This past week I had the opportunity to present offers on two different tracts of rural land in Alabama. Both of these offers were submitted by buyers that had been following the market for a while. It is my understanding that neither of these people had ever met, but their strategies were nearly identical. Buyer #1 was represented by a buyer’s agent and I worked with the other as a transaction broker.

Both of these prospective purchasers made an initial offer of roughly 2/3 of the asking price of the properties. It was their plan to “test the water” and “just see” what the seller would say. Neither offer resulted in a successful contract, and in fact one received quite an undesired response. The first seller asked me to convey that he would not be making a counter-offer and that the offer was so low that he felt like the potential buyer must be suffering from some disorder. He instructed me to inform the other agent that his client was not to set foot on his property again!

I feel sure the original intent of buyer #1 was not to grossly offend the property owner. Buyer #2′s offer did receive a counter-offer, but we were not able to get close to a meeting of the minds.  I was not thrilled at having to convey the low offers to my sellers and absolutely hated telling my fellow agent his client was not to come back to this tract.

This experience prompted me to share some thoughts with would-be-buyers about what a “buyer’s market” means in rural real estate and how it is often misinterpreted.  The aim is to help you set realistic expectations and be as educated as possible to help you identify and purchase the right rural property.

1. Not every seller is in a crisis. As a matter of fact, almost none of the clients I represent are in crisis. They would like to sell, but they are not in danger of foreclosure. Rural land in Alabama is not like the national residential housing market. There are very few foreclosures comparatively, because owners often inherited the land and own it outright, have sizeable equity positions, have higher incomes and can afford their land, or they have other assets that help keep their rural land afloat. A lender with Alabama Ag Credit recently said that in his 31 years in the business, he has only seen 4 rural properties go into foreclosure. That is vastly different from the residential real estate climate we are seeing today.

You should inquire about a seller’s motivation before throwing an offer out there. The number of days on the market, at least in Alabama’s land market, is not necessarily correlative to a seller’s motivation. Hunting and recreational properties are taking longer to sell at the present time. Don’t assume that a tract that has been on the market for a year can be bought for pennies on the dollar.

2. Study comparable sales. Contact land lenders such as First South Farm Credit or Alabama Ag Credit to find out what land is selling for in your area. Don’t just throw a number out there “to see”, but make an educated offer. They are usually happy to share general information about recent land transactions, which can give you a more up-to-date snapshot of what is actually happening in your area.

3. Explain your offer to the seller in a letter. I find this to be a helpful tool in negotiating a contract. A relative recently used this tactic in negotiating a contract on a bank-owned home and acreage in Georgia. He made a list of all of the repairs and improvements the property would require. He was able to convince the bank with his logic that other buyers would see the deal the same way and that they should accept his offer. When I walked through his house last weekend, I have to say I was quite impressed with his purchase and how well his idea worked in securing a low price.

4. Price and Value are not necessarily synonyms. One trap first-time land buyers stumble into is feeling like they should buy land with the lowest per-acre price. I believe it is better to pay a little more money for a quality property than buy a dog just because it is cheap. $800 per acre properties are fun to tell your friends about, but spending large additional sums to make it usable may not be the best value in the long run.

Ask a land agent for information about the best buy they know about. I have a short list of tracts I believe are really good values for the asking price, and will show those even if they are not my listings. Otherwise, you are probably going to see the properties you specifically call and inquire about.

5. Cash is King. Dave Ramsey says it. Your grandparents preached it. Cash money has advantages when a seller is really in a pinch. Being able to deal immediately with no contingencies is worth a lot to sellers who are desperate. I recently saw a seller knock $70,000 off a $190,000 property because he received a cash offer with no contingencies to close as soon as the attorney could do the title work. These are the instances when having a mattress full of money gives you leverage in negotiating a good buy.

Be patient and have a punch-list of traits you want your land to have. When you identify the right property at a fair price, be ready to pull the trigger and make an educated offer. I see prospective buyers drag their feet and waste valuable time over-analyzing great buys. Due-diligence is imperative, but be educated enough to jump on an opportunity when it arises. You can always have contingency clauses put in your offer to purchase that give you an “out” if the deal isn’t as sweet as you originally thought. Have a network of professionals such as foresters, land agents, surveyors, or cooperative extension agents that can help evaluate and offer advice when you do locate a candidate.

If you are going to make a low offer, make it easy for the seller to say “yes” by offering to pay closing costs or making other concessions. In business, for the long run, it helps when everyone is a winner. You will find doing your homework will have paid off when you are sitting at the closing table pleased with your purchase and a seller across the table that is a winner too.

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Every so often I get fed up with having sellers play “hide the ball” with buyers, including me. Since, unlike residential housing, so few state disclosure requirements apply to land, sellers and their brokers may decide that their best marketing tactic is to disclose as little as possible. That approach may have worked in the champagne days of the past, but I think it’s self-defeating in times like these.

I emailed an inquiry to a seller of some 15,000 acres in the Southeast not long ago. The seller’s “marsh” was pitched as a timber tract. The seller’s property manager emailed me a “map” and excerpts from a timber cruise done more than a decade ago, about the time when the current owner bought it. Let’s say the price was $2,500 an acre.

The tract was part of a very large swamp. Some of it may have been marshy, but my guess was that most of it was very swampy.

A reputable outfit had done the timber cruise. But it appeared that the cruise was done for the current owner in advance of the tract being purchased. I could not tell from the materials whether the tract had or had not been cut after the cruise date. My guess is that it had been.

I suspected that some portion of the merchantable timber counted in the cruise would be on ground too wet to actually harvest. Such timber should not be counted as merchantable, because it’s either economically or technologically out of reach. No definition of operability was provided. I could not determine whether merchantable timber on inoperable ground was counted in this cruise.

I asked whether the seller owned the minerals. The property manager said he didn’t know! He said he would find out and get back to me, which he never did.

