How to Invest in Vermont Land?

Vermont's picturesque landscapes and rural charm have long attracted investors seeking to own a piece of the Green Mountain State. According to the 2022 Census of Agriculture, Vermont's farmland was valued at an average of $3,920 per acre, a significant increase from previous years. The same census reported that the state has approximately 1.19 million acres of farmland, with about 26% of it woodland. Additionally, a study by the Vermont Housing Finance Agency found that undeveloped land prices in the state have risen by an average of 2.5% annually over the past decade. These figures underscore the potential for land investment in Vermont, whether for agricultural use, conservation, or future development.

Getting a Lay of the Land in Vermont

Spanning 9,616 square miles, Vermont is the second least populous and sixth smallest state by total area. As of 2022, it had a population of just 643,077 residents, most of whom are concentrated in the north-central part of the state near the metro areas of Burlington, Montpelier, Barre, and St. Johnsbury. The southern half of Vermont is more rural and mountainous.

This population distribution is important for real estate investors to note, as property demand and values can vary greatly depending on the region and proximity to major economic hubs. Generally, north-central Vermont near Interstate 89 tends to see the highest demand and fastest-rising home prices due to easier access to local jobs, shopping, dining and other amenities.

Meanwhile, remote areas situated farther from any metro area or key transportation corridor tend to have lower demand, slower price appreciation, and smaller renter pools. These market intricacies highlight why local market familiarity is so critical for Vermont real estate investing.

Another key thing for investors to know is that Vermont leans heavily on tourism, agriculture and food production for economic activity. The state welcomes over 13 million visitors annually to its quaint small towns, charming landscapes, and popular ski resorts. Dairy farming and maple sugaring also contribute over $2 billion to Vermont's economy each year.

This means demand for vacation homes and short-term rentals is disproportionately high compared to other states. Investors who buy properties near key tourism centers and recreation areas can often capitalize on the strong visitor demand through rental income. At the same time, far-flung rural properties usually don't generate as much interest or high returns.

Popular Investment Property Types

Vermont's heavy tourism industry, rising housing costs, and changing demographics have created increased investor interest across different real estate niches:

• Vacation Homes - From ski condos to lakefront cabins, vacation properties for seasonal and short-term rental are hugely popular in Vermont. Investors can generate significant rental income during peak tourist seasons.
• Residential Rentals - Rising home prices across most of Vermont have paved the way for more rent-by-choice tenants, allowing landlords to demand high rents, especially in metro regions.
• Recreational Land - Fueled by the COVID pandemic and remote work revolution, demand for recreational properties for camping, hunting, ATV-riding and other outdoor hobbies has soared. Prices have followed.
• Retirement Properties - Vermont’s quaint small towns, safety and natural landscapes appeal to retirees. Investors can capitalize on this influx through build-to-rent projects or flipping age-friendly homes.
• Farm/Agricultural - Vermont's thriving local food movement creates prospects for agricultural land investments. However, gaining good rental income on raw farmland can prove challenging.

Zoning laws and out-of-state buyer restrictions in certain areas can also influence an investor’s ability to rent out Vermont properties short-term. Performing due diligence around these hyperlocal regulations is critical before buying.

Key Real Estate Market Trends

Several overriding real estate trends also impact Vermont’s investment landscape:

• Strong price growth - Home values across Vermont have increased substantially in recent years due to buyer competition and strained supply. This presents opportunities for profitable sales to capitalize on home equity gains.
• Low inventory - Persistently low levels of homes for sale across price points makes sourcing viable deal inventory very difficult for investors.
• Cash is king - With bidding wars common, flexible cash investors willing to close quickly have major advantage. But higher purchase prices also mean lower returns.
• City revival - Years of revitalization efforts have sparked renewed interest in Vermont’s small cities like Barre, Montpelier and St. Albans from buyers getting priced out of Burlington. Investors can find good rehab deals in these transitioning downtowns.
• New permanent residents - Vermont has welcomed lots of new remote workers and second-home owners becoming full-time residents amid the pandemic. This is expanding and stabilizing the year-round renter pools for landlords, especially in smaller towns that used to empty out during colder months.

