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Large Scale Land Rehabilitation / Flipping for Profit  RSS feed

 
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First time poster here so bear with me, there is probably some variant of this idea already on this forum and i've searched for a discussion on it before but the idea in my head has been consuming me and I felt the need to at least get it out on a public forum for some flogging so at least I can sleep at night knowing it isn't a good idea haha.  

But my idea is fairly simple and that is to use permaculture principles to buy up larger tracts of degraded land, rehabilitate it into a fairly stable, hydrated system, then flip the land in smaller parcels to local farmers who would like to continue to farm the land in a sustainable way.  I have no interest personally in the idea of day to day farming, my goal here is to use the private capital markets for large-scale land rehabilitation, and to improve local farmer incomes. A prerequisite shoutout to Nicholas Burtner who provided the spark for this idea with his youtube video.  


A problem I have noticed is that because cash is usually the limiting factor for those looking to purchase a property (and trust me i'm aware there are strategies for acquiring properties with no money down etc but those strategies tend to intimidate a lot of first-time buyers or those not well versed in real estate investing), new farmers looking to buy, or lease land need to focus their available cash on building up revenue streams to keep the lights on.  So this usually limits the amount of investment in expensive albeit necessary "infrastructure" projects like earth works or fruit and nut trees that won't produce for at least 3 - 5 years.  It might be nice to have kilometers of swales and ponds and buildings but those don't generally produce cash in the short term.  It's always equally not smart to invest money in earthworks on rented land that you may or may not get to keep farming in the future.  But a property that has a well thought out mainframe design with earthworks and roadways already installed is worth much more than in a degraded state.  You don't have to google too hard to see that the difference in per-acre cost of fertile land vs infertile in some places is eye-popping, let alone properties with ponds and water availability.   So this makes me think there is a huge opportunity to take undervalued, degraded land, rehabilitate and farm it and focus on making money on the sale side and not on the farm products side.

So in my mind I guess I see this working in a few specific steps:

1. Raising capital for land acquisition (lets say for simplicity 100 hectares, but for this to work long term i assume I would need to work on a much larger scale) and mainframe earthworks construction.  I'm well aware that local soil conditions are going to dictate what can be done and for what price, but I think with a healthy dose of creativity one can turn the problem into a solution A few constraints would obviously need to apply, such as proximity to major markets, yearly rainfall, current political climate etc but all others things being equal these will be the search criteria.

2. Subdivide the properties and sell to other permies, homesteaders and farmers on either a rent-to-own contract (this has the advantage of having no or very low money down, cash flow for investors from day 1 and better terms for those purchasing) or on a straight land lease. It would be perfect for those practicing rotational grazing cattle / sheep / pastured poultry, annual crops etc, multiple farmers could have leases on the same land (for different purposes for example).  The focus in this scenario is that the property is managed correctly to ensure that further degradation doesn't occur. and to continuously build soil organic matter, fertility and water retention in the landscape.  My focus would be on selling primarily to locals, I don't want large agro-businesses or investors snapping up each rehabilitated property simply because they have the cash and it results in a quick buyout, so if I make a little less profit but can sell to a local then I can sleep at night.  

3. Reinvesting the profits and recurring revenue from the sale of each parcel or subdivision into purchasing more land, wash-rinse-repeat.  


I don't really share the same vision for "Eco-Villages" that many seem to have here so i don't want it to be a planned community, i'm more concerned with large scale rehabilitation, and water management.  I'm sure the purists are probably gonna have a field day but I have the view that if we use the best parts of the current financial markets to give investors a reason to invest in land rehabilitation for profit instead of the next App then I think we can clear our consciouses for using heavy machinery and fossil fuels to speed up the reclamation and rehabilitation.

I do however see a few potential pitfalls,

1. High capital requirements, this is a financial strategy that cannot be leveraged for it to work, the risk is simply too high to finance the acquisition and earthworks costs and therefore is going to require a significant chunk of seed capital.

2. Rehabilitation costs exceeding market values, there is a risk one could end up upside down on a property if costs are not managed properly.

3. Regulatory, political and or bureaucratic issues putting the brakes on projects.

4. Most investors view farming and anything related as extremely high-risk so looking for investment may be really difficult.