A fee-simple sale — where the seller owns and conveys all surface, subsurface and air rights in the property, less only recorded restrictions — is vitally important to a buyer. Subsurface minerals can be a source of lease and royalty income. If the surface owner doesn’t want mineral development because of its surface impacts, he should stay away from property where the subsurface minerals have been split from the surface, either by lease or sale.

There’s another reason why fee-simple is important, which has to do with a conservation easement. Mineral ownership is almost always required for any conservation easement applying to the surface, except when the applicant can show either that minerals aren’t present or that they are of no commercial significance. A conservation-minded buyer would not be interested in this tract if an easement could not be arranged.

The seller’s email contained what was represented to be a “timber type map” that stated in very small print: “Property lines…drawn from a combination of survey plats and aerial photos and are not guaranteed to be exact.” A state-registered forester drew the map.  A buyer could easily mistake this map for a survey. When I asked how the seller’s acreage figure had been calculated, I received no answer. I also received no answer to my question as to whether boundaries were marked on the ground.

The property manager informed me that no boundary survey existed, and the “price could be adjusted based on final acreage as determined by a survey.” Getting boundaries settled and fixed in the field is a seller responsibility in my opinion. When a seller doesn’t have a recorded survey, the least that can be offered to a buyer is a computer-generated deed-mapper printout on a topographical map that follows the calls in the seller’s deed. When a seller proposes to me that we split the cost of a survey, I am always inclined to answer, “Sure, as long as we lower the asking price by my share of the survey’s cost.”

The “timber type map” showed two parcels, amounting to several hundred acres, with disputed ownership. I asked the property manager whether any boundary disputes still existed. He chose not to answer this question.

I asked whether any federal endangered, threatened or sensitive (ETS) species — or their habitats — were found on the property. He replied: “To our knowledge, there are no ETS on the property.” I spent five minutes on Internet research looking up the website for that state’s natural-heritage division and discovered three endangered species and more than a dozen threatened and sensitive species were present in this county, likely in this area and probable on this tract. Maybe the seller’s representative actually did not know this readily obtained information. Maybe, he chose not to know. Maybe he knew and preferred not to say.

Was the seller conveying with a general warranty deed or something less? The answer—“The deed structure is to be determined.”

I asked what the tax-assessed value and annual tax hit were. No answers.

I asked whether any zoning or land-use restrictions applied. No answer.

I asked whether the seller had a mortgage on the property. No answer.

I asked whether the tract joined public land. No answer.

I asked whether the property would convey with any encumbrances or reservations of interest. No answers.

Sellers have three ways of dealing with due-diligence questions from buyers: 1) stonewall and provide as little information as possible; 2) provide all information in the seller’s possession and identify items that require additional research; and 3) some middle ground between providing almost no information and providing everything.

When I run into a seller playing hide the ball with me, alarms go off very loudly. Something is being hidden—maybe a lot of things. Non-answers of the type above discredit a seller in my eyes. I trust nothing after that kind of response. And, generally, I don’t waste time with sellers who play this game.

With markets the way they are, sellers should consider leaning far more toward full disclosure and away from hide the ball.

And if a buyer wants to test a seller, he should ask what the seller paid for the property. Some states require that this figure be made part of the public record. It’s a required due-diligence question, whether or not a seller chooses to answer. When a seller does answer, I’m encouraged to go forward. It’s a sign that the seller wants to sell.

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At the risk of over-simplifying to set up an argument, let’s assume there are two general approaches to investing in stocks, real estate and many other assets.

The first might be called “value investing.” This is buying the item at something less than or at least not too much more than its intrinsic value, which can be determined, or at least estimated, in different ways, such as calculating a current net sale value. This general approach is associated with Benjamin Graham (The Intelligent Investor), Warren Buffet and Burton G. Malkiel (A Random WalkDown Wall Street).

The second approach might be called “growth investing,” which Malkiel calls “the castle-in-the-air theory.” It is less interested in any hard evaluation of a stock or asset and very interested in the psychology of the market for the item. Believers try to anticipate where growth (or demand) will materialize.

John Maynard Keynes described this approach as psyching out how a crowd of investors will behave in the future. During upswings, these investors tend to build their hopes in air castles. They believe the price they pay today will be less than the price they sell for tomorrow (metaphorically speaking), because everything is moving up on the momentum of market psychology.

Investors in both stocks and real estate (of all kinds) jumped on the growth model during the last 15 years. The working assumption was that a bigger fool would pay more in the future for what I’m paying too much for now.

Tech stocks with ridiculous price-earnings ratios and inflated prices were snatched up because they had something to do with the Internet and computers. Timberland and undeveloped land was bought with the idea of flipping it in two years (or sooner) at twice the money undivided and three times the money chunked out. Small unsuccessful farms were sold to second-homers and retirees for prices totally unrelated to their ability to generate cash; they were priced at and bought at what might be called, “lifestyle valuations.”

If I were smarter or shrewder, perhaps I’d be more comfortable with growth investing. Since I’m not, I look at realistic estimates of what assets are currently worth to me in light of my resources and plans, and the attributes of the investment. While appraisals based on comparable analysis serve a purpose, they represent a valuation based on recent comparable sale prices, not intrinsic value that the buyer can cash out. If the three comps the appraiser used were purchased by growth buyers, then the appraisal will reflect growth-investing prices.

So here are a few thoughts about applying value investing to rural real estate:

1.  Cash-out potential. What is the current net cash value of all assets on the property as an entirety, and then unbundled into saleable parts? Be conservative. A purchase price should not be very far above the cash value of the entirety, and preferably below.

Entirety cash value might be defined for my purpose as the dollars left in a buyer’s pocket were he to (hypothetically) sell the property the day after he acquired it. Unbundled cash value should exceed entirety cash value.

