Is Buying Recreational Property a Good Investment?

Looking for a place where you can leave civilization behind? Buying recreational property can be your claim to the great outdoors, where you will be able to elude society and all its worries.

But is that slice of wilderness worth a pretty penny? Let’s find out.

What is Recreational Property?

Recreational Property is land that is specifically used for recreational purposes. The exact use can vary, but is most notably used for camping, hunting, fishing, off-roading, or just a spot to get away from it all.

Most importantly, this property is not apart or attached to your main residence. This includes land next to your main residence that is purchased separately from your original purchase.

Now let’s see if we can justify buying a new piece of property to that special someone.

Ways Buying Recreational Property Can Be a Good Investment

Though buying recreational property isn’t seen as an investment to most, any real estate purchase should be evaluated as such.

There are plenty of ways that your new purchase can grow in value over time or earn extra income. Let’s take a look at how your new purchase can add to your total net worth.

Appreciation of Land Value

The most obvious way to make money on an investment is for it to increase in value. Appreciation is the act of an asset increasing in value over time.

It’s well known that investing in real estate can lead to hefty profits, and it’s no different for recreational property. Just because you’re buying it for pleasure, doesn’t mean it won’t increase in value too.

How to Spot Land that Will Appreciate

There are a few ways to increase your luck on having your new purchase increase in value. When searching for recreational property look for some of these parameters.

1. Undervalued Compared to Similar Properties

If the property you are looking at is significantly cheaper than others in the area, it could be a sign that it’s undervalued. Look at the value of the property and compare it on a cost-per-acre basis to similar listings to gauge this metric.

4. Lots of Cows

Okay, so cows won’t directly affect the value of your land, but if you noticed growing ranches in the area, it could drive up the value of your land, as ranchers compete to grow their grazeland.

Income Opportunities

If you’re willing to sacrifice some time apart from your new purchase, there is an abundance of ways to monetize recreational property. Let’s take a look at how you can make money off your new investment.

A Few Ideas to Generate Income from Recreational Land

1. Lease Out Hunting Rights

Instead of paying to hunt on someone else’s land, turn the tables and start making an income by charging a fee to hunt on your new property.

For large plots of land, you can charge between $1,500 – $2,000 for seasonal hunting rights. If you have larger game on your land, you can charge up to $10,000 per outing.

Check with your state on the rules and regulations for hunting on private land before you start letting the general public start with target practice.

2. Set-Up a “Glamping” Site for Airbnb

According to Forbes, glamping is the 2020s hottest travel trend. Why not monopolize on the latest trend with your new piece of land?

Building a full-out glamping site on your property will cost roughly $2000, but you’ll be able to charge around $170 a night once it’s all set-up. That’s a full return on your investment after just 12 nights! Not a bad deal…

3. Charge for off-roading

If your land has primitive trails, dirt roads, or open land you can monetize the property by charging avid off-roaders to adventure on your land.

You should be able to charge up to $50 per session depending on where your land is and how expansive the trail system is. This sum can quickly add up if your property becomes a hot weekend spot for locals.

4. Lease land for livestock grazing

Depending on the forage quality of your land and location in proximity to ranches, you can lease out your property for cattle grazing rights.

The lease is charged in AUMs (Animal Unit Months). AUMs are usually based on either the average weight of the cattle compared to the condition of the grazeland, or the total number and type of cattle grazing per month.

This value can vary drastically depending on the lot size and grazeland quality, but you can expect $500 to $1000 per month for the average lot.

5. Lease land for foraging rights

Think those large plots of grassland are worthless? Think again. There is a market for everything, including tall grasses. That tall grass can be converted to hay and sold to distributors or local farms.

There are plenty of hay harvesters that will lease out your land to harvest the grass and convert this hay for you. They typically will pay for the amount of grass that is harvested and you’ll get a cut of whatever they sell it for on the open market.

