Inflation has been impacting individuals, companies and governments in various ways, often negative, but sometimes positive… especially for Uncle Sam. Below are some of the ways it’s impacting the business and/or fund that you invest in:
Negative: Inflation has increased our costs. We’re spending more on people and equipment. We’re also spending more on land improvements. Before the pandemic, most wells ran about $6K each, and now they’re typically $10-$11K each. Fencing was about $6K per ranchette, and now it’s about $9.5K.
Positive: Real estate values tend to rise with inflation. That includes rural land. This means that we now must pay more for land when we buy. It also means that we sell for more. Every deal is very different, but we used to buy a typical property for about $4K per acre and sell it for about $12K per acre. On more recent deals, we are paying about $10K per acre and selling for about $28K per acre. We have gone back and forth on whether this change has been good or bad. We currently believe it has been a net positive because we can squeeze more profits out of each deal for the same amount of time and effort.
Negative: In the short run, inflation tends to squeeze the disposable income of our prospective buyers and current borrowers. This can reduce the demand for rural land or make it more difficult for a borrower to make his or her mortgage payment. The cost of fuel is one particular pain point. The notes we collect on continue to perform well, so that’s reassuring. In addition, sales remain very strong. Still, we are prepared to overcome weakened demand if needed by ramping up our marketing efforts.