2. Buyer’s timeframe. A buyer can pay above net entirety cash value if a long holding time is anticipated and no need to sell the investment can reasonably be anticipated.

A buyer could play around with a formula that relates each year of guaranteed hold to each one percent paid over net entirety cash value. Maybe a one-to-one ratio would work in most circumstances, that is, a buyer can feel safe in paying 20 percent over net entirety cash value as long as no need to sell the property is likely for the next 20 years. (This is a very conservative guideline.)

3.  Financing. Low financing costs influence the ability to carry real estate purchases. But keep them out of a buyer’s current cash value analysis of the investment. They are related, but separate calculations.

4. Future cash flow. This is highly variable, because it depends on both the    individual property as well as the buyer’s intentions and future circumstances. Some country properties, such as a second home used exclusively for the owner’s recreation, will never generate annual cash. Hardwood timberland might generate a lump-sum payment every 30 years. Other timberland can generate annual cash sales. Farm businesses will vary in projected annual net income from not much to a lot, depending on the products, operation size and other factors.

I would not consider future cash flows in valuing most real estate. (I know this will raise a storm of dissent. I understand the purpose of and how to do discounted cash flow analysis.)

To apply value investing, I would look exclusively at what the immediate net cash value is for the entirety. DCF analysis adds speculation and assumptions that move a buyer’s focus away from immediate cash value.

5. Determining immediate cash value. Appraisals produce a current value in light      of three recent comparable sales. Is that an immediate cash value?

It could be. In a declining market, I would discount any appraisal value to reflect the costs of selling the property (theoretically immediately). And if the past six-month or one-year trend is down 10 percent, I would add at least another 10 percent discount to any appraisal value. In a market rising for tangible reasons, a buyer might use an appraisal value as cash value. In a market rising for intangible reasons (the irrational exuberance of growth investing and speculation), I would discount an appraisal value.

As a buyer, I would anchor my immediate cash-value analysis in the property’s tax-assessed valuation (TAV), and then adjust up or down in light of local market factors, changes on the property itself and the date of the last reassessment. TAVs can exceed a current appraisal value, but they tend to be lower than current appraisal values in rural areas. TAV is a good place for a buyer to begin value investing.

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My 24-year-old daughter, Molly, is a reporter/editor on the headline desk at Bloomberg News in New York. Through her employer, she has begun a retirement plan that is a diversified mix of stock indexes, bonds and the like. A real-estate IRA was not available to her.

This got me thinking about retirement options for Generation Y, individuals born roughly between the late 1970s and the late 1990s, Also known as Millennials, the oldest are now about 30.

Farmland and timberland have proven to be more profitable and less volatile long-term investments since 1960 than big caps, mid caps and small caps. (Bottle caps, however, may be another story.) So why, I thought, isn’t there a land-investment, retirement fund of this type that caters to Generation Y?

There is advantage in investing in both types of land at once. Agriculture provides annual cash flow, which would cover expenses, disbursements and, to some extent, purchases. A mix of Deep South farms that make sales during the winter with northern and western farms would provide cash income more or less regularly throughout the year. I would put my farm eggs into many baskets, not just one.

Small timberland tracts typically produce timber income in lump sums every 20 or 30 years for hardwoods; southern pine has a shorter rotation; and Pacific Northwest plantings have a longer rotation. Large timberland tracts can be managed for annual timber-sale revenue, but farm income would allow the Gen-Y Fund to store timber on the stump when it makes financial sense to do so.

Sales of both timber and land can be timed to jump on upward-trending prices.

My inclination would be for the fund to keep the most productive properties as revenue cores. The marginal lands around the cores could be sold as needed.

I would consider doing a little speculative value-investing, such as buying cheap environmentally abused land — like reclaimed mountain-top-removal surface coal mines — that might host a solar or wind-energy facility. I would also look for marginal farmland and timberland that better management could upgrade over time. I might also be interested in springs and reservoir sites, land that will become more valuable if the climate warms, land that does not require irrigation and land that can be adapted to higher agricultural and timber uses.

I don’t have any firm notions about how the fund should be set up.

A portfolio with many land parcels of different types and income characteristics would provide liquidity to the fund. The degree to which those earnings/gains and liquidity would translate into dividends and withdrawal capability is one of many issues to be determined.

Another set-up issue would be how client ownership should be structured. Could it take the form of a share in a fund or a REIT? Could something like a group real-estate IRA be established? Could it be a pension plan? Each option would likely have different tax consequences. The goal, I suppose, would be to combine client choice and flexibility, long-term appreciation and tax friendliness.

And, of course, the Gen-Y Fund should make money for those who set it up and manage it. I offer myself as head of acquisitions.

It would make sense to impose a minimum investment term, say no withdrawals for at least 15 or 20 years unless an emergency occurs. But dividends or distributions might be made annually, which clients could choose to reinvest.

Everything I’ve read suggests that the amount of investment fees is the critical variable in determining whether an investor makes money in a stock fund. Perhaps some graduated-fee arrangement could be established that offered lower fees to clients who left their money alone for say, at least 25 years, and higher fees to clients who wanted withdrawals sooner. Fees would have to be higher than a Vanguard index fund because of the required management. Maybe a land fund’s fees would be comparable to those charged for managing a pension fund.

While Gen-Yers are smart about technology, my guess is that they have also become smart about the volatility and risks of investing in both the stock market and technology. A Gen-Y Land Fund would be a retro-investment to the degree that it would be buying real assets that produce cash as both earnings and long-term gain.

The Fund could also offer its investors use of the properties. Take that Vanguard!

I’m serious about this.

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We’ve been in the time of hay for more than a month. This is the hot center cut of summer, that slab of days when each breath breaks a sweat.

Farmers are making hay while the sun roasts. Heat makes misery in this work. The only worse misery is too much rain, which keeps farmers from making hay when it should be made or spoils cut hay before it can be baled.

