How to Buy a Ranch in Today’s Real Estate Market – Part 1

The best way to buy a ranch today could be to not buy a ranch, but buy something else instead.

Sounds backwards? 

When one buys any type of investment real estate, it’s a step towards owning a “ranch”. The tax laws allow investment property owners to trade any investment property for other investment property and defer taxes on the profit of the sold property.

Some of the best opportunties for real estate ownership today are residential real estate (not ranches), but this will change some day so be patient.

In order to be successfully traded (while defering taxes) the proceeds from the sale of property (such as residential property) must be reinvested in the target property in accordance with the IRS rules for a 1031 exchange. Therefore, any good investment property can be the start of owning a ranch or duck club.

The current economic “crisis” has created a very difficult-to-understand real estate market. However there is one aspect of today’s real estate market that you can go to the bank on.

That is, for you savers out there with money to invest, real estate is currently a phenominal investment. The rate of return on a single family home is currently the best I’ve seen in the last thirty years  – by far.

The catch is that cash is in short supply and lenders are not interested in making loans. Therefore, the only buyers out there who can take advantage of the current situation are those who have access to cash in one form or another.

If you have cash now is a good time to purchase a California home for a song – especially lower-priced homes that are traditionally owned by first-time buyers. The crop of first time buyers from a couple years ago are stuck. Many owe more than $100,000 more than their home is worth.

These people are victims of the subprime mortgage era and they are  burried. Many have moved from their homes and raised the flag of surrender.

Others have toughed it out, but must find relief in one form or another.  In the meantime home values have dropped about 40%

For those fortunate few who saved their cash and have good credit ratings, this is the time for action. The rate of return on these homes (the amount of rent that can be collected relative to the cost of a home) is extremely attractive.

For example, I’ve been showing homes for sale in our area that will produce a spendable income stream for cash buyers of 5% per annum or more.

On top of that, one has the right to depreciate the improvements on the site which means that most of the rental income can be offset by depreciation expense.

Not only that, but appreciation, is now a sleeping giant and nobody is factoring any appreciation into the sales price of homes. However, appreciation is not gone forever. Will it take two, three, five or ten years for appreciation to reappear?

It really doesn’t matter because today’s buyers are getting any potential appreciation included in their purchase for free. It’s a free bonus.

The real good news is that once the market does improve and appreciation reappears, it will be time to trade up to something you can own and really enjoy – like a hunt club.

Investors must have patience to succeed. They must save cash to get a start and they must have faith that sound actions will be rewards. For those who are still in their early years, time is on you side. Take advantage of it.

Even if you have no cash, but have an income, you are in the game. Put a portion of your income aside. Invest in stocks at today’s bargain prices. Use dollar cost averaging to purchase as much quality stock as you can and don’t speculate. Mutual funds are a good way to go. You will be rewarded.

If you’re lucky enough to have opportunities to spend money, don’t buy cars, put your money into investments that generate a return. You’ll reap the rewards of your good decision making in the future.

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All a Goose Hunter Could Ask For

Hunting partner, Tom Billingsley, and I arrived at the Web Tract ferry about 8:45 on Saturday morning Dec 1. One truck was in line ahead of us and the driver hopped out of his truck as we pulled up.

“I’ve been here since 8 O’clock,” he bellowed. “There was no 8 O’clock ferry and if it doesn’t show up at 9 I’ll give up.”

“Oh island life,” I thought to myself. “Obviously this guy’s life style is not at the right pace for island living.”

We could already see large flocks of geese rising up on Webb Tract a couple miles from where we waited. Eagerly we drove onto the ferry and then to the property. From the levy overlooking the south end of our 140 acre hunting ground we could see hundreds of geese and swans loafing in the most southern pond, a pond of only 5 to 10 acres in size.

After a brief discussion we concluded that we’d be better off if we entered the property from the North end. With a south wind, we’d disturb the property less if we approached from down wind. When we set up to hunt, the wind would reduce our impact upon the birds at the south end, and hopefully we’d have a continuous draw of birds overhead giving us opportunities to pass shoot.

