How to Make Land Pay for Itself
Land is a valuable asset that can generate income for its owner in various ways. Much of the information you will find when searching for information on “how to make land pay for itself” is geared towards your active involvement in a business that uses the land in its operation. If you are looking for a creative guide on how to make money with land using your own labor, take a look at my article, How to Make Money With Land. In this article, we are going to dive into how to make passive income from land.
What is Passive Income?
Passive income is income that is earned without active involvement or effort from the recipient. In other words, passive income is money that is earned from an investment or business that does not require regular time or effort to maintain. Passive income can come from a variety of sources, including rental properties, dividend-paying stocks, interest on savings accounts, and royalties from books or music.
It can also come from land ownership. The key characteristic of passive income is that it continues to generate revenue even if the recipient is not actively working. This makes passive income a popular goal for people looking to achieve financial freedom and reduce their dependence on traditional employment.
How to Make Land Pay for Itself
Option 1: Lease it to Hunters
Making land pay for itself through hunting leases is a popular option for landowners who have tracts of land in areas with abundant wildlife. I spoke with Connor Hermesch at Base Camp Leasing, a full-service hunting lease management company, and he had this to say about the steps to get started when leasing your land for hunting:
- “Determine if your land is suitable for hunting: If your land is located in an area with a healthy population of game animals, such as deer, turkey, or waterfowl, it should be suitable for hunting.
- Establish your lease terms: You’ll need to decide how you want to structure your hunting lease. This can include setting the price, determining the length of the lease, and outlining any restrictions or requirements for the hunters. Make sure your hunting lease agreement has a release of liability clause.
- Advertise your hunting lease: You can and should advertise your hunting lease through various channels, including social media, hunting forums, and word of mouth. To get the best lessees and the best price, you should be prepared to advertise your property to multiple states and to a wide audience.
- Screen potential lessees: It’s important to screen potential lessees to ensure they’re responsible and safe hunters who will respect your property.
- Collect payment and sign the lease agreement: Once you’ve found a suitable lessee, you’ll need to collect payment and sign a lease agreement that outlines the terms and conditions of the lease.
- Make sure you are protected in case of liability: Work with your lessees to insure that a liability insurance policy is purchased that protects you.”
Option 2: Lease it to Farmers
Farmland Leases are another way to make land pay for itself. Farm rents alone will not make the land pay for itself but coupled with additional streams of income, you can be well on your way. Companies like Acretrader have capitalized on this and even offer investment-grade farmland for sale in shares as small as 1/10th of an acre. Like hunting leases, it is important that you do your homework and create a rock-solid lease agreement, protect yourself from liability, and screen your lessees so that you end up with a tenant farmer who will treat your property, and your soils, as if they were theirs.
Option 3: Lease it to Grazers
If farmland and grazing land leases were enough to make the land pay for itself, farmers and grazers wouldn’t lease, they’d buy. That being said, grazing income, much like farming income, is an attractive option for landowners who own acreage that isn’t suitable for tillage or timber production. Leasing land for grazing can offer several benefits for landowners, including:
- Reducing property maintenance costs: Grazing can help maintain the land by keeping the grass and weeds under control, which can reduce the need for mowing and other maintenance.
- Improving soil quality: Grazing can help improve soil quality by adding organic matter through animal waste and trampled vegetation.
- Building relationships with local farmers and ranchers: Leasing land for grazing can help build relationships with local farmers and ranchers, which can be valuable for networking and potential business opportunities.
- Supporting local food systems: Grazing can support local food systems by providing a source of locally raised meat and dairy products.
Overall, leasing land for grazing can offer several benefits for landowners, while also supporting local agriculture and conservation efforts. However, it’s important to have a clear lease agreement that outlines the terms and conditions of the lease, including grazing rates, duration of the lease, and any restrictions or requirements for the lessee.
Option 4: Lease it to Pine Straw Companies
I recently recorded a podcast with Dr. Becky Barlow of Auburn University and I was floored at the income potential from pine straw. In the right areas with the right species of trees, landowners are generating as much as $150 per acre in pine straw, per year! This rivals the income potential of farmland and timberland in some areas. Additionally, this is being done on working cattle farms or in conjunction with timberland production, or both! There are some factors to consider, however, such as choosing the right tree species, site preparation and maintenance, etc. Have a listen to the podcast for a deep dive!
Option 5: Lease it to Fisherman
Fishermen need access to fertile waters, just like hunters are looking for game-rich lands. Landowners with lakes and rivers have the ability to offer fishing leases in the form of fishing clubs, day passes, and exclusive lease agreements. The amount of income that can be generated from leasing fishing rights will depend on several factors, including the location of the water body, the species of fish present, and the demand for fishing access in the area. In some cases, leasing fishing rights can be a lucrative source of income for landowners, especially if the water body is known for its high-quality fishing or is located in an area with a high demand for recreational fishing.