In my part of Virginia’s mountains, our hay is typically a mix of cool-season perennials like orchardgrass, bluegrass and tall fescue; native warm-season grasses; and legumes (which fix nitrogen in the soil), such as clover. Thistles and burdock turn up at this prom like obnoxious thugs from a rival high school. Alfalfa, a planted legume, is rarely grown here, since it’s a five-star meal for three-star cattle.

While our hay is made over several months, the best is put up during a two-or-three-week sweet spot when the seeds are not quite mature but the leaves of grass are fully developed.

Cut too soon, and the hay’s moisture content will be too high. This impedes curing and causes other problems. Cut too late, and it’s less palatable and nutritious.

I’ve helped a neighbor make cattle hay as late as November, which we both knew would amount to nothing more than nutritiously empty belly filler. We made it…because it would not have felt quite right to leave it unmade.

Farmers make hay as soon as the window opens and go until they’ve put up the last bale, long after the window has closed and the shades have been drawn. Stockpiles are usually a mix of different hay quality—excellent, good, fair and poor.

Hay is stored solar energy. It feeds livestock during the months when pasture plants — even weeds — are dormant. Cattle and other ruminants with their four-chamber stomachs get the lower quality stuff. Horses need better chow because they have only one stomach. Behind their backs, horses are called, “hindgut fermenters,” as are elephants, pigs and wombats.

On short-summer mountain land like ours, one cut of hay is the norm. Farmers in wetter and warmer places can cut the same hayfield two to four times each season. A first cutting produces more bales per acre than successors, but the quality tends to be lower.

In a one-cutting place like Blue Grass, it makes little financial sense for a person who only needs a couple of hundred bales to devote the land and acquire the machinery to make it himself. It makes more sense to pony up the $3 or more per square bale for the quality that’s needed and have it delivered and stacked where it’s supposed to be.

But I know farmers with small hay needs who insist on making their own. They’re particular, and they want their hay just so.

Made-hay is taken as an expression of the maker’s character. Is it weedy? Was it put up damp? Is it tightly bound? Is it a good size?  It takes skill and integrity to make good hay down to the last flake.

I’ve found that most farm jobs share two characteristics: First, they’re not much fun; and second, each one is finite. Every field contains only so many bales of hay; each fence line requires driving no more than a certain number of stakes. I find semi-self-delusional reasoning ever more useful as I get older.

Most farmers now make round bales, which are really chunky cylinders. They weigh from about 800 pounds to more than 2,000 depending on the equipment. When they’re wrapped in plastic, they remind me of giant, chopped-up Tootsie Rolls. One person properly equipped can cut, fluff, rake, bale and stack round bales from a tractor seat.

The older method made square bales, which are really rectangular prisms or rectangular parallelepipeds. Novice hay buyers should stick to haggling over the price of square bales and not insist on geometric correctness.

Once the grass is cut, fluffed up to dry with a tedder and raked into windrows, a tractor pulls a baling machine that spits out twine-wrapped square bales. Each weighs 50 to 100 pounds in the field. As they dry in the barn, they lose water weight.

Two or three people “make square bales”—one on the tractor, one or two on the wagon hitched to the baler. The job ends with stacking the bales in the barn. Square bales involve more sweat, more risk, more pain and more time; round bales involve more invested capital.

In light of the years I spent in undergraduate liberal arts and graduate school, I am always assigned to “work the wagon.” As each bale is pushed out of the baler and up its tail-like metal chute, I’m supposed to grab it with a metal hook, carry it to the back of the wagon and “build a load” of 100 to 120 bales from back to front. All of this hooking, carrying and building has to be done before the baler spits out the next parallelepiped. If I’m a slug and don’t get there in time, the rogue bale rolls off the wagon and down the sloped field like a convict running for freedom. Those with a chip on their shoulders come apart as they tumble.

While working the wagon is generally considered something that any 14-year-old farm kid knows how to do, it’s trickier than it appears. All the hooking, carrying and stack-building takes place on a rolling, pitching, lurching platform that is slicker than a peeled peach.

The bales have to be stacked tightly and interlocked or they will fall off the wagon. “Loose load” is not something that you want to find in your obituary. A tight load resists the wagon’s inevitable jostling that jiggles your stack into a mountain of Jell-O. It takes spatial sense and experience to build a load six or even seven courses high that survives turn after turn on a 30-degree slope.

If “your” load falls off, the tractor bunny takes a break, gets a drink of water, stretches and may compose a pertinent haiku to pass the time. When your load is on the ground, it’s your job to put it back on. Do this three or four times, and you will either learn how to build a load or figure a way to switch places with the tractor bunny.

At its best, working a wagon is hot, dusty, dangerous work. But it gets worse.

Once you’ve hauled the wagon to the barn, the hay has to be unloaded and restacked, which is hotter, dustier and just as dangerous.

In recognition of my extensive CEO experience and talent for telling underlings what to do, I was started right at the top of this organization—30 feet up in the hayloft, just under the metal roof. Outside, in the shade, it was 95 degrees.

To get bales to the top of the loft, they might have to be thrown upward, bale by blessed bale, in three or four lifts. A mechanical hay loader spares you only the first lift or two. Sooner or later, each square bale has to be barn-stacked individually by hand.

Making millions of square bales each summer left rural America with ruined backs and hostile teenagers. Round bales are better for big farms, but square bales will always be needed on places with just a few four-leggers.

Putting up hay is a farmer’s save-and-spend strategy. You save in the summer what you need to spend in the winter. And it’s always better to have a little left over than to run short.

This summer’s hay will be found in every drib of milk and cheese and every drab of beef and lamb that we eat in 2011. Like a few other things, it’s better that you don’t find any.

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It used to be a lot easier to make money in timberland investments than it is today. The old days were better…at least for that.

