There are opportunities all over Australia at the moment to look at purchase of ex blue gum land for purpose of bring back into agricultural production. Often these parcels of land seem to be selling at a discount to their value but the process of removing trees and establishing old infrastructure such as fences and water is expensive. Considered alongside the capital fertilizer & lime requirement to get the land back to pre tree production levels, what seems to be a bargain can end up costing more than the similar land in the same area. Like all investments we should view this in light of what the end product is going to be worth. This style of investment is no different to the myriad of house flippers you see on television shows. We start with a block of land that has a known end value in the market place, a good manager will have a fairly accurate set of numbers for the costs associated for the renovation, a cost associated for interest and a margin involved for your work. If the numbers all stack up the investment is worth it. Too often when I get involved in doing due diligence on these projects the numbers don’t stack up, in these cases we just pass and move on to the next opportunity. So how do we successfully invest in bluegum land to make a profit The key to successful blue gum land investment is in the due diligence process. Although we won’t reveal all of our secrets here we can break this down into three main areas
Understanding your exit strategy
All investments should have a clear exit strategy. This is a good understanding of land sales in the area and factors that will affect the value of the property such as the production capacity of the farm that will underpin the expected sales value. Understanding the trends in sales values is very important, also having a clear picture of potential land uses that can purchase a renovated property so that land can be set up for the industry that can support the highest bid is important. In south west Victoria at the moment macro factors effecting the milk industry have depressed land prices in the short term, the reduction in land values has to some extent been minimalized by lamb and cattle graziers stepping into the market to stump upland values on the back of high protein prices.
Understand Your Costs
Capital expenses in remediation work can be quite expensive. Burning off remnant vegetation, stump grinding, and fixing fences and water points are all required prior to starting any farming venture on ex blue gum land. However one of the largest costs is in fertilizer and lime to get land up to productive base. Experience has shown this can be one of the hidden costs of reclaiming ex forestry land a soil audit is required before committing to purchasing a property.
Buy With Margin Factored In
The last but most important point, once you are armed with a comprehensive due diligence document that considers all costs and has a valid exit strategy the process is easy, we can bid on projects understanding the risks and have a margin factored in for profit.