Is Michigan Land a Good Investment?

With Michigan experiencing immense manufacturing resurgences alongside surging broader America industrial reshoring catalyzed by global supply chain realignments, the appeal for investing in raw land plots or transitional acreage parcels merits renewed considerations - especially locations offering logistics infrastructure advantages. As the 2022 farm real estate survey data published by the USDA's National Agricultural Statistics Service indicates, average per-acre agricultural property valuations reached new record highs of $5,300 last year – a 17% jump over 2021 mirroring Midwest counterparts. 

More critically for investors, recreational transitional lands only suitable for rural residential dwellings or ancillary hobby farming uses traded up an even sharper 26% as baby boomer retiree in-migration expanded dramatically. For portfolio allocators and landlords seeking geographical diversification into stable Midwest locales amidst inflationary macro environments, putting capital to work across the Michigan property continuum demands evaluations relative to other states. Returns history and development trajectories suggest merit.

Michigan Land - The Good

First, let's highlight some of the potential benefits:

It's (Very) Affordable

No way around it - land is just cheaper in Michigan than much of the country. The average price per acre statewide is around $2,500 according to the latest government data.

Compare that to states like Colorado ($7,740 per acre) or even neighboring Wisconsin ($5,000 per acre), and Michigan land is a downright bargain.

And if you look in rural, northern counties like Lake County, you can find large parcels for under $1,000 an acre in some cases. That's cheap compared to almost anywhere east of the Mississippi.

So if you've got dreams of owning a big spread of Michigan woodlands or rolling fields, it's a buyer's market right now.

Strategic Locations Could Pay Off

While rural land is plentiful and cheap, property near Michigan's major metro areas tells a different story.

Places within commuting distance of growing job centers like Grand Rapids, Ann Arbor, or Traverse City can command far higher prices than outlying areas. And vacant parcels in these locations usually have higher development potential.

For example, farmland half an hour from the booming Ann Arbor market could possibly be subdivided into a mini-subdivision. Or a vacant lot zoned commercial next to a highway near Grand Rapids presents a great site for a future gas station or shop.

So while much Michigan land has marginal investment value, strategic parcels in high-growth areas merit consideration if you can get in at a reasonable price.

Leasing Out Land Can Provide Income

Here in Michigan, leasing out land for farming, hunting, renewable energy, or mineral rights is common. While the lease rates may seem modest compared to other states, when it's multiplied over a very large parcel, it can result in decent supplemental income each year.

So even if the land just sits there with no one to buy it, with the right agreements, you can collect consistent lease checks year after year.

It's not a get rich quick strategy by any means, but it helps offset carrying costs and defray the purchase price over the long haul.

Future Development is Always Possible

Outside of a few hot areas, most vacant land in Michigan has limited current value and purpose. But the thing about land is - its potential can change over time.

What looks like a worthless swamp or scrubland today could be the perfect location for a solar farm ten years from now when the infrastructure arrives. Or a small town surrounded by fields could experience a boom when a big employer comes along.

So while land speculation is always risky, if you have a long-term outlook, affordable Michigan property can be positioned to ride future waves should the fundamentals shift.

The Not-So-Good in Michigan Land

Now that we've looked at some positives, it's equally important we review the challenges:

Rural Land is Abundant and Unwanted

As mentioned earlier, Michigan is blessed with over 35 million acres of farmland alone - and massive additional acreage of forests and wetlands.

For better or worse, younger generations have steadily migrated from rural areas to the cities where the jobs are. This leaves a glut of unwanted land in Michigan's small towns and countrysides.

Simply put - supply chronically exceeds demand. And that depresses values and makes parcels extremely challenging to sell.

Many outlying counties have an inventory of land for sale that would take a decade or more to absorb at recent sales activity levels. This harsh reality makes profitable investment a dicey proposition.

Carrying Costs Add Up

Let's say you snap up what looks like a steal of a deal on a few hundred acres in rural Northern Michigan for around $1,000 per acre.

Great purchase price, but your costs are just beginning. Next up is the property tax bill which will run you around $10 per acre per year in many counties. Sure, that's just $2,000 or so annually on a 200 acre parcel.

But it's an indefinite carrying cost while you wait and hope for a buyer who may never emerge. Likewise, you may incur maintenance, management, insurance and lease administration costs that further chip away at your return.

Suddenly that amazing $200k purchase doesn't look so glamorous anymore after sinking another $50k into the land over five years.

Limited Options to Add Value

If you're buying land or run-down houses, it's natural to think "I'll just fix it up a bit and sell for a nice profit." After all, you watch those home reno shows where they do it all the time!

