High-earning Americans are moving from heavily populated bustling cities to quiet small towns.
Source: Axios
In a post-pandemic world we're now accustomed to remote life. Many wealthy families and individuals have swapped their $8,000 per month Airbnb rentals for a permanent move to the remote countryside.
Some cite privacy and security as primary reasons for the transition.
Jerry is a 38 year old tech founder and has sold 2 startups over the last decade.
There was a point in time Jerry could never imagine himself leaving Manhattan. Yet post-COVID Jerry now finds himself on a 40-acre ranch in a sleepy countryside an hour drive outside of Albany, Georgia.
Jerry invites friends and family to see him but otherwise enjoys his time "off the grid". In fact, Jerry is leaning into his new ranch surroundings and has looked into starting a farm with crops and cattle.
But… ranch life is not without a new set of problems.
Jerry’s neighbor owns 120 neighboring acres and has just told Jerry he’s going to sell the land to a commercial real estate developer.
This developer plans to build a housing community with 200+ residential properties around Jerry’s remote sanctuary.
200 families in a teeming cul-de-sac would certainly transform Jerry's peaceful retreat. In his panic, Jerry offered to buy the 120 acres of land from his neighbor.
But that's a big financial decision careful consideration.
Would this extra land be an investment? How can Jerry extract ROI from this land? How much money can he generate per acre?
Here's TheFiguresGirl Analysis to compare the returns across the following 5 options:
Buy the 120 acres of land without doing anything to it
Buy the land and build houses for long-term residents
Buy the land and build and operate cabins / tiny Airbnb houses (most interested in pursuing this option)
Buy the land and operate a crop and livestock operation
The opportunity cost (market investment)
Terms
A land developer has made an offer of $1.8M to buy Jerry's neighbor's land
Jerry's neighbor is willing to sell the land to Jerry for $1.2M because he recognizes his neighbors are opposed to the land developer's plans
Option 1 (Buy the land and hold) assumptions:
It takes 3 years for house price changes to impact property tax values. Overall, there will likely be positive ROI to buying and sitting on this land
Land prices increased around 8% in the last 5 years on average in Georgia
Land/housing prices will be flat or grow. There have been only rare circumstances of decreasing housing prices across the US:
Option 2 (Buy the land and build houses for long-term residents) assumptions:
A study of costs to building a house in Georgia and the average cost to build various types of houses
Sale price of a 3/3 home in Georgia
A rental returns profile, assuming property management company
Most investors set aside 5-7% of rental income for capital improvements
Rental prices increased 7% in Georgia
Option 3 (Buy the land and build premium tiny homes for Airbnb) assumptions:
Premium tiny home pricing
Cost to build a tiny home in Georgia
Average Airbnb prices in Georgia
Option 4 (Buy the land and run a farm) assumptions:
Raw land risks and factors to consider
The land use of livestock is so large because it takes around 100 times as much land to produce a kilocalorie of beef or lamb versus plant-based alternatives. More notes
US farm real estate value (a measurement of the value of all land and buildings on farms, averaged $3,800 per acre
The United States cropland value averaged $5,050 per acre.
The United States pasture value averaged $1,650 per acre, an increase of $170 per acre (11.5 percent) from 2021.
The most profitable combo of farmland operations would be ~$790 per acre. Profit estimates per acre
Option 5 (Market) assumptions:
Jerry's opportunity cost of Options 1 through 4 is to deposit those funds into a market fund. We're assuming an average 7% market return overtime.
[Watch this video] for a walkthrough of the spreadsheet analysis below.
Note: Formatting in the spreadsheet follows the following standard: black = formula, blue = hardcoded, green = linked from another tab.
The TachiFigures recommendation for Jerry
We know a land developer is ready to purchase the land at $1.8M, which is >$600K more than Jerry's offer. This should be a compelling BATNA ("best alternative to a negotiated agreement") for Jerry.
While property is an illiquid asset, Jerry can have some comfort that (barring a recession or unforeseen event) he’d likely be able to sell the land for an overall positive ROI.
With the current options, the upside to Options 2-4 are >$40M over 30 years. Option 1 demonstrates the lowest ROI option to buying the land; yet, this ROI profile is still in line with simply investing Jerry's funds into the market.
Jerry has sufficient "emergency fund" savings, time, entrepreneurial experience, and a risk profile that enables him to weather an investment with a high upside and a relatively soft downside.
We recommend Jerry tries out Options 2,3, or 4 for a couple of years, with the option to sell the land for a small profit if returns do not map out as expected.
The Epilogue
We revised Option 3 into an investor-ready pitch for Jerry to raise money to build out a luxury resort on the 120 acres!
Are you facing a unique life decision that could drastically change your earnings profile? Do you know there are further options to consider beyond the one that's knocking on your door? Feel free to download the spreadsheet, edit the assumptions (blue font cells), and make any other adjustments to fit your own situation!
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