to hold. In terms of a tax perspective, we have a 300, 000 280, 000 property in greater Cincinnati that we own. Just raw vacant land and we’re taxed like a hundred bucks a year on it.

So it’s really, really minimal. You’re talking if there’s a structure on that, that would bump up to six, seven grand a year easily.

Ron: Yeah. For sure. And there are a ton of tax incentives for owning farmland for doing different stuff. And I think that’s what a lot of the ultra rich do with a lot of their land to get, uh, really big tax incentives.

Kind of like with bonus depreciation with rental properties, like you can have an appreciating aspect that also gives you tax incentives. Um, so there are a ton of those and like Daniel was talking about, Daniel was talking about the yearly taxes, property taxes. It is absurdly low in a lot of rural America and we’re, we’re 40 minutes from Cincinnati in terms of that piece of land or so.

And it’s a hundred dollars of taxes on a 250, 000, 280, 000 piece of land. You’re holding costs are so, so minimal. Um, so yeah, I think that is extremely enticing. If you pay a hundred dollars of taxes, 400 of taxes for every million dollars piece of land of land you own, which isn’t going to be everywhere.

But if it’s like that, like there’s no holding costs essentially.

Dan: And i’m having someone on the next few weeks who buys land as a long term investment. They were doing land investing and flipping and they made a lot of their cash, but now they’re kind of pivoted to Buying and holding for long term tax benefits and also long term appreciation and they’ll be on the next few weeks So we can speak directly to that point as well some of the tax incentives that they get Uh for buying hundreds and thousands of acres, but one you touched on briefly ron was low to no maintenance And that’s the thing when you buy these land farmlands a little different, but with farmland, you lease it out a lot of times and then they maintain it.

So it’s still low to no maintenance for them. But in terms of just raw, vacant land, especially wood, woodlands, and just wooded lots and things like that, you don’t need to maintain the lot. Like it’s not like you need to send someone over there to. Dust it and vacuum and do all this. Like you need to do with houses.

It’s zero, literally it can be zero maintenance, but still seeing this great appreciation. Yeah,

Ron: Yeah, there’s it take care of itself. A house is going to rot. A house is going to do all these different things. Um, a house, you’re going to have tenants if you own a rental property, um, like the land, it’s going to grow some grass, it’s going to grow some weeds, um, but you can clear, you can do a ton of work to land with 5, 000 if land overgrows for 5, 10 years, something like that, you put 5, 000 into 30 acres, I mean, we cleared.

25 acres, Dan, pretty clear for 4, 000 and you can make it look beautiful and make it look like it’s been had 50, 000 worth of work. Uh, so yeah, the low maintenance aspect, um, I think for sure it’s enticing. Like it is just a spot, like they look at it like a bank account. I think Dan, honestly, a high interest bank account, like I’m putting behind this.

5 million piece of land. I’m going to get 12 percent return on it. Um, annually I can sell it whenever I want. And that’s, I think how they look at it. I would imagine.

Dan: Yeah. It’s like a bank account. That’s not as liquid obviously. And that’s one of the downsides to it is you have to sell it to get that cash out obviously.

But if you’re in the right area and you’re priced right and all those different things are good, you’re going to be able to sell your land, especially some of these like farmland and stuff just flies off the shelf. Everyone wants farmland. There’s such a, we talk about land being scarce. Farmland is even more scarce because only so much land can qualify as farmland just from an agricultural perspective.

But yeah, in general, that’s some of the downsides of owning land. You have to sell it and it’s not as liquid, it’s not as liquid as a bank account like you’re saying, Ron, but you are seeing much, much higher returns. It’s kind of the trade off there. And then no maintenance. It’s like buying a better stock, really, a more limited stock, I think.

But yeah, so, so far, Ron, we’ve talked about appreciation, low taxes. Low to no maintenance, which I want to hit that point again. Like you can literally buy land, get a really, really good return. We’re talking 12 percent average. If you guys choose the right markets, you choose around growing cities. You’re going to see more than that many of these years.

And like the longterm growth of that, hopefully you can beat 12%. If you’re a good investor and you’re targeting these right areas, that’s the average Ron, which is really cool because there’s obviously a lot of America’s not nearly as desirable as some of these. Metro areas that we’ve seen really take off.

You’re talking about a lot of the North Carolina markets taken off. I believe in the Cincinnati long term market, that Atlanta market, there’s all these different markets that are taking off. And if you focus it in these areas where demand is going to get higher and higher over time, and you believe in the city and you believe in the growth and everything looks good from that, that perspective, you can beat that 12 percent by a ton.