According to a report by the National Marine Fisheries Service, the average value of recreational fishing trips in the United States in 2018 was $113 per day, which includes expenditures on fishing-related equipment, transportation, and lodging. If a landowner were to lease fishing rights for a lake or river for, say, 50 man-days during the fishing season, and charge $50 per day, they could generate $2,500 in income for that season. If you are managing a private lake or pond, fee-based fishing can help deal with too many small bass in your pond by providing a means to take out predator fish who have overcrowded the body of water.
Option 6: Lease it to Solar Power Companies
If you’re considering leasing your land for solar power generation your land must be located in an area with adequate solar resources, which means it must have enough sunlight throughout the day and year to generate electricity. You’ll need to conduct a solar site analysis to determine the feasibility of a solar power project on your land. You’ll also need to negotiate a lease rate with the solar developer, which can vary depending on the location and solar resource of your land, the size of the project, and other factors.
It’s important to understand the current market rates and ensure that the lease rate is fair and competitive. You’ll need to determine the length of the lease term and any renewal options. Solar power projects typically have a lifespan of 20-30 years, so you’ll need to decide if you want to lease your land for the entire lifespan of the project or for a shorter period.
Solar power projects can have environmental impacts, such as land-use change, habitat fragmentation, and impacts on wildlife. You’ll need to consider these impacts and ensure that the project complies with all environmental regulations. The solar developer will need access to your land for the construction and maintenance of the project. You’ll need to ensure that there is adequate access to the site and that the necessary infrastructure, such as roads and transmission lines, is in place. Leasing your land for solar power generation can have tax implications, including property tax assessments and income tax on lease payments.
You’ll need to consult with a tax professional to understand the potential tax implications. Leasing your land for solar power generation can be a viable option for generating income, but it’s important to carefully consider these and other factors before entering into a lease agreement. It’s also advisable to consult with a lawyer and other relevant experts to ensure that your interests are protected.
Option 7: Lease it to Communications Businesses (Cell Towers and Billboards)
Leasing your land for cell towers or billboard companies can be a lucrative source of income, but it’s important to carefully consider many factors before entering into a lease agreement. It’s also advisable to consult with a lawyer and other relevant experts to ensure that your interests are protected. You’ll need to negotiate a lease rate with the company, which can vary depending on the location, size, and height of the tower or billboard, as well as the demand for infrastructure in the area. It’s important to understand the current market rates and ensure that the lease rate is fair and competitive. You’ll need to determine the length of the lease term and any renewal options.
Cell tower leases typically have a lifespan of 20-30 years, so you’ll need to decide if you want to lease your land for the entire lifespan of the tower or for a shorter period. Both cell tower and billboard infrastructure can have environmental impacts, such as visual impacts, and the company will need access to your land for construction and maintenance. You’ll need to ensure that there is adequate access to the site that you are comfortable with allowing the company to ingress and egress. You’ll need to consider liability and insurance issues associated with the structures, such as potential damage to your property or injuries to third parties. You may need to obtain additional insurance coverage or require the company to provide additional liability protection.
Option 8: Rent it to Glampers
Glamping (glamorous camping), can be another way to generate passive income from your land. Just because you offer it doesn’t mean there is demand, however, so you’ll need to assess the market demand for glamping in the area, including the number of visitors and the types of accommodations they are seeking. You’ll need to ensure that the necessary infrastructure is in place, such as water, electricity, and waste disposal systems. You may also need to provide additional amenities, such as showers, toilets, and cooking facilities. You’ll need to comply with all local and state regulations related to land use, building codes, and safety standards. This may include obtaining permits for structures and adhering to zoning and environmental regulations.
You’ll need to consider liability and insurance issues associated with glamping, such as potential injuries to guests or damage to property. You may need to obtain additional insurance coverage or require guests to sign liability waivers. You’ll need to develop a marketing and advertising strategy to attract guests to your glamping site. This may include creating a website, social media presence, and other marketing materials. Companies like Tentrr and Harvest Hosts offer marketing, advertising, booking, and even construction management for landowners looking to generate passive income from recreational visitors.
Option 9: Rent it to Photographers
The amount of money you can make leasing your land for photography will depend on several factors, including the location and natural beauty of your land, the demand for photography in the area, the number of photographers interested in leasing your land, and the terms of the lease agreement. Photographers may be willing to pay several hundred dollars per day to use a scenic and photogenic location for photography. The rates can vary depending on the location, the length of the lease, and any additional amenities or services provided.
