Phoebe Venable: As Twain knew, They’re not making land anymore

Most of us have heard this oft-quoted expression attributed to Mark Twain: “Buy land, they’re not making it anymore.” And almost as many of us have probably felt the compulsion, even if we didn’t follow through with it, to heed that advice and buy a plot of earth to call our own.

Maybe it’s in Americans’ DNA to hear the call of land ownership. After all, a place to put down stakes and assemble a life of our own choosing through the merits of hard work and ingenuity has driven many of our compatriots through history: colonists, frontiersmen, homesteaders and freed slaves alike.

We may not be interested in the proverbial “40 acres and a mule” today, but we might dream of a peaceful country getaway from all the hustle and bustle. I do, which is why I live on a small hobby farm. Others are drawn by the land’s investment appeal. As Brad Kelley, fourth-largest landowner in the U.S. and a Nashville resident, once told The Wall Street Journal: “It’s a nonperishable commodity and it’s as good a place as any to put my money. It’s better than derivatives.”

If the idea of landownership — not the bricks-and-mortar real estate variety but good old-fashioned dirt and the things that grow in it — resonates with you, too, here’s some information to get you started as you think about getting some of your own.

There’s a lot of truth to Twain’s adage. Cropland, timberland and ranchland are hard assets that generally have retained their value over time and then some. Like any investment, they’re not for everyone. Land doesn’t, for instance, offer accessible reserves and it’s illiquid (not easily converted to cash). But if you have the means, can take the long view and want a historically proven hedge against just about every market condition, a case can be made for investing in land.

According to the National Council of Real Estate Fiduciaries, between 1992 and 2012 the average annual total return was 11.83 percent.

There are two reasons for land’s profitability. The first is that crops and timber grow on cropland and timberland! These are the cash-generating commodities that go onto the world’s dinner plates and into the construction of their homes.

The second is the long-term appreciation of the underlying land value. According to R. Dennis Moon, managing director of Bank of America’s U.S. Trust specialty asset management division, which creates land-investment opportunities for high-net-worth clients, the average net-cash return on farmland for his clients is about 4 percent. That’s after the cost of insurance, maintenance and his company’s management fee. When you combine that with the land’s appreciation, he says, the total annual return over 20 or 25 years is in the low double digits.

Trees are slower-growing, of course, than corn, wheat or beets and therefore timberland doesn’t offer annual cash payouts in the early years. And timber took a hit in the recent housing crisis. But Moon say that over the long term, the total return for timberland — in lumber and, again, land appreciation — is similar to cropland.

Ranchland, too, has taken a short-term hit — that of the vicissitudes of weather. The recent drought over much of the country has sent livestock feed prices soaring. Still, the long-term appreciation continues to be positive. Ranchland makes up most of Kelley’s 1.7 million acres.

For all of these land types — timberland, cropland and ranchland — there’s another revenue stream: hunting rights. From tiny Tennessee farms to enormous Texas trophy hunting ranches such as those that T. Boone Pickens develops, hunters will pay cash to follow their quarry.

To purchase some dirt to call your own, there are two options. You can invest in a real estate fund, which often requires a minimum investment, or you can purchase land outright yourself. For more information, talk to your financial adviser about what makes sense for you and your family.

Phoebe Venable, chartered financial analyst, is President & COO of CapWealth Advisors LLC. Her column appears each Saturday in The Tennessean.