Ron: And I think you have the ability to get land at 80 percent of market value pretty much forever. Like you do not, you can sell land for a full price, but I think you can always, if you’re particular enough, maybe try to find off market deals. You can get it for 80%. So you can have initial 20 percent like we buy land, obviously for 50%, 40 percent of market value, you can get land on the MLS all day long, in my opinion, for 80 to 85 percent of market value and have 20 percent pretty much return immediately.

Dan: And that’s one of the things you guys got to be careful with. And I see people doing this that aren’t in land industry. A lot. When they’re looking for land, looking at for sale comps and land is like over well over 70, 80 percent of the comps are going to be bad. So the for sale comps, they’re not going to sell at that price.

It’s not like houses where you can kind of look and get a good gauge. It’s within 5%, 10 percent at most. Land can be literally 300 percent off and it is very, very common to be a hundred percent double priced triple price. Like it’s one thing you got to be very careful of when you are seeking to get this is you need to make sure I think buying land, if you don’t know what you’re doing with a broker involved on the buy side is very important because they will show you the comps black and white.

You have to look at sold comps. And a lot of times there’s not going to be a ton of sold comps. So you need to kind of know what you’re doing to look at it and find out that price. But. Yeah, if you come in with cash and you come in aggressive, you can get, I mean, we’re buying this for 40, 50 percent just because that’s our business model.

You can buy this for 80 percent all day long and then all of a sudden you make 20 percent equity at closing.

Ron: Absolutely. Um, yeah, no, I, I think that’s a great point and if you are like, I think longterm, Dan, like everyone should try to buy some land. I don’t think it’s what you should be initially doing if you’re in this business.

You don’t have a crazy cash reserve, but I think the long term benefit of owning land like that 40 acres and 10 years from now, it’s going to be worth a million dollars. Like I have no doubt in my mind that 40 acres where that location is, is going to be worth a million plus dollars. And that’s one 40 acre property that we bought for a hundred thousand dollars, not 12 years later.

It’s going to be worth a million. Do you, I just think long term it’s the, that 12 percent is going to keep going up because it’s a limited resource.

Dan: Yeah. And then, you know, an area like I want to buy out, I think within the next 10 years, I’ll probably own over a thousand acres in general in that area or within areas of my choice, but that’s in Northern Kentucky, if I believe, but I want to keep stacking these and then all of a sudden you take 40 acres and you just keep compiling it on and then you have a thousand acres and then what you have.

Like selling these big lots. People think it’s, it’s harder to sell these big lots, but there’s also a very unique demand for it because you’re talking about these big time investors who are going to come in and one, either subdivide it and really build it out or two, these bigger type or ultra wealthy people come in to put their money.

And so at the top, I feel like there’s such an interesting demand. It’s much, much different than those 50, a hundred thousand dollar lots that we’re selling. Start getting a million plus and you have really unique situations coming in. It’s a different type of demand run. Yeah, absolutely. So like Ron was saying, will you get rich off of just buying and holding land?

Like it’s, it’s hard and there’s different ways you can buy it. And I want to touch on that too, a little bit, Ron, uh, on ways you can buy there’s land loans, there’s. Seller financing you can get into, which is very, very, very common in land. And then there’s obviously cash as well. Let’s talk about those three real quick.

Yeah.

Ron: Yeah. So, uh, land loans and seller financing kind of similar. Like if, if you’re just planning on holding it, you’re going to have a pretty hefty interest rate and that interest rate is going to. Be closer to the appreciation than I would like personally. So if you’re getting a 9 percent interest rate, which isn’t a crazy thing for a landloan seller, financing is going to be probably closer to 10 or 11.

Um, you’re, it’s going to pretty much eliminate your appreciation. I’m not a huge fan of those aspects. Dan personally. Um, but that being said, you do own a piece of land and if your interest rate is only for, if it’s only for seven years or you plan on building on it, then that makes a lot more sense to me.

Um, but that being said, I re I really like being able to buy something for cash. So by within your means, like if you have 20, 000 down, finding a really nice five acre piece of land, 60, 90 minutes away from you that you can hold longterm, it’s going to appreciate. A couple of years down the line, if you wanted to 1099 at 1031, Dan, 1031, I keep on saying 1099, 1031, exchange it and go up to a 20 acre parcel.

