by Steve Chilcote
Stephen A. Chlcote Land & Timber Consulting 814-360-4510 schilcote1223@gmail.comI was talking with another Realtor about brokering land deals in the shale play areas of Pennylvania, New York and Ohio. After years of working in timberland deals, timber is now taking a back seat to gas rights. Some farms this guy gets to sell have a buyer already willing to buy with a blank check if it meets the criteria the investor is looking for. I have stayed away from the gas play investments mostly because, as a Landman for Chesapeake Energy, it would be a conflict of interest for me to do so. I stuck with providing land improvement services to my clientele. I also thought that the shale play land deals were too fast and furious and that some investors were about to loose their shirts.
The fact is, some folks are making tons of money from these investments and those who are on the inside track get the deals before they ever hit the actual real estate market. And some are going to loose big too. As fast as lease rates rise, they can fall just as fast. I had a land deal I was trying to put together for years in Bradford County. The old guy who owned the land wanted an ungodly amount of money for it. Turns out, during the peak leasing months, the land was probably worth what he was asking. Sadly, he died before he could sell it. Now it languishes in the hands of lawyers who can’t find all the heirs and the lease rates are plumetting in the area.
I didn’t advise a buy on this property because the old guy thought the timber was worth a lot of money. I found good timber on a small percentage of the land. Someone had obviously taken a quick look at the timber and told him it was worth a lot, but did not take the time to cruise the entire tract. Also, the land had poor access accross someone who did not agree that there was a right-of-way. That scenario will always lead to bad experiences for the buyer. One would have to get a real steal to make it worth the pain.
What’s my point in telling this story? I always look for land that has something going for it – it should be a nice piece of ground. Investors often buy land they have never seen – just look at the numbers for timber or shale play location, crop production or development potential. I like a tract of land that has more than one thing going for it. A view, subdivision potential, timber, mineral rights, stream frontage and most importantly, can I harvest timber or subdivide and still have a nice tract of land? If it is worthless without the attractor (gas, timber, etc.) it is not a good buy in my book. Because, after the gas is leased or the timber is harvested, you have a tract of land to sell. This if often where the profit is made – on the back end. If you wind up with a crappy piece of junk in the end, you may end up stuck with it, paying taxes and interest on the investment for years. I’ve seen it happen – often to me.
I was excited about a property I invested in in the easten part of PA years ago. It had a right-of-way accross two frontage owners and needed a stream crossing permit from the Gestopo, I mean DEP, Fish and Boat Commission, Township Board of Supervisors, and the Army Corp of Engineers. Quit an alphabet soup of government agencies. The drones took 3 years to permit a bridge that took 5 days to build. Most landowners, especially well-to-do ones don’t feel they need to honor a right-of-way and will waste thousands on lawyers to hold up whatever you want to do. According neighbors, the extremely light harvest I did on the property of course caused flooding downstream even thought there were two one- hundred-year storms that summer. The money spent on the project with engineering, permitting, fighting the neighbors and interest ate up all the profit.
The point of this sob story is to show what can happen if you fall in love with a tract of land for one reason. Make sure there is something else interesting about a property before you buy. Is it a place where you would want to live? What doese it have going for it? What are the negetives and potential pitfalls and what are the costs associated with them? Some things cannot be predicted, but do the best you can. And buy it right. If I would have known better about permitting the bridge, the lawyer I bought it from would not have been able to BS me into being able to get over the stream easily. I didn’t do my homework and plan for the worst case scenario and got ripped off. The lawyer made a lot of money and I lost some. That’s often the case – don’t get me started on legalmen, that’s a whole nother article.
If you are looking to invest in land, get in touch with me and let me know what you are looking for. I am at your service. Call me at 814-360-4510 or email at schilcote1223@gmail.com.
Steve
