Tips & Insights

Finding Funds (Banking & Lending)

Found the perfect piece of property? Looking for the right lender? Odds are your best bet will be one who specializes in rural recreational property.

One of Joy Upchurch’s favorite anecdotes about the banking business concerns how not to go about getting a loan. And it hits close to home. Upchurch is Vice President for Marketing and Bank Services at AgFirst Farm Credit Bank in Columbia, South Carolina, the leading agricultural lender in the eastern U.S. and a part of the Farm Credit System created by Congress in 1916 (www.agfirst.com). As the story goes, one of Farm Credit’s loan officers wanted to build a home on some rural property he owned.

“He got bids from Farm Credit and a couple of other lenders,” Upchurch recalls. “He chose another lender because its interest rate was slightly lower than Farm Credit’s. He later regretted his decision. The loan closing was delayed for weeks because the other lender wasn’t experienced in financing rural properties. When he arrived at the loan closing, he found that he had to pay much more in fees than he’d expected. The result was that his APR was higher than Farm Credit’s original quote.”

The moral of the story?

Says Upchurch, “Now he keeps his own loan closing statement in his desk drawer and shows it to applicants who are considering using other lenders to finance their homes in the country.”

Like any specialized asset, rural land is best served by a special lender, one who understands the particular requirements and challenges associated with buying rural land and improving it. Finding the right organization can be as much of a hunt as getting your hands on the right piece of property. In fact many who invest in the great outdoors come to realize that developing a relationship with a lender can evolve far beyond a single transaction; it can cover an entire series of investments.

This trend is readily apparent to Joe Hayman, chief operating officer of Texas AgFinance, a customer-owned credit cooperative that has been providing credit and financial services to farmers, ranchers, agribusiness owners, and rural residents since 1933 (www.texasagfinance.com).

Hayman sees more and more buyers acquiring land, building improvements on their property, and then selling their holdings in order to trade up to a larger and more expensive parcel. He points out that savvy investors frequently make use of 1031 exchanges, a provision in the tax code that allows capital gains to be deferred.

Texas AgFinance specializes in making loans to small investors who buy 5- to 10-acre properties and then add improvements such as homes or barns. However, Texas AgFinance doesn’t make loans solely for small parcels, and its territory isn’t limited to its home base in Central and South Texas.

“We lend money for hunting lodges and ranches in Wyoming, Utah, and all over the country,” Hayman says. “Timber tracts, agribusiness, and any company that can be tied into any agri interests can be financed by Texas AgFinance.”

AgFirst Farm Credit has financed land for a variety of uses: an alligator farm as well as farms for raising llamas, emus, ostriches, and other unusual animals. “I believe we even financed an earthworm farm. However, that loan didn’t work out very well because the collateral crawled away,” says Upchurch.

Country Mortgages is an AgFirst Farm Credit program (www.countrymortgages.com) that specializes in country home and land loans. Not surprisingly, it prides itself on offering more competitive rates on rural property than lenders whose focus is suburban or urban residential markets. Better service, too.

Texas AgFinance concentrates exclusively on loans for lands and homes outside city limits or in communities with less than 2,500 residents. COO Hayman has been following an interesting new among buyers.

“We’re seeing many people who want to buy acreage in the country but don’t necessarily want to build a home on that land. They prefer the amenities they find in town. But they do want to have a shed for their four-wheeler, their hunting blinds, and their ATV. They also want a comfortable place to stay for the weekend that they can bring their wife, their children, and their grandchildren to that’s at least a step up from a trailer. We believe that the demand for recreational properties will continually increase over the next couple of years and that this kind of property only will grow in value,” Hayman says.

Jim Thurston at Developer Finance looks at the present market from the point of view of his clients, developers. And he likes what he sees.

“There are many factors behind the strong real estate market today, but the one factor that continues to be a driving force behind owning a piece of land is the attraction of just getting away from the daily grind,” says Thurston. “It seems that everyone wants to own land somewhere, whether it’s on the water, near a golf course or in the mountains. More and more people are looking to purchase land to build a second home in the near future or to retire to someday. Buying land can be an investment in quality of life. Our end consumers are buying land from land developers that we finance. We see the high demand in land to continue into the foreseeable future.

Developer Finance Corporation works with land developers nationwide (www.developerfinance.net). “DFC purchases and lends against consumer land loans. We also provide acquisition and development loans to land developers. DFC’s programs are designed to provide developers with liquidity and improved cash flow that will allow them to strengthen and grow their business. We have the expertise and flexibility to structure customized programs that fit a developer’s specific needs and the needs of their customers,” says Thurston.

Not surprisingly, Thurston sees California as another continuing driving force behind today’s strong market for rural land.

“We’re seeing a lot of growth in Texas, Arizona, and New Mexico,” Thurston says. “Much of the demand for these properties is coming from California residents because real estate is so expensive in California. You can purchase more land with less money and have a nicer house in these Southwestern states than you can in California. However, we’re seeing an overall growth nationwide in recreational properties.”