Back then — say at least 30 years ago — most timberland was usually priced in one of two ways. Either it was sold for a bit more than the value of the merchantable timber with the “dirt” thrown in for free, or, if the merchantable timber was insignificant, it might be priced at the value of the bare dirt.

Timberland was cheap, because it was assumed that it wasn’t valued for much else except growing trees. Higher-and-better-use (HBU) valuation did not run with most timberland, which was used almost exclusively for producing timber and recreation. The land in timberland — usually referred to as “the dirt” — was rarely valued at very much.

It wasn’t that hard to find tracts — both big and small — whose timber could either  pay for the purchase outright or in substantial part. The buyer needed to perform his due diligence to confirm acreage and check title, among other things, but the main pre-purchase financial analysis was limited to determining the value of the merchantable timber.

Buyers often cut the merchantable timber immediately after acquisition, or after a year (for capital-gains treatment). Net sale revenue was used to pay down the mortgage, or retire it altogether. This remains a sensible strategy.

To the extent that the net timber sale revenue matched the allocated timber basis at the time of purchase, no taxable event occurred. If revenue exceeded allocated timber basis, only the excess was subject to tax at the time of the harvest, either at the ordinary-income rate or capital-gains rate. This, too, remains true.

The imputation of HBU value to all timberland has inflated timberland prices during the last 10 to 15 years. My guess is that if a true national average could be calculated, timberland acreage became overvalued by a factor of two or even three in the bubble years. Timberland prices remain too high for land devoted to timber production, given stumpage prices and the factors that shape those prices. But I’ve seen timberland prices ease off during the last year or so.

Still, timberland today often appears to be priced with, perhaps, 75 percent of property value presumed to be in the dirt (a large portion of which is thought to be HBU value) and the remainder is the timber value. (This is a generalization that is illustrating an argument; it’s not true everywhere all the time.) Or put another way, if the seller thinks the merchantable timber is worth $200/acre, he might price his property for sale at $800/acre. I have seen numerous timber tracts offered for sale where the merchantable timber is no more than 20 to 40 percent of the asking price.

From a buyer’s point of view, I try to follow the 60-percent or more rule with timberland purchases. If the buyer’s consulting forester finds 60 percent of the asking price in merchantable timber (that is, stumpage that the local market will pay for), a buyer should feel comfortable moving forward. The buyer’s consulting forester must cruise the seller’s tract using the same scale, definition of merchantability and procedures that local timber buyers will apply.

The estimate of merchantable timber value that the consulting forester gives to a buyer prior to the buyer submitting an offer represents the forester’s estimate of the seller’s merchantable timber volumes (or weights) and the prices gathered from local mills and timber buyers when the forester was preparing his report for the buyer. Buyers should understand that prices for sawlogs, veneer, pulp/chips and chip-and-saw change with market conditions, as do prices for each species. So the forester’s estimate of merchantable value should hold for three to six months from the date on which he submits his report to his client, the buyer.

The forester’s cruise and valuation also provides the evidence for the timber basis the buyer’s accountant uses in allocating the buyer’s purchase costs for federal tax purposes among the property’s various assets, such as timber basis, land basis and improvement basis. The forester’s work can also be used to establish a state-approved forest management plan that can bring property-tax relief for managed timberland.

I’ve found that a properly done cruise by a consulting forester whose work a lender knows is seen as representing a “hard” asset when the buyer indicates that he plans a prompt timber sale and pay down of a loan. Lenders prefer to see a pay down of a timberland loan within a year or two of purchase when the property is the only collateral and the borrower is short of cash. A 60-percent deal and a quick pay down may produce a 100 percent loan. The buyer then has to figure out how to repay the remainder of the loan. This might come from other sources of income or selling a portion of the land after timbering.

When merchantable value is in the 20 to 40 percent range of asking price, buyers should be hesitant about purchasing, unless some other asset factor is present. The buyer may be able to sell an unwanted asset, such as a house or a piece of the land. Merchantable timber value plus the sale of one or more severable assets might amount to 60 percent or more of the asking price.

When merchantable timber value is 50 percent of asking price, the buyer is in an “it-depends” situation. Whether this purchase will work for this particular buyer depends on the investment’s objectives, timeframe, plans for the property, financing and local land-appreciation trends.

Other ways are available for buyers to value timberland. Large acreages purchased by owners who need annual cash flow from future timber sales used a discounted cash flow (DCF) analysis. A buyer interested in land that’s just been clearcut or pasture that he plans to plant in trees can’t use a 60-percent rule, so a DCF analysis might be applied or just some old-fashioned haggling over the value of bare dirt.

I always try to think of ways that a timberland investment can pay for itself. Many factors figure into this type of calculation. And each property presents its own set of assets, values and prospects.

Nonetheless, with tracts that have merchantable timber, I start by looking for 60 percent or more of the asking price in merch value. That simple rule of thumb protects buyers against many common mistakes.

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Columnists occasionally use their print megaphones to convey a hidden message to their spouses and children. Sometimes, these messages are so subtly worded that they are not received. In that spirit…

MOLLY! Pay no attention to Chelsea Clinton! Your father is not going to spend $3 to $5 million on your wedding! Practice subtracting zeros. Many zeros.

I have come to view weddings as I first came to view funerals: Too much money is spent on the wrong things for the wrong reasons. Both are among my favorite grump-and-dump-on topics.

Ms. Clinton was married on Saturday near Rhinebeck, N.Y., at Astor Courts, a 50-acre farmette with a restored 1904 Beaux Arts mansion that overlooks both the Hudson River and active CSX tracks.

The Astor money traces back 200 years to German immigrant John Jacob Astor who began trading flutes and furs, expanded into Turkish opium for China and his adopted homeland and then moved on to New York real estate. John Jacob believed in the redeeming power of monopolies and turned his hand to them wherever possible. He died in 1848, the wealthiest American.

