Holding the deed to a piece of land can be a comforting experience. Whether it’s an inheritance, a future homesite, or just a weekend getaway, owning a piece of property where you can relax, explore, fish, hunt, or farm can provide both present and future benefits and the potential for a boatload of good memories.
I was fortunate to have relatives who had property in rural Greene County, Alabama. They grew various crops, raised cattle, and housed wildlife in pens and cages that entertained and mesmerized visitors. That piece of land allowed them to grow most of their food, harvest wild game, and raise a family.
Whether you are in the market or already have property, there will come a time when you may decide to make improvements, like upgrading your roads or constructing a barn or cabin. Depending on the size of the property and your plans, you may need some assistance in financing to make those dreams come true. We discuss these kinds of real-world land ownership questions regularly on the Huntin’ Land Podcast, where experts break down financing, habitat improvement, timber value, and rural property planning in plain language for landowners.
I recently reached out to Brandon Simpson of First South Farm Credit. He works for a company that has been making land loans for over 100 years and has 40+ locations in Alabama, Mississippi, and Louisiana. Simpson is the VP/Branch Manager of their Bay Minette office, and we discussed what types of loans are available to potential landowners and those who wish to make improvements to their current property.
Types of Land Loans
Whether you’re looking to purchase a small or more significant tract of land or improve an existing parcel, you will need a way to finance your acquisition or the enhancements to your property.
Maybe you bought a larger parcel with hopes of doing a little farming, building a hunting camp, adding a pond, or even planning for your dream home. Whatever your objectives, you will most likely have to invest in some improvements to make the property conform to your needs and meet its full potential. To do so, you may need a land improvement loan to carry out your vision.
Simpson explained that most improvements an owner makes to their property that will increase its value can potentially be regarded as loan-worthy.
These improvements may include road construction, creating fields through clear-cutting or selective timber harvesting, building storage facilities or barns, extending power lines and utilities, or even the construction of a fishing pond.
Many of these options and opportunities can require a considerable investment. Unless you have deep pockets, chances are you can borrow money from First South Farm Credit to make your dreams a reality.
Benefits and Versatility of Land Loans
Simpson said land loans offer a high degree of versatility, making them a valuable financial tool that allows borrowers to purchase land for various purposes. They often have less upfront investment, allowing buyers to acquire property that may appreciate over time. They also offer the borrower flexibility when deciding how best to develop their land.
Affordability
Vacant land is typically less expensive than properties with existing structures, making it a more affordable entry point into real estate ownership.
Lower Property Taxes
Vacant land usually incurs lower property taxes compared to developed properties.
Diversification
Adding land to an investment portfolio diversifies risk, as real estate often behaves differently from stocks and bonds.
8 Opportunities Provided by Land Loans
Simpson explained that if a property or proposed improvements to existing properties meet specific criteria, First South Farm Credit stands ready to provide the needed capital. Here are a few of the categories that may qualify for financing.
1. Building a Home
Suppose you’re financing a piece of property with plans that include eventually building a full or part-time residence. In that case, you may also qualify for a loan combining land acquisition with construction.
2. Refinancing
Loans can sometimes be used to refinance existing land loans. Refinancing can combine multiple land loans into a single loan to secure lower interest rates or more favorable repayment terms. Some lenders offer cash-out refinancing, allowing borrowers to access equity in their land. Loan purpose is driven by the use of funds so you will need to make sure the use of funds qualifies for financing.
Refinancing can sometimes convert a variable-rate loan to a fixed-rate loan or vice versa and may allow for an extension of the repayment period, potentially lowering monthly payments.
Refinancing can be a valuable tool for managing land loans, but it’s essential for borrowers to carefully read and understand all the terms and conditions of refinancing offers. Borrowers need to consider their options and seek professional advice to ensure it aligns with their financial goals.
Borrowers need to consider their long-term plans for the land when deciding whether to refinance. Always calculate the long-term savings or costs associated with refinancing and consult with financial advisors to understand the implications of refinancing.
3. Recreational Activities
Buying land for hunting, fishing, camping, or other outdoor hobbies may require additional investments. Clearing land for green fields or controlled burns and constructing hunting blinds, cabins, storage buildings, or other recreational structures can sometimes require considerable investment.
4. Agriculture
Financing is often available for the purchase of farm or ranch land and any additional fencing or irrigation. Specialized farming operations such as orchards, vineyards, or even poultry operations may also qualify for financing.
5. Investment
Purchasing property for long-term appreciation may also meet the land loan criteria. Some investment strategies involve future timber sales or plans for future growth when a property reaches a certain level of appreciation. Many borrowers use recreational and investment land loans to finance properties intended for timber production, wildlife habitat, or long-term value growth.
6. Future Expansion
Businesses or individuals may purchase adjacent property for future expansion or as a buffer zone to ensure compliance with zoning requirements. Land loans can be used to finance these additional acreage purchases and support long-term property planning.
7. Environmental Conservation
Land loans may also facilitate a land purchase for conservation purposes, including protecting natural habitats, forests, wetlands, or other ecologically significant areas.
8. Mineral Rights Acquisition
Some lenders may offer loans specifically for purchasing mineral rights, which can be separate from surface land ownership. Land loans can help acquire land with potential natural resources like minerals, oil, or gas, enabling the borrower to exploit these resources commercially, although this is a more specialized use.
Mineral rights acquisition can be complex, so it’s essential to understand all the risks and obligations associated with mineral rights ownership and financing. It’s crucial to work with experienced professionals throughout the process. You may need to seek a specialist in this field to ensure all considerations are thoroughly addressed.
Additional Considerations
Once you have presented your proposals to a loan officer, it’s time to transition to the loan details. This discussion will review your plans for the property and include down payments, short or long-term payment options, and maybe even environmental considerations.
Conclusion
Individual situations reflect different strategic goals, from personal enjoyment to profitable investments that leverage the flexibility of land loans to meet diverse needs.
Potential borrowers can find the best land loan options that suit their unique circumstances and objectives by thoroughly researching and consulting with experts like First South Farm Credit about their specific needs and long-term goals for their property purchase.
Land loans provide a versatile financing option to help buyers acquire land for agricultural use, recreational use, and investment. They have a wide range of benefits that make land loans an attractive option for buyers and investors.