Depending on market conditions, hay can go for $30 – $300 per ton. At a yield of 1 – 1.5 tons per acre, you could be looking at a decent income per year.

6. Charge for timber harvesting

As we mentioned earlier, timber can add value to your new property. Much of the timber in the US comes from harvesting trees from the National Forests, but private land is also a hotbed to help supply the growing demand for timber.

Pricing will vary from location to location and depending on the type and age of trees on your land. For uncut aged trees, you should be able to get $2,000 an acre or more.

There is much more to this calculation so check out the analysis Penn State did here to see if it’s worth your time to harvest the trees on your lot.

Calculating What Income Would Make a Good Investment

When calculating any return an investment will present, the most important factor to consider is your return on investment (ROI). How much time will it take to recoup the initial amount invested and the rate of return thereafter? Similar to the one I go into depth on in our recreational investments article.

If you pay $35,000 for a piece of property to use for hunting and decide to let four other people use it for the season as well, you can calculate the ROI and % return as follows:

An ROI of over 5 years does not justify an investment, but a 17% return is a lot better than most stocks will appreciate. To have a complete look at our investment, we need to factor in long-term savings as well.

Long-Term Savings

Most people look at investing on one end of the spectrum, how much a certain asset will appreciate or grow your income. The savings opportunities an asset will bring are often overlooked.

Buying recreational property can have a long-term savings impact on your yearly budget. You may use the land as a getaway to spend weekends instead of paying for a hotel or campsite somewhere else.

Depending on the use, the savings quite substantial. As we previously mentioned, it’s not uncommon to pay $2,000 a season to hunt on someone else’s private land. Costs can climb up to $10,000 to hunt big game.

Return on Investment Calculation

To see if the savings is worth the investment, we’ll use an ROI calculation. This is calculated the same way as the ROI on our property’s income.

We’ll see how much money we save over time, and compare it to how much our new property cost. Typically an ROI of fewer than 2 years justifies investments in the business world, but for your long-term property purchase, less than 5 years is decent.

Let’s go through an example on a recreational property that is purchased for hunting:

For our example, 11.67 years is a very long return, and in itself wouldn’t justify an investment. This would indicate looking for a cheaper property to have our ROI become 5 years or less.

Keep in mind that this is merely one portion of justifying our investment. To have a complete understanding of the property is worth the purchase, we need to cover all of our bases.

Tax Considerations

Two things are guaranteed in life, death, and taxes. Often overlooked, taxes are an expense that must be factored in buying recreational property.

Most often, normal property taxes apply to recreational property, but this may differ depending on the state and zoning laws. Make sure to research any taxes that may apply before you move forward with your purchase.

So Is Buying Recreational Property a Good Investment?

The answer to this question isn’t straightforward. Your property’s investment quality depends on the appreciation of the land, income that can be made off of the property, and what the property will save you in the long run.

As previously mentioned, a great ROI is under two years, but anything under five years for long-term investments is considered of good quality. When we compare percent return, we can use the S&P 500 index as a benchmark. This return is 7% annually.

Since each property is different, you will have to do the exact calculations yourself. To make things easier, we put together an example to show what goes into assessing the investment quality of a land purchase. Our example below evaluates a piece of recreational land we referred to earlier in the article.

The buyer will save money by not paying to hunt on someone else’s land and make income by charging for guests to hunt on the new purchase. The land contains abundant wildlife and a shallow lake. It’s expected to appreciate at 3% per year.

In this example, our ROI of 3.6 years qualifies as a good quality investment. Comparing the 28% annual return to the S&P 500 index our new recreational property has a great return! For this example, it’s safe to say that buying this land would be a good investment.

Wrap-Up

Use the criteria we discussed when running the numbers on the properties you are looking at. Make sure to consider income potential, long-term savings, and future appreciation. Do your due diligence to assure you’re making the right purchase.

Did we help with your new land purchase? Let us know in the comments!