John Jacob Astor IV built the 40,000-square-foot structure at Astor Courts as an exercise emporium for his nearby 2,800-acre estate, Ferncliff. The original indoor clay tennis court and swimming pool survive. The squash courts and indoor shooting range have not.

JJA IV was politely described as “eccentric,” though the current vernacular might be “loopier than a lasso.” He once said: “A man who has a million dollars is almost as well off as if he were wealthy.”

The main pavilion was remuddled over the years into a nursing home and convent. It still had good bones, but age had been unkind.

The current owners paid $3.2 million for the wreck in 2004 and spent themselves silly restoring it. Soon after finishing, they listed it for $12 million. In advance of the Clinton wedding, they tastefully took it off the market and now it’s brazenly back on.

Molly–This was a dreadful spot for a wedding unless you like mixing nuptials with deer ticks and locomotive fumes.

Molly: Keep reading. We’re getting to the important part.

I know that a wedding is not in your immediate plans, but I want to be as helpful in this future matter as possible.

You may not know this, Sweetie, but our estate, Seltzer Woos (Astor courts; Seltzer woos), exceeds that Yankee postage stamp of a country place on all dimensions.

The Woos is now an internationally recognized rural gymnasium as well as a destination for smart-set weddings, ranging from the simply tacky to the truly “bankruptious.”

We feature free weights in many forms along with the latest gerbil-tested machines. We have cunningly disguised both as farm chores to give guests a sense of doing something more useful than sweating.

Alone among five-star-crossed resorts we’ve developed a regimen of lower-back straining exercises that defy conventional treatment. And we were the first to offer bikram shoveling, complete with 26 yoga postures and two breathing exercises at a constant 105 degrees F with 40-percent humidity.

Our four-legged personal trainers specialize in sprints and hurdles, which, you may recall, we laughingly refer to as “chases” and “fence-jumping.” Sprints are often extended into 5Ks for the sheer joy of running. Marathons can be arranged.

Our well-cropped grounds overlook Key Run, a usually dry and always unappealing tributary of the Potomac River. Key Run teems with rock life.

Our family fortune for your information is not based on peddling pelts or dealing dope. I’m not ruling anything out, of course. And just to be honest about it, the family fortune has yet to be based on anything.

Seltzer Woos is a far more elegant place to have a high-profile wedding than Astor Courts.  And, Molly, let’s be frank: Old money owns; new money — like the Clintons — rents. People, I fear, would talk if you followed Chelsea’s example.

I will also remind you that Blue Grass is far better equipped to handle the celebrities I know than Rhinebeck.

The Blue Grass Valley Bank routinely handles deposits and makes change.

Wilt’s Body Shop smoothes wrinkles and dents—and also works on vehicles.

Country Convenience carries everything from nails (the hammering-in kind, not the extending-out kind) to knick-knacks. They serve authentic American take-out cuisine that ranges from hamburger to ham sandwiches, on which you can even get a slice of an undocumented alien tomato in combination with an exotic cheese like American Swiss.

Carl Hull’s Tractor Repair Shop can quickly fix a guest’s hydraulics or deflate his inner tube. They now specialize in straightening “crankshafts,” which is our local name for out-of-town celebrity gossips.

And if the pasture above the stock pond is not thought to be sufficiently enclosed for a reception, the Blue Grass Ruritan Building is available in a pinch. Its main room, with the school stage and basketball court, can be had for $50; the kitchen is another $35. These are tax-deductible donations, not rent. And the Ruritans might even throw in the use of indoor bathrooms…for both sexes!

Local lodging options are truly impressive. Temporary accommodations can be set up in our cow pasture across the road where secular weddings occur 24/7. Many of our local inns offer overnight accommodations. The rest feature free parking.

A wedding at The Woos can be as thick or as thin with celebrities as you like. I’d feel obligated to invite Hemingway, and your mother will insist on Silver, Trigger and Buttermilk.

For you, Molly, I would offer a family discount, though I hope you keep this act of favoritism just between us.

I recommend our super-deluxe, low-carbon, come-as-you-are, no-calorie, un-champagned, unperformed, unlimoed, no-guest DIY package. We offer this choice only to customers your mother and I like, which includes you. With discount, the whole disagreeable mess can be done for $30–$50 tops, payable in cash advance.

Seltzer Woos is the choice of many crowned heads. We turned down the Clintons. We…

…I don’t have a chance, do I?

My subscription to Modern Bride begins in September.

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I was talking to an agricultural economist in the Midwest a couple of weeks ago, and he said something that caused my jaw to drop. Prime Iowa corn land, he said, was selling for as much as $8,000 to $10,000/acre. And, further, he thought that was a sensible investment for certain buyers.

That didn’t sound right to me, but I wasn’t up to speed on costs and revenues. So I looked at the work that economist Mike Duffy has done at Iowa State University. Duffy estimated costs of crop production in Iowa for 2010.

With yield at 165 bu/acre at a price of $3.62/bushel, Duffy calculates per-acre cost of corn (following corn) at $641 and gross returns at $597, showing a loss of $44 per acre. Duffy’s cost of land was assumed to be $195/a, a cash rental price. Other crops showed a positive return, assuming a cost of $195/a for land. Duffy provides additional examples and cost calculations.

Let’s assume that you were buying this one acre at $10,000 and financing the entire purchase at 7 percent for 20 years. This would involve a monthly payment of $77.53, or $930.36/year. If you subtract the cash rental cost of $195/a from the $641/a cost above and then substitute the $930.35/year cost of 100 percent financing, the total cost per acre amounts to $1,376. This produces an $800/a loss each year for corn following corn.

If you paid $10,000 in cash for that acre, your costs would fall to $446 per acre. You would show a gross return of $597, leaving a gross profit of $151/a. But you would lose, say, a 3 percent return on your $10,000, or $300/a. If you factor in the lost return on the $10,000 into your corn purchase, you’re down about $150/a with an all-cash purchase.