So that's my idea,  would love for people to grill it and put it through the ringer so I can refine it.

-Kevin
 
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It immediately brings to mind a documentary about the Victorian terraced house which focused on Liverpool. There was one man in particular who financed and built thousands of these houses that revolutionized home ownership at the time. Without him, thousands of families would have lived and died in terrible conditions because they wouldn't have had any better options.  There are still valuable homes being lived in, to this day, that he is directly responsible for.

It obviously wouldn't be cheap. If it can be done it could be world changing. A big part of his success and lasting impact is that he demanded everthing be well done.  He was definitely all about mass production, but even his lowest price point was well done.  It just had fewer frills.
 
pollinator
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Kevin,

I love this kind of thinking. There is far too much abstract reasoning in the alternative agriculture world, and this posits from a real and honest perspective. In recovery from addiction there is a requirement for a shameless and fearless self-inventory, and I think that extrapolates well into our addiction to massive agriculture. Thank you for posting!

The crux is that real homesteaders who can live an hour from a metro area tend to be cash poor. This means that they generally can't pay in money, but may be able to pay in surplus. I hate to say it but this but the more I think about it, the most likely way forward is probably a Hobbsian leviathan agency, with metrics for performance that must be met by the homesteaders. Paul does it, and I can absolutely see why- otherwise there will arise a primary parasitic class. Free stuff does that, and I am not blaming people, I would be lazy too if I didn't have to drag my butt out of bed at an early hour. Hunger is a great teacher, I truly believe.

Only with metrics of improvement would an investor consider such a scheme, because the horizon is very long. And the tenants (I hate using these archaic words but it seems about right) would have a contract to adhere to, and protection in some ways as well. "Good fences make good neighbors" per Frost. If I had the means to purchase 100 hectares, with no hope of maximally using it, I would jump at the chance to find tenants (eventually landowners- I think that is critical) to leverage the value of the land. For instance, I could contract with four people to work for five years, 20 hours a week, with the remaining time spent on their eventual 5 acre parcel that they own free and clear at term, and they have access to equipment. In that term my other 200 acres might appreciate in productivity by 400% because now I have the human capital to create restoration agriculture, and convert pine slash forest to some much more valuable land, like Salatin. At the end of term, I have the option of partnering with them. They can take their 5 acres and be independent, or they can roll them in on a larger co-op. For me, I can find more 5 acre tenants, but I have more value in the same people working for me- they already know the land! So I have a motivation to be ethical (I hope). For the tenants, they have more value from continuing to take a share of a larger, value increased land than by separating, so they are motivated to be good tenants.

This is just an example, I am not saying this is perfect. But it takes some of human nature into account and leverages it into something productive. I share with you a sanguine view of intentional communities, not because they shouldn't work, but because history is not favorable.

 
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1) Who exactly is your target market for this "improved" land?
2) What, exactly, would your target market want from their improved land?
3) How long will your capital be tied up for - without income - while improvements are being made?

Unfortunately, most of the people who want to make money from land are traditional farmers. While there will be some added utility for them following permaculture style improvements, many of those improvements will work directly against the techniques they use in their agriculture. For example, swales on contour are great in some settings, but not when you want to be able to use heavy equipment to plough, plant and harvest. Subdividing large open areas with fences allows for greater versatility when it comes to managing grazing patterns, but is a hindrance when it comes to planting crops.

So most of the obvious permaculture type improvements may actually make your land less valuable to those who actually have the money to buy large tracts of land.

So, having ruled out large scale farmers, you are now looking at a smaller sliver of the population - those who have some wealth and want to try homesteading.  Most people in this situation come to the land hoping for a blank canvass that they can make their own, and are often going to be looking for a bargain - after all, they are looking for a place to live, not necessarily an investment for income. Will your improvements add value for them, or will they perhaps be a turn off?

I guess what I am getting at is that I don't see just making general permaculture improvements to land to repackage and sell as a viable route. I don't see where the extra special added value comes in, that would make a buyer pay over the odds, and I potentially see some serious risks.