As we drove into camp, we could see that the northern ponds held even more waterfowl than the southern. In fact this may have been the largest concentration of geese, swans and sand hill cranes that I’d ever witnessed at close range.

Upon our arrival the birds became nervous. Tom and I sat down in camp chairs to observe. As the flock grew ever-more excited they began to lift off. Thousands and thousands of geese rose from the ponds. As they lifted off they carried with them droplets of water which fell back to the ground. The trailing beads of water fell like strings of diamonds creating a cascade of reflections backlit by the morning sun. The sound of calling geese, cranes and swans mixed with the roar of wing beats and the reflecting waterfall made the scene spectacular. We sat and stared like privileged guests at a sacred ceremony.

Webb Tract hadn’t always been a goose Mecca. Thirty years ago, my brother, Rob and I saw an ad in the San Francisco Chronicle Sportsman’s Corner. The ad read something like this: “Delta duck and pheasant club for Sale – seeking six partners, $18K each.”

This was what we were waiting for. We called the phone number on the ad and viewed the property within a few days – could hardly wait to plop down our money, except we didn’t have enough. We told the seller that we’d pay him when sold our rental house and he said OK.

We became one of the first to purchase an interest in what was later to become the False River Farms duck club.

As farmers, we never received enough money, from our share of the crop, to pay for the debt service, taxes and reclamation district fees. One winter, the island flooded and we were strapped with additional charges for reclamation.

The hunting was fantastic, and our prayers for a hunting paradise were answered. Despite the poor financial showing, we were never unhappy with our decision to purchase.

After the island had been returned to a normal and semi productive state, we were offered a chance to sell the property and maintain a life estate – for hunting purposes. This was truly a case of having our cake and eating it too. The sale price was such that we turned a reasonable profit for our years of enjoyment. And, to this date we still have excellent hunting on the property. Except now we hunt geese more than ducks and pheasants, but we still bag a few of them too.

(Tom with four white-front geese, also know as speckle bellies)

You see the rough edges, berry bushes, small marshes and tule patches that used to provide habitat for pheasants and ducks are gone. In an effort to clear the island of such quagmires, the new owners removed most of the wildlife infrastructure. Now they plow, plant or drain everything possible. I suspect that this process also produces the highest yield crop wise. What used to be fantastic duck and pheasant habitat has been converted to perfect goose habitat. The geese prefer the open space, wheat sprouts and left over grain which liters the corn and wheat fields.

If I were asked, “What is the best real estate investment that an individual can make?” I would respond that purchase of property that can be utilized by the owners is the best investment of all. A personal residence is first and foremost. A business person should always consider owning the property that his business is located upon. After that, I would say that recreational property, used with a high degree of frequency, is probably as good of an investment as anything. If the property falls within the individual’s affordable range, and if use of the property remains enjoyable, the owner has the added advantage, from an investment point of view, that there is no need to sell.

When there is no need to sell, the owner can wait indefinitely for the right buyer to come along. Sooner or later somebody will want your property more than you do. In the mean time one can continue to enjoy the fruits of land ownership and be in control.

In the case of our Webb Tract property, the new owners did not need the hunting rights, and we were not interested in selling, so the only way to purchase our property was to offer to let us keep them. As a hunter, they are the reason for ownership, so the hunting rights are invaluable. Upon sale of the Webb Tract property we were able to purchase a second duck club where we still enjoy hunting to this day.

Today, the parcel we once owned and now hunt provides some of the finest goose hunting that exists. During the months of December and January, the 5,000 acre island attracts many thousands of geese – primarily white-fronted, snow, Ross’s and small Canadian geese like Aleutians and cackling geese.

Our weekend hunt produced lots of action. Tom and I each bagged several white-fronts with a pheasant on the side. Lola retrieved her first goose and I managed a rare triple on geese when a large flock of white-fronts passed overhead.  

All this took place in bright sunny weather with a moderate breeze and temperatures in the 40’s and 50’s. Throw in a couple rib eye steaks provided by Tom and you’ve got all a bird hunter could ask for.

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