The majority of rural land is owned free and clear, and property taxes are generally low due to ag exemptions. As a result, most landowners don’t feel the financial pressure from monthly PITI payments to sell during a period of weak demand.
Landowners aren’t usually forced to move and sell when a major life event takes place during a down market, as is often seen with single-family housing.
Land values don’t tend to inflate and then deflate due to the addition and subsequent removal of easy financing as we saw with housing leading up to and during the Great Recession.
If land values do go down, our profits could get squeezed to some extent, but the fund and its investors should not. In a typical scenario, we’ll buy a property for $1M, put $250K in improvements into it and sell for $2.5M in total. That’s a $1.25M gross profit. If land values were to fall by an unprecedented 20% over 6-12 months, those numbers might be as follows: $1M purchase, $250K in improvements, and a $2M sales price. The result would be a $750K gross profit, which is still well in the black.