Even at 250 bu/a yield on prime land, the gross revenue would amount to $905/a, or about a $470/a loss with 100 percent financing. (I’m not figuring in the additional costs of getting additional yield.) With an all-cash purchase discounted at 3 percent for lost return, you would come out ahead by $160/a if you had a 250 bu/a yield.

These calculations make me wonder whether a purchase at $10,000/a can be 50 percent, or more, financed and still pencil out for the buyer.

The economist I was speaking to acknowledged that the numbers at $8,000 or $10,000/ acquisition cost would not work for an investor. It works, he said, for local buyers who want to pass land along to heirs, or sell at an appreciated land price, or assume that inflation and increasing productivity will pay off the purchase somewhere down the road.

All three arguments are reasonable. But they are working against a projected loss of between $150 to $800/a. At $8,000 to $10,000 an acre, most buyers would be hoping to stop losing money on the purchase before it ends badly. I wouldn’t buy that land for my own portfolio, and I certainly wouldn’t recommend it to clients.

Assuming 165/bu yield and a $3.62 bu price, corn land (corn following corn) would have to be bought at about $1,500/a to show about a $30/a profit. Thirty dollars an acre is not much. It’s $3,000 profit for 100 acres; $30,000 for 1,000 acres.

The point I’m getting at is simple: Paying too much for agricultural land — or any other type of real property — is not a sensible investment decision.

It’s easy for buyers to be optimistic in assuming that crop prices will increase in the future and yields will increase through technology and better management. And it’s very easy to assume that land values will continue to increase…because they have in the past. I would not bet against any of these factors.

I would, however, bet against all of these factors in combination being enough to offset paying $7,500/a too much at the “get-in.”

Marginal land, rather than prime land, is the better investment for investors. (It may or may not be the better investment for local farmers who are seeking a different mix of returns.)

The best marginal land is capable of being improved. The worst marginal land — the kind that investors should avoid — contains some attribute that cannot be economically improved, or something that will always limit its yield. Soil, for example, that has some immutable property that makes it unsuitable for the buyer’s particular purpose should be avoided.

Corn-ethanol production has inflated the value of Midwest corn land, particularly the most productive land. Ethanol has boosted the price of corn land in other places, as well and has pulled into corn production marginal corn land and land that was being used for other purposes. While I think agricultural land, generally, is a good long-term investment, I’m as wary of bubbles in land as I am in any other investment.

Bubbles go flat. Think of champagne.

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I often get phone calls from individuals looking for land-buying advice. One came in this week from Ben Lawden that left me puzzled. Here’s how I recall the conversation.

Ben: I’m looking for Seltzer, Curtis.

Me: [With an opening like that, I figured I should be cautious.] Me too.

Ben: Ha. Ha. You wary like me. Fox always live longer than rabbit.

Me: Who is this? [He spoke English with an accent that I couldn’t place. It was not North Carolina or Pittsburgh, the two I understand.]

Ben: My name, Ben Lawden. I want buy big land…in America.

Me: Are you calling from offshore?

Ben: Yes. I need land for bizniss.

Me: What kind of land?

Ben: I spend lot of time in mountains and deserts.

Me: Do you want to raise crops?

Ben: I have much experience with red flours. I send you semple.

Me: Niche products can do well.

Ben:  I no nitch. Red poppies is big bizness. But I need to di-verse, just like Goldmansex. I watch old tv shows like “BANANA” when I was small goat. Ben Lawden same as Ben Cartwright.  I want kettles. I want to poke cows.

Me: …um…do you mean, punch cows? You want to be a cowboy?

Ben: Right, pardner.

Me:  Well…it’s probably better to say that you’re punching cows rather than poking them.

Ben: I want be cowpoke. Whoever heard of being cowpunch?  I know America like back of my elbow.

Me: Well, that’s a start.

Ben: I want 10-gallon boots instead of stupid old sandals. I want blue jeans, no more bathrobes all day long. I want palomino stallion like Trigger; no more dunkies. ‘Hi, Ho. Trigger! Avast!’

Me: Close enough.

Ben: I be star in Hollywood like Roy Rogers. Put hands, feet in sidewalk cement. Have done this with others already.

Me: You may have to work a bit to be accepted by the locals.

Ben: You watch. I swegger into local water hole. I’m against alcohol, music, chilled water and dense-hall floozies. Anybody say anything, I pull out Stinger missile and blow up saloon. Just like old times with Soviet helicopters, except different.

Me: You’re a little short on people skills, but a lot of actors are. I can help you with a ranch, but my best contact in the movie business is a guy who runs a Jewish cemetery in Los Angeles.

Ben: Would he pitch my screenplay?

Me:  He comes to bury writers, not to praise them.

Ben: Sounds like one stale pastry.

Me:  Oh, right. One tough cookie. Let me focus on the land. What else do you want with your cattle ranch?

Ben: Need space to build new bum factory.

Me: You think there’s a market for new bums?

Ben: You bet. Get big Pentagon contract to make low-tech bums. Any schnook can blow up. Sell some to U.S. Army, but most go abroad where I have connections.

Me: You’re a defense contractor?

Ben: Sure. Conglumerate. Reality media. Red flours. Bums. Now need big wrench to poke cows.

Me: How big?

Ben: Like Lebanon. How about I buy Connecticut?

Me:  You’ll do better in Montana or Wyoming.

Ben: Ted Turner owns two million acres. So I buy three. After all, I make the news; he only reports it. Also, big requirement: no snoopy neighbors.

Me: No one in Montana ever said anything about the Unabomber.

Ben: Works for me.

Me: Do you want a house like the kind you live in now?

Ben: No! No! House now—no windows and many bugs.

Me: What style is it?

Ben: Pakistani primitive. Made from dirt and stone, all native materials.