In some cases, photographers may be interested in a long-term lease agreement, which can provide a stable source of income for the landowner. However, the amount of income that can be generated from leasing your land for photography will vary depending on the factors mentioned above, and it may be necessary to conduct market research and assess the potential demand before determining the lease rates. It’s important to note that the income generated from leasing your land for photography may not be as high as other types of leases, such as cell towers or solar power generation, but it can still be a viable option for landowners who have scenic and photogenic land. It is very common to see photographers shelling out big bucks to be able to photograph your sunflower field or your scenic vista.
Option 10: Let the Trees Grow
Timberland can be a stable and profitable investment over the long term, but like any investment, there are risks and uncertainties to consider. The demand for wood products can fluctuate, but it is generally steady and predictable. The good news is that you generally have a 3-5 year window on when you harvest timber, thus allowing you some time to “time” the market. Timberland can be a hedge against inflation, as the value of timber can increase over time as the cost of living goes up.
Timberland can be a good diversification strategy for investors who are looking to balance their portfolios with assets that are not closely correlated with other investments, such as stocks and bonds. Timberland investments can offer tax benefits, such as deductions for property taxes, management expenses, and depreciation. There are also risks associated with timberland investments, such as natural disasters like wildfires and pests, as well as economic and market risks. The value of timberland can also fluctuate depending on factors such as supply and demand, interest rates, and changes in government regulations.
Overall, timberland can be a stable and profitable investment to make land pay for itself over the long term if managed carefully and with a clear understanding of the risks and uncertainties involved. It’s important to conduct thorough research, work with experienced professionals, and consider all factors before making an investment in timberland.
Option 11: Subdivide It
As a general rule, as land acreages increase, the price per acre decreases. This is a simple supply/demand equation, there is more money competing for land that is offered at a lower price point. In addition to this, buyers of smaller acreages are typically purchasing with a residential or recreational mindset first, and an investment mindset second, so they are not scrutinizing the property as an investment. Consider subdividing your property as a means to help you make your land pay for itself, let’s look at a simplified example.
Jim purchases 300 acres of timberland at $2,500 per acre. 40 acres of Jim’s land sits on a paved county road in a good school district and is ripe for development into 5-acre mini-farms. Jim sells these 40 acres for 10,000 per acre to a developer. Jim now owns 260 Acres of land that is worth $2,500 per acre, but he only has around $1,200 per acre invested. As you can see, given you have the capital and find the right property, buying a large tract and breaking it into smaller tracts can be a great way to make your land pay for itself.
Option 13: Receive Subsidies for It
There are several ways to make land pay for itself with subsidies, depending on the specific subsidies that are available in your area and the type of land you own. Some government programs offer subsidies to landowners who implement conservation practices on their land, such as planting cover crops, installing riparian buffers, or using controlled burns to create better wildlife habitat and timber value. These subsidies can help offset the costs of implementing these practices and can also improve the health and productivity of the land.
Many governments offer subsidies and tax incentives to landowners who install renewable energy systems, such as solar panels or wind turbines, on their land. These subsidies can help offset the costs of installation and maintenance and can also provide a source of passive income by selling excess energy back to the grid. Some governments offer subsidies to farmers and ranchers who produce certain crops or livestock, such as corn or beef.
It’s important to research the specific subsidies that are available in your area and to work with experts who can help you navigate the application and implementation process. It’s also important to carefully consider the long-term benefits and costs associated with each subsidy option to ensure that they align with your goals and values as a landowner and can truly help you make land pay for itself.
Option 14: Avoid Taxes With It
Albert Einstein is famously quoted as saying, “Compound interest is the eighth wonder of the world. He who understands it earns it … he who doesn’t … pays it.” This quote highlights the power of compounding, which is the ability of an asset to generate earnings, which are then reinvested to generate even more earnings over time. Einstein recognized that compounding is not just a financial principle, but a fundamental concept of the universe. Compounding allows small gains to accumulate and grow over time, leading to significant returns in the long run. This is also true for tax avoidance and in the case of land ownership, the 1031 exchange.
A 1031 exchange, also known as a like-kind exchange, is a tax-deferred transaction that allows a real estate investor to sell a property and reinvest the proceeds into another property of equal or greater value without paying capital gains taxes on the sale. The investor sells their existing investment property, and the proceeds are held in a special account by a qualified intermediary. The investor identifies a replacement property within 45 days of the sale and completes the purchase of the replacement property within 180 days.
The proceeds from the sale of the original property are then used to purchase the replacement property, and any capital gains taxes that would have been owed on the sale are deferred. By using a 1031 exchange to purchase land, investors can defer paying capital gains taxes on the sale of their investment property, allowing them to reinvest the full amount of the proceeds into a new property. This can provide significant tax savings and can also allow investors to grow their real estate portfolio more quickly.
