Today, Fay said, investors are buying operating ranches that will break even every year or give them a 1- to 2-percent return. That may not sound like a lot, but investors “aren’t buying ranch land to make money,” he said. “They’ve made their money. They’re buying to preserve capital.” A fully operating ranch may have cattle and other types of livestock, complemented by a farming component that grows alfalfa as feed; some may be commercial farming operations.
Fay said a big part of his business comes from clients who invest the proceeds from sale of “like-kind” property in ranches. Under section 1031 of the Internal Revenue Code, an investor can dispose of one asset, such as a real estate investment property, and buy another similar one without generating a tax liability from sale of the first asset.
Ranch land investors may also seek a reduction in income and estate taxes through a conservation easement, where the landowner gives up the right to subdivide the land, but retains ownership and can manage or sell the property. Conservation easements are granted in perpetuity and restrict unsuitable or irrevocable development.