Me: An earth-shelter design! Is it all below ground?

Ben: How you know that?

Me:  How very green!

Ben: As Americans say, ‘We live in sticks.’  Except…we have no sticks where I live.

Me: Are you off the grid?

Ben: Sure. No electric lines in no-sticks. Just batteries.

Me: So, are you looking for another earth house?

Ben: No! Tired of living in cave with four wives and 20 children. Just between us guys—make me crazy. ‘Ben do this. Ben do that.’ Leave them here, where they have rich, full life. I move to America and live in White House.

Me:  Well, I suppose you could build a replica.

Ben:  Want big white columns. Hollow. Good for hiding missiles.

Me: I hadn’t thought of that. Any other special features?

Ben: I need video-recording studio. And state-of-the-art hazmat lab. Also want big bum shelter.

Me: For the homeless. Aren’t you thoughtful? You do have an odd mix of needs. What about amenities?
Ben: Want home on range. Big Sky. Buffalo must roam where deer and cantaloupe play.

Me:  How much do you have to spend?

Ben: For right place, money will flow like Gulf oil well. Actually, from Gulf oil well. I make joke from inside. Ha. Ha. Maybe I go into stand up.

Me: I’ll call around. What’s your email?

Ben: Don’t use any more. Too much spam and scam.

Me: Cell phone?

Ben: They cause brain cancer…and drone attacks.

Me: So how do I communicate with you?

Ben: I phone you in three weeks. You must keep confidential. If you blab-blab—I pile stones on your head until squish, like greppe.  I send you $500,000 to get started. Is that enough?

Ben Lawden smelled a little fishy to me. I’m sure his check will be good. I just can’t put my finger on it.

Maybe it will come to me if I connect one or two dots.

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“Who should I list my land with?” is a question I was asked this week by an owner in Mississippi. Since this owner was out of my area, I had to do some digging before I referred him to a top-notch land agent. Many landowners are faced with this tough decision once they have decided to sell their land and do so using an agent.

All licensed real estate agents are not equally good at helping you sell your rural property. If you owned an exotic car, you would not take it in for maintenance to a small engine shop for repairs. Listing your hunting land or farm with a predominantly residential real estate agent can be a mistake as well. Landowners need to choose an agent and a company that can market and sell their rural property in a way that meets the sellers’ objectives.

Since all real estate agents are not equally knowledgeable and skilled at selling land, how should you select the right agent? Here are a few suggestions from a land agent’s perspective that I think are fair and will help you choose a professional who can help you get the deal closed.

1. Ask your friends and family. Ask people you know who they have used to sell their land and if they would recommend them to you. This is usually one of the natural steps and most effective ways of finding someone you will feel comfortable with.

2. Google search for relevant terms like ”Land for sale in Perry County, Alabama” or “Alabama Land Agent“. If you are an out-of-state or out-of-area landowner who wants to sell their rural property, but you do not know anyone in the area this can be a helpful tool for identifying potential agents. Notice I said “identifying potential agents” because this is a preliminary step in the selection process.

3. After identifying potential agents, research how they market their listings. Pay close attention to how well an agent markets their listings online. Recent statistics show that over 80% of buyers preview properties online before getting in their car and driving to look at land. You will get an idea about how much effort an agent will put into advertising your listing. Will your land be visible to potential buyers? It needs to be in this market so that ALL possible buyers are aware that you have a quality piece of land for sale.

4. Professional Designations associated with agents who specialize in land. Look for agents who are members of the National Association of Realtors, a local board of Realtors, Realtors Land Institute (RLI), and have earned the title of Accredited Land Consultant. These agents are demonstrating that they take seriously their commitment to excellence in their profession. Having these designations may not mean much to potential buyers, but it does show that they have worked hard to gain knowledge and proficiency in the discipline of land. Agents that are Realtors have agreed to operate by and be bound to a Code of Ethics, which helps protect landowners in land transactions.

5. Ask a local real estate attorney. Contact a local real estate attorney in the area where you own land and ask them if they recommend an agent. These attorneys will know who closes deals and can help steer you in the right direction.

6. Interview several agents from multiple companies by phone or in person if possible. Talking to someone over the phone or meeting them in person will help you get a better feel for someone than by merely emailing. I recommend having a list of questions prepared when you meet. The two most popular are always: “What is your commission?” and “What is my land worth?”. I would also recommend asking how they market land, what is the average time for land to sell, what are the most recent comparable sales in the area, how has your business been lately, and is there anything I can do that will improve my chances of selling my land.

Once you have spoken to several agents and feel comfortable with one, ask them to take a look at your property, with you if possible. You never want an agent to give you a specific figure of what your land is worth without them seeing it. They should be able to provide a fairly close price range of where you should list it, but each property is different and has characteristics that will distinguish them from other properties on the market. List your property with an agent that is not afraid to get out and walk the boundaries and trails on your land. An agent sitting in the car and pointing out features to prospective buyers seldom helps an owner sell their property.

7. Once you feel comfortable with the agent, sign the listing agreement. For rural land these agreements typically run for a longer period of time than residential properties. Listing agreements may last 3 to 12 months, and in this market it may take 12 to 18 months to find a buyer for your land. Particularly if you own a large tract of land or if it commands a high asking price, you can probably expect it to take a while to sell. Here is a link to an article about what to expect at a listing appointment.

8. Lastly, check them out on Facebook or other social media. It is amazing what information you can find about someone on their social media pages. Many employers are using this as part of their vetting process for job applicants. You might find that you share common interests with the agent or that you are not fond of what you see on their page. This gives you a closer look at their personal life which can be useful information for you.

I hope you find this information helpful as you look for an agent who can help you sell your land at the right price, in a timely manner, and as smoothly as possible. By spending time researching and choosing the right agent on the front end, you can save yourself a lot of grief and disappointment in the long run.

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