It’s important to note that there are specific rules and requirements that must be followed in order to qualify for a 1031 exchange, and investors should work with a qualified intermediary and tax professional to ensure compliance with all regulations. For more information, check out this recent podcast where we covered this topic in detail.
Option 14: Buy it…Right
I recently helped a client purchase 200 acres of timberland in Alabama. The land was listed for $2,500 per acre and at the time, this was higher than most properties of similar quality sold for in the area. We purchased that property at the full asking price, just 3 days after it hit the market. Why? Well, after a timber cruise was finished on the property, it was determined that there was approximately $1,800-$2,000 per acre in standing timber.
This means that the landowner could cut all of the timber from the property and have a basis of approximately $500-$700 per acre. At the time of purchase, cutover tracts in the area that have not been replanted were selling for $1,300 to $1,500 per acre. What does that mean? If the landowner wanted to, they could cut all of the timber from the tract and sell it for a $600-$1,000 per acre profit. Thankfully, they are choosing to responsibly and sustainably manage the timber for both income and wildlife habitat and this property will pay for itself over time with responsible silviculture practices.
Option 15: Rent it to Beekeepers
The amount of money you can generate from leasing land for an apiary will depend on several factors, including the size and location of the land, the demand for honey and beeswax in the area, and the terms of the lease agreement. Beekeepers may be willing to pay several hundred dollars per year to rent a location for their hives, and rental agreements can range from short-term to long-term, depending on the needs of the beekeeper.
The exact amount of income that can be generated will vary depending on factors such as market demand, competition in the area, and the quality of the land. In addition to the rental income, there may be other benefits to leasing your land for an apiary, such as improved pollination for crops, increased biodiversity, and the production of honey and beeswax that can be sold for additional income.
Option 16: Lease it to Extraction Companies
Land that has accessible and significant deposits of sand, clay, gravel, and hydrocarbons can provide significant lease income to the landowner. The amount of money that can be made from leasing land to oil an oil company, for example, will depend on several factors, including the size and location of the land, the quality and quantity of oil reserves on the property, and the terms of the lease agreement. Oil companies typically pay landowners a signing bonus when they first lease the land, which can range from a few thousand to several hundred thousand dollars, depending on the size and quality of the land.
In addition, the landowner typically receives a royalty payment based on the amount of oil produced from the well, which can range from 10% to 25% of the total value of the oil produced. The actual amount of income that can be generated from leasing land to these types of extraction companies can vary significantly, and it’s important to consider the potential risks and costs associated with resource extraction, such as environmental damage, legal liability, and the potential impact on neighboring properties.
Overall, leasing land to companies that extract these types of mineral resources can be a lucrative source of income, but it’s important to carefully consider the risks and potential rewards before entering into a lease agreement. It’s advisable to work with a qualified attorney and other relevant experts to ensure that your interests are protected.
Option 17: Conserve it
Conservation easements can make land pay for itself in several ways. By placing a conservation easement on their land, landowners may be able to receive significant tax benefits, including income tax deductions and estate tax reductions. These tax benefits can provide immediate financial benefits to the landowner. In some cases, placing a conservation easement on the land can increase its value, as it may make the land more attractive to conservation-minded buyers. This can allow landowners to sell their land for a higher price than they would otherwise receive.
Landowners who donate a conservation easement to a qualified organization may be able to receive a charitable tax deduction, which can provide significant financial benefits. Some government programs and private organizations offer financial incentives for landowners who place conservation easements on their land. These incentives can include grants, subsidies, and other forms of financial assistance. Overall, conservation easements can provide significant financial benefits to landowners while also protecting the natural and cultural resources of the land.
Option 18: Lease it Carbon Offset Buyers
On a recent episode of the Huntin’ Land Podcast, we sat down with NCX for a primer on Carbon credits. What we learned is that there is a growing market of companies who are interested in paying landowners significant per acre annual payments for them to engage in practices that sequester more carbon from the atmosphere, thereby mitigating the carbon that their business practices are releasing. Contracts last only one year, there are no fees to start, and there are no acreage minimums to enroll.
Can Land Pay For Itself?
In my opinion, land ownership is the most fulfilling asset class to invest in. In addition to the income opportunities, the memories you make on your own dirt pay dividends that you can’t measure in a bank account. If you are trying to determine how to make land pay for itself, look for properties that will allow you a combination of income streams I’ve listed previously and you will be well on your way. As with any investment, it is important that you develop a team of trusted advisors that can guide you in the right direction when purchasing, managing, leasing, or selling your land.