But with raw land, your options to add value with little investment are very limited. Clearing brush, mowing, or slapping "for sale" signs on trees will do little to boost appeal.

And anything major like running utilities, developing access roads or ponds requires big dollars spent upfront in hopes of future payoff. So unlike a home remodel, the business model for land flips isn't so straightforward.

The Reality of Illiquidity

Liquidity refers to how fast an asset can be converted to cash. And unless you're in a red-hot market, vacant land suffers from extreme illiquidity.

Unlike stocks or bonds, you can't just click to sell a land parcel. Finding an end buyer takes tons of time and effort even with pro help.

Banks don't like to lend on unimproved land either, limiting the pool of buyers mostly to those with cash. The sorry truth is most land sits for months or years before finding the ideal buyer.

So if you have dreams of quick flips, Michigan land will probably shatter them. Patience and persistence are mandatory with land investing around here.

ROI Timelines Can Be Long

Tying together the challenges we've covered, a cold reality is that land investments in Michigan can take many years to pay off - if ever.

Unlike a rehabbed house or apartment complex, vacant land produces no rental income while awaiting sale. Quick appreciation is unlikely outside of prime locations.

Five, ten years or longer may pass before the right buyer stumbles along willing to pay a satisfactory price. Can you afford to tie up capital and incur carrying costs for that long?

For the right investor with patience and perspective, it may be worth the wait. But for many, the time value of money becomes detrimental.

Making Michigan Land Work in Your Favor

Given the plusses and minuses, is Michigan land worth buying? As said earlier - it depends.

With the right property, right location, and right strategy, well-chosen parcels can absolutely be solid long-term holds. Here are tips to stack the odds in your favor:

• Seek out discounted off-market deals. Paying retail prices on land almost never pencils as a good investment. But deals exist if you dig and negotiate.
• Target areas with clear demand drivers - frontage on all-sports lakes in northern counties, for example, or sites adjoining expanding subdivisions.
• Partner with local real estate investors experienced in the land market who can help avoid costly mistakes.
• Explore creative seller financing like land contracts to keep acquisition costs low.
• Focus on larger parcels with more uses - more ways to make money like through mineral rights leases or selective timber harvesting.
• Remain hyper-focused on the numbers and achievable future sale prices given local comps. Sentiment kills profitable land investing.
• Be very selective about improvements/development. They seldom add proportional value on rural land.
• And above all, be patient and think long-term. Land takes time to appreciate. Don't overleverage yourself or expect fast rewards.

Final Thoughts

There's no denying it takes sharp hunting skills, market knowledge, and the patience of Job to thrive investing in Michigan land.

But with the right property and strategy guided by both números and sabiduría (numbers and wisdom), rolling fields, timbered acreage, or waterfront can indeed offer good ROI - even if it takes some years.

Yet for the casual buyer looking for a quick buck or weekend getaway pad, Michigan's abundant vacant land is fraught with risk. Caution and consultation are advised before jumping into raw land speculation.

Choose wisely and remain patient, Michigan land investors. Those enduring virtues may well lead you to eventual profits if you do your homework.

Frequently Asked Questions (FAQs)

What are the main risks of buying vacant land in Michigan?

The biggest risks are oversupply in many rural areas, low demand, high property taxes, and significant carrying costs over long holding periods. Land can also be difficult to sell without extensive marketing time and effort. Illiquidity and depressed prices in small towns are major hazards.

What types of Michigan land have the highest investment potential?

Parcels near growing urban centers like Grand Rapids or Ann Arbor have the most upside if acquired at reasonable prices. Waterfront land on lakes and rivers is also desirable. Large acreage with multiple income streams through timber, minerals, or leasing may offer solid returns.

What is a typical timeline to profit from Michigan land investments?

Expect 5-10 years or longer in most cases. High-potential parcels in regions with solid job and population growth may pay off in 3-5 years. But rural land could take 10+ years to appreciate enough to sell at a decent profit. This is not a get-rich-quick real estate investment.

Should I partner with a local expert when buying Michigan land?

Yes, teaming with a seasoned real estate investor or land company based in the state can help avoid costly mistakes. The local expertise on zoning, regulations, taxes, and development potential is extremely helpful. Don't try to go it completely alone.

What are tips to buy Michigan land at discounted prices?

Look for off-market deals, avoid overpaying for retail listings, negotiate tough, explore creative seller financing, and target distressed sellers like heirs or estates selling inherited property. Be willing to make lowball offers and walk away if needed. Patience and persistence pay off.

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