Frequently Asked Questions
It is not really an exemption but rather a special use valuation for a tract of land. If a landowner makes certain uses of their land such as hay production, raising livestock, managing wildlife or leasing for hunting, they may apply to have their land taxed at its agricultural productivity value rather than its market value. Qualified uses include pasture land, mixed timber, native pasture, hunting lease and wildlife management.
Minimum acreage requirements for the various uses range from 3 acres for goats and sheep to 20 acres minimum for cattle. The net effect to a landowner engaging their land in one of the qualified agricultural uses would be a substantial reduction in their property tax bill. Land in agricultural exemption can, on average, reduce annual property taxes to $2 to $3 per acre.
The best rates and lowest down payments will be found with community banks and rural land lenders local to the property. Large metropolitan banks do not lend on rural land. That is not their market for loaning money. Buying rural property requires a lender that understands land and has a history of lending for land purchases.
Rural land lenders and community banks fund land purchases in their area and surrounding counties because they know land values and the demand and trends of land in their own backyard. That comfort and level of safety for a bank translates into lower rates, lower down payments and longer loan terms.
Yes. The IRS says “a qualified residence includes the principal residence of the taxpayer AND one other residence (i.e. vacation home) that is not rented out at any time during the tax year..” (US Master Tax Guide) and defines that “a home can be a house, condominium, mobile home, boat or similar property. It must provide basic living accommodations including sleeping space, toilet and cooking facilities” (IRS Schedule 1040 A & B).
Of course, talk with your accountant for specifics regarding your situation.
If you own acreage, and are not in a rural subdivision, your continuing costs are basically your loan payment (if you financed the land) and your annual property taxes.
Typical closing costs for the buyer:
-Land appraisal- $350-$450;
-If borrowing to purchase the property- any fees associated with creating the loan such as processing fees, promissory note and deed of trust documents (in contrast to mortgage brokers, land lenders don’t tend to have points on their loans) *
-Escrow fee- approx. $200; (title co fee for transacting the deal)
-Mortgagee title policy-$100; (protects the bank and their interest)
-Recording fees- approx. $60-90; (file documents with the county),
and a portion of the property taxes pro rated to the date of closing.
As an example: on a recent $230,000 land transaction in which the buyer financed the land purchase, total closing costs for the buyer were $791.
Aside from the down payment on a purchase loan, buyer closing costs remain basically the same regardless of property purchase price. The two highest expenses on a land closing are the (main) title policy and the survey. These two expenses are frequently paid by the seller, but are completely negotiable between buyer and seller.
One thing about real estate – every aspect of price, closing expenses, etc, is negotiable. There are no concrete rules as to what expenses each party pays for.
* In these examples, any down payment, if financing, is not considered a closing cost.
Land transactions require no home inspection, no insurance binders, no termite inspections, no HOA dues. Land closings take about 30 minutes: 15 minutes to sign, and 15 minutes to chat about the weather while the closer makes copies of what you just signed. Simple.
Bank of America, Chase, Wells Fargo, Citibank and big metro banks lend on urban homes, cars, boats and commercial property because that is their market and their comfort zone (banks have comfort zones). These large banks do not lend on rural land primarily because it is out of their territory (geographically and in the type of loans they make) – but then that’s why you want rural land in the first place – to get out of town. Rural land lenders and community banks have never stopped lending on land, because that is their territory and their comfort zone. These banks understand land values and have continued to aggressively lend for land purchases due to the safety of rural land as collateral for their loan.
For property located outside city limits, water and electric service is provided by utility districts or co-ops. Water wells are possible in some areas – but owning ground does not guarantee the ability to have a well. Sewer on rural property is handled by septic system –either lateral line systems or the newer aerobic systems. Propane gas, with a buried or above ground tank, can handle any gas needs for appliances, grills, or Heat-A/C systems. Private water filtration systems are becoming more prevalent for landowners with a lake or larger pond if access to potable water is unavailable or would be cost prohibitive to install.
Having a water meter and electric line in place has a big impact on the market value of a piece of land.
While I can’t tell you if you should invest in land, I can tell you why I do:
Land as an investment has additional aspects to it that you cannot get with stocks, CDs or mutual funds: 1) you can enjoy the land, 2) you can re-model your investment to create greater value – basically, with land you have OPTIONS that are not available in other investments.
While owning stocks and mutual funds is very enjoyable when increasing in value (or at least holding your money together) my kids have never said “Hey Dad, can we play with your Dell Computer stock certificates?” They have asked to go fishing, build a campfire for smores, shoot BB guns or camp out on that investment. Our friends want to go canoeing, watch deer, cook out or hunt dove on that investment.
If you are not happy with your returns on a stock or mutual fund, you also have two options: 1) get over it, 2) sell it. Owning land, you can build a weekend or retirement home or cabin, improve it, divide it and sell part, hunt on it, lease it or farm it – you can remodel your investment. Our government has been spending a lot of money recently; commodities, gold and land have always been the assets to own in inflationary periods.
The cliché is true- land is a finite commodity. You can’t make more of it and land can’t be overbuilt like the housing market. It is simply supply and demand. Texas is expected to add 13,000,000 new residents in the next 20 years. For the last 3 years, Texas has created more new jobs than the other 49 states combined. Those jobs – primarily due to Texas’ business friendly environment and right-to-work attitude, along with some of the most affordable housing in the country, no state income tax, and a diverse landscape, are driving that growth. As the boundaries of Dallas and other Texas metro areas creep into present rural areas, the ‘country’ moves closer, which means an increase in the demand for, and the value of, surrounding rural land for folks looking to have a weekend place to get out of town, build a new permanent home or just do as they please on their own piece of ground.