Weighing the Pros & Cons

Despite Vermont’s heavy tourism sector and recent waves of affluent in-migration fueling housing demand, investing here still comes with unique challenges.

Pros

• Soaring home values allow profitable flips and sales
• Strong short-term rental demand and rents, at least seasonally
• Vibrant college towns and small cities with rehab potential
• Expanding permanent populations stabilizing certain rental markets
• Premium pricing possible around ski resorts and quaint villages

Cons

• Intense competition from all-cash buyers and second home purchasers
• New restrictive state regulations on short-term rentals emerging
• Sporadic winter road access around properties located on hills/mountains
• Very high property taxes in many towns
• Remote rural properties can experience low occupancies and cash flow issues

Keys to Successful Investing

As a real estate investor interested in tapping Vermont’s vibrant -- albeit complex -- property market, keep these tips in mind:

Focus locally - Gain an intimate understanding of the hyperlocal market conditions impacting deal flow, financing, regulations and renter demand across different Vermont towns or counties. What works well 25 miles down the road could be completely different.

Take a niche approach - Identify a specific niche like college rentals around UVM or ski condos in Stowe where you can really concentrate your efforts. Become that niche expert.

Line up local teams - Vet and build a trustworthy team of specialized local pros like attorneys, property managers, brokers and contractors before buying. They will prove invaluable in navigating state and municipal laws.

Run the number often - Crunch the math on potential deals to confirm strong projected returns are possible after all acquisition, carrying, management, repair and tax costs unique to operating in Vermont.

Build relationships - Getting access to deals often requires tapping into local investor networks. Spend time making connections with Vermont-based landlords, brokers, investors clubs and hard money lenders.

Final Thoughts

Vermont real estate certainly offers profit potential thanks to the state’s stellar natural environment, tourism, growing year-round populations in some areas, and housing undersupply. However, complicated regulatory frameworks, new restrictions on STRs, intense buyer competition, and extremely high property tax rates can quickly erode returns if investors don’t do proper due diligence.

Focus your efforts locally, find ways to add value through rehabs or improved management, and leverage local market experts whenever possible. And of course, crunch the numbers with realistic holding and operating costs factored in to confirm positive cash flow and profit potential before buying.

Frequently Asked Questions (FAQs)

Is investing in vacation rentals profitable in Vermont?

Yes, investing in vacation rentals properties for seasonal and short-term rental can be highly lucrative in Vermont thanks to strong tourism demand. However, investors need to carefully analyze state and local regulations around short-term rentals, which are growing increasingly restrictive in some areas. Popular ski resort and lakeside towns tend to promise the highest nightly rental rates and winter/summer occupancies for vacation rentals.

Does Vermont’s new tax law apply capital gains taxes to real estate sales affect investors?

Yes, Vermont’s new capital gains tax law subjects profits from sales of investment properties owned for less than six years to state taxes. This reduces net profit margins for fix-and-flip investors and landlords looking to liquidate properties in under six years. Investors must factor this new cost consideration into all exit strategy calculations.

Where are the best places to invest in rentals in Vermont?

The Burlington metro area, Montpelier, select college towns, and small cities like Barre and St. Albans located along key transportation corridors tend to offer the most promising rental opportunities thanks to ongoing housing shortages amid population and job growth. Inventory scarcity allows landlords to demand higher rents in these regions.

Is it better to work with a local or national lender when financing Vermont investments?

Local lenders and community banks tend to offer the best mortgage rates and terms for Vermont investment properties thanks to their market familiarity. The complex patchwork of hyperlocal regulations across Vermont towns also means local banks are best suited to educate out-of-state investors on any restrictions impacting financing eligibility or rentability.

What is the typical rental vacancy rate during the winter in Vermont’s more rural regions?

In Vermont’s more remote, rural markets located farther from major metro areas, rental vacancy rates tend spike during the colder months when tourism declines significantly. Investors specializing in these regions often experience very high occupancy rates in summer and fall but much lower demand and intermittent vacancies in winter and early spring. Carefully evaluating 12-month cash flow potential is essential.

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