Like that’s all realistic. Um, unless you have a project based thing, I’m not a huge fan of financing.

Dan: Yeah. And Ron saying, put value into it, subdivide it, uh, clear it out, make it nicer, put some sort of value into a build. Exactly. But seller financing can work very, very well if you get one good terms and a good price on it.

And that’s the thing, like you can go in and give them decent terms from the seller financing perspective. So, you know, if you can go in and get a property for 75, 80 percent of what it’s worth, it might make sense, especially if you have a bigger lot, like go in. Buy it on seller financing, 200 acres or a hundred acres or 50 acres.

Take that 50 acres that you got on seller financing, split it up a little bit, make some five acre parcels, sell it off, get your principal back, pay off the loan. And now you have 30 acres left that you really bought for free. And that’s very, very possible. You can buy a big piece of land, subdivide it off a little bit.

And then break them off, sell them and literally own the rest of it paid and free that you didn’t put any money into. That is very possible Ron.

Ron: So do you think Dan, like you can become, it’s hard to say, like you can become really wealthy from buying and holding land long term, like let’s say you have 300, 000 to your name and you spend it all on land, like you’re going to have a lot more than 300, 000 worth of land in a couple of years.

But the problem is like, you’re not going to have money. Um, so what like, or is it just a balancing act with that and other real estate? Or do you, are there strategies that you kind of think, whether you refinance out of some of them, uh, whether you split some of them and then sell some of it? Like, can you become wealthy from this?

Where you have cash and also have the asset from this strategy, long term land investing.

Dan: None of you don’t split it and sell it. You got to make a cashflow play. You got to, like, if you have a couple of million dollars and you want to put it to play, you can. 300, 000 though, just from holding, it’s going to get you longterm, but you want some cash.

Like you, you guys want to be making money off of your land unless you guys are ultra rich and don’t really care and want to just put money to work, but buy it, buy a 50 acre property. Like I said, split it up, keep 10 acres longterm, whatever it is by 200 acres, split it up, keep 50 acres of it and make a little cash while doing it.

That’s how you actually get really, really well off and rich and cashflow. Very, very well. Spying and holding. It’s a good strategy. There’s not a great strategy for actually cash flowing and cash flowing is what 98 percent of you actually want, maybe even more than that. 99 percent of you want more cashflow.

So you want to focus on that. Yeah.

Ron: And, um, for sure. I a hundred percent agree. You can become like long term, you hold a piece of land for 30, 40 years, but then you’re like, knock on my cell and you’re not going to split with it. It’s just like going to be held in your family almost. Um, but that being said, like you have to have, like, what I want to do is you have your land flipping business.

What we do and what I kind of aim for the next few years for myself is having project a couple project based things that might be a two year project, a half a million million dollar profit. That’s going to be cash flow, more long term cash flow. Then you have your also your long term holds. Then you have your short term cash flow, which is your flipping.

Um, so I think kind of balancing, that’s a balancing act of how you can have cash flow. With the long term asset building. Cause that’s the thing with land flipping, Dan. And I think a lot of people it’s same thing as house flipping, like it is an income. It’s not, you’re not building long term wealth with land flipping by buying a property today for five and selling it for fit.

It doesn’t matter what the numbers are. You’re not building long term wealth with land flipping. So it’s all about. Balancing, making that decision, I think on when to do more longer term plays, I think is really important. Like when do you do it? Do you do it when you have a hundred thousand dollars liquid or do you just put that into the next flip?

And it’s a difficult thing to balance, I think.

Dan: Well, that being said too, there are other ways to cashflow from land than just flipping. You can lease it, you can do it, you can subdivide it off and put the value into it and refinance money out. And there’s a lot of different strategies, but. If you guys have 200 acres, you guys can lease that to 20 people to get some cashflow.

At least pay your taxes and profit. It’s not going to be as lucrative as flipping it, taking 200, 000 property and making, selling it for 400 and making 200 grand, which is what we do. Might not be that cashflow positive, but there are still ways to profit from land besides just flipping. Um, you can do leases, you can do seller financing things.

There’s a ton of different, we’ve had different podcasts on that as well. So go back and listen to different ways to cashflow from land. I think it was, but yeah, I think that’s really all I have Ron. You got anything else to add? No, I don’t. As always, thank you for joining. Please do us a huge favor and like, and subscribe our YouTube channel and share this with a friend.

It really means the world to Ron and I, but more importantly, it could help change the life of someone else. Thanks for joining and we’ll see you next episode.