___________________

Now, as an alternative, how about going all in on one smaller arrangement of land and doing it really, really well. Take 3 years or so, but set it up so that it is really "turn-key" ready to move into. In a smaller project you have the potential to make it really intensive and much more exciting, so that you can sell something very different to your potential buyers. I was looking for a Geoff Lawton video, where he revisits a property that he developed for himself, then sold. It had lots of dams and ponds, clever water integration, food forest elements etc...
 
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I do not see this working at all.

I try not to be cynical on Permies, but this post just absolutely screams "we want to help farmers, but we do not want to be one", and that unto itself means utter failure. Trust me, I am a full time farmer, you would be shocked at how many people want to "help farmers", yet only .5% of the USA have that as an occupation...1 in 200? Yet the USDA alone has 100,000 employees, or put another way...for every 15 farmers, we have one USDA employee "helping" us? We do not need more people helping us farmers, we just plain need more farmers.

Another misconception that needs to be cleared up is that there is ample funding for farming, but now is the wrong time. This is how investment in farming works. Farming generally is a very sound investment for investors, but the profit margins are lower than other investments. When the economy is down, investors look at farming with their steady returns and like what they see and invest in farming. But now that the economy is absolutely full throttle, farm investments look lack-luster. If you look back on investment history you constantly see this. So now is not the time to be finding investors in a questionable farm venture that needs ggobs of start up capital.

Another factor not calculated in, is property taxes. This is a huge issue because the general idea is completely upside down, as others have said, taking valuable farmland, and reducing its over all value. Then, by doing so, the market for the land is drastically reduced meaning the flip time is extended. This is where property taxes come into play. Every year the land is not sold, those property taxes have to be paid. And property taxes have precedence over everything else...banks, state government, federal government, etc. Property Taxes are the fabric of our society and have to be paid. Me...I only have a few hundred acres and yet I pay over $10,200 a YEAR in property taxes alone. That is $200 a week going just to keep the land I have...nothing else...just keeping what I have. Now add that up for addional farm properties sitting idle on farmland that you already reduced the value of and the profit is just not there to make this plan viable.

...
Now taking non-farmland and turning it into farmland? That is sometimes doable. That is a topic unto its own, but the cost to turn forest into field is pretty substantial. I can do it for $201 an acre, but I do the work myself. Paying for turn-key it will cost $3000 an acre. The latter does not seem bad until you start adding up the acreage. I just cleared 70 acres of my forest with the intention of putting it into field. If I was to contract that out, those 70 acres would cost $210,000. Here tillable farmland sells for $3500 an acre. Could an investor buy the land outright, clear the forest, then have it stumped and graded, then resell the land, paying any property taxes accrued inbetween, for $500 an acre? That is pretty thin margins.

 
Travis Johnson
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There is a solution to this, but as always, it involves people working the actively working the land, and not trying to glean a profit on those that are. (or hopefully will be farming it)

That solution is Permiculture, and it means thinking outside the box. Farming wetlands. Farming forests. Taking land that is low in value and has little use and adapting it to grow food. It can be done, but some laws and regulations in the country need to be changed in order to do that. I pester my congressman constantly on this...change the laws so I can farm; this is not 1985 for goodness sakes.

For instance, livestock like the grass varieties that grow in wetlands, the problem is, with traditional wheeled equipment it must be dry to get on it, and wetland grass loss its flavor to livestock very early. The answer then is to use tracked equipment to get onto the land quicker and capture that grass when it is palletable. But a permiculturalist can buy wetland a heck of a lot cheaper then competing for tillable land from area conventional farmers and the Amish. Equally the opposite is true, adapting dryland so that it captures what rain does fall and making food for a hungry world (even if it is just for that particular family).

This forum is full of ideas on this theme, but the only way to make it work is to get on the land and actually work it. Ask the Irish how absentee farming system worked during the Great Potato Blight

As I have said for years and years; the world does not need more people "helping" us, we just need more farmers. Take my county as an example, the salaries of the USDA employees exceed the mere $750,000 we get every year in Federal Grant Money. So what happens is, we have a dozen people shuffling paper just to tell area farmers that apply for grants their is not enough money to implement conservation practices they want to do. Here is an idea, get rid of 50,000 USDA employees and give that salary money to farmers for conservation and see how much better the money is spent!
 
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