Is Ohio Land a Good Investment?

Investing in Ohio land has become an increasingly attractive option for many investors seeking to diversify their portfolios. According to the Ohio State University Extension, the average value of Ohio farmland rose by 3.9% in 2022, reaching $7,200 per acre. This steady appreciation reflects a broader trend in the Midwest, where agricultural land has shown resilience even in uncertain economic times. The USDA's Land Values 2023 Summary report further supports this trend, indicating that Ohio's cropland values increased by 8.3% from 2022 to 2023, outpacing the national average of 7.0%. 

Additionally, the Ohio Department of Natural Resources reports that the state's 8 million acres of forestland have seen a 2.5% annual increase in value over the past decade. These statistics suggest that Ohio land may indeed present a compelling investment opportunity, but potential investors should consider various factors before making a decision.

An Overview of Ohio's Real Estate Market

With a population surpassing 11 million, Ohio is among the nation's most populous states, ringing in at number 7. Its sprawling boundaries stretch from the Ohio River Basin up to the Great Lakes, covering close to 45,000 square miles of farmland, forests, and urban centers.

As a real estate market, Ohio shows several positives for investors:

• Strong homeownership rates reflect robust housing demand. Over 66% of households own their home, better than most states.
• Home prices remain relatively moderate, with median values around $167,000. This keeps Ohio affordable versus other markets.
• For agricultural investors, Ohio farmland is attractively priced per acre compared to nearby Midwest states.
• Major Ohio employers in healthcare, like Cleveland Clinic, and retail, like Kroger, provide workforce and population stability.
• The state also touts a low cost of living and steady job creation, fostering real estate investment appeal.

With these pillars in place, alongside an affordable housing market, a strong case exists for Ohio real estate - especially land. The state seems positioned for stability and growth potential. But as always, there are trade-offs to weigh between risk and reward. Nuances exist at the local level.

The Advantages of Investing in Ohio Land

Here are some of the key benefits that make Ohio land a worthwhile investment:

Strong Demand from Homebuilders

Ohio has seen a resurgence in new home construction recently. The number of issued building permits rose 5% in 2021 over 2020 levels. Homebuilders are attracted to Ohio's relatively low land prices, fueling demand for both suburban subdivisions and urban infill projects. This makes vacant plots valuable for developers. Even smaller parcels of a few acres in high-growth areas can fetch strong pricing from builders looking to expand their footprint.

Rising Property Values in Major Metros

While lagging national appreciation trends in the past decade, Ohio’s major metro housing markets are now seeing some of the Midwest’s fastest price growth. In 2021, home prices in Cleveland climbed 12.8%. Columbus also saw gains near 12.5%. Robust demand, low inventory levels, and urban revitalization have contributed to the value increases. Though still affordable, Ohio’s big metros are becoming pricier. This makes metro land more attractive for future development or as an investment holding.

Farmland Remains Reasonably Priced

On average, Ohio farmland prices per acre are 30-50% lower than states like Illinois and Iowa. But the price gap has been narrowing as farmers and investors vie for limited inventory. Strong commodity crop prices have improved farm profits. And Ohio farmland is highly productive thanks to favorable soil, terrain and climate. From a yield and cash rent perspective, Ohio can rival top Midwestern states, but with lower upfront land costs.

Energy Production Driving Demand

Eastern and Southeastern Ohio sit atop the Utica and Marcellus shale formations, two of the largest natural gas reserves in the U.S. This has spurred major investment in pipelines, processing facilities and related infrastructure to support the oil & gas industry. The result is an influx of energy sector jobs and rising demand for real estate in communities near shale plays. Owners of rural land parcels may be able to lease their mineral rights or sell to energy companies expanding operations.

Tourism Growth in Select Markets

Though not a top tourist destination, Ohio benefits from several popular attractions like Cedar Point amusement park and the Rock & Roll Hall of Fame. Cities like Cincinnati, Cleveland and Columbus have vibrant dining, brewery and museum scenes. Areas near Lake Erie also see seasonal demand for vacation homes and short-term rentals. This tourism activity strengthens real estate markets in select pockets of the state. Owners of vacant land near top attractions may find development opportunities in hospitality, recreation or second homes.

Factors to Consider When Buying Ohio Land

Despite the advantages, investing in Ohio land also comes with risks and considerations. As a real estate professional here are a few things we advise land buyers to keep in mind:

1. Assess Development Potential Thoroughly

Not all land is created equal when it comes to investment upside. Assessing site suitability factors like utilities access, environmental constraints, zoning regulations and adjacent property uses is crucial. Land parcels without development potential or a feasible "highest and best use" scenario may not appreciate significantly in value over time.

2. Understand Market Cycles

Ohio has regular economic and real estate cycles driven by the manufacturing and agriculture industries. In rural areas especially, land values can fluctuate widely depending on commodity prices and farm profitability. It is important to buy at the right point in the cycle before an upswing.

3. Demand Varies by Location

While Ohio's major metros are growing, many small towns and rural counties are losing population. This impacts local real estate demand. Be wary of cheap land in markets with high vacancy rates and minimal buyer interest. Focus on parcels near expanding suburbs, transportation corridors and job hubs.

4. Prepare for Long Holding Times

Unlike houses, land takes longer to sell in Ohio and other Midwest states. It is not unusual for vacant plots to stay on the market for 1-2 years unless priced aggressively. Investors must be comfortable with lower liquidity and a long-term view when buying land.

5. Cash Flow is Limited

Raw land itself does not produce any rental income. Some expenses like taxes and maintenance costs still apply. If cash flow is a priority, consider buying farmland and funding costs through crop lease payments until the property is ready to develop.

Tips for Successful Land Investing in Ohio

For investors who understand the nuances of the local market, Ohio land can deliver strong returns. Here are top 4 tips for buying land successfully:

• Focus on growth corridors - Look at areas along major highways and near expanding job centers where demand for housing and commercial development is strong.
• Work with local experts - Partner with brokers, appraisers and other professionals who understand Ohio's land market intricacies. This helps avoid costly mistakes.
• Negotiate fair deals - While lowball offers may seem enticing, they usually don't close. Reasonable pricing and win-win terms are key for sellers.
• Manage taxes efficiently - Ohio has high property tax rates in some areas. Utilize legal strategies like conservation easements to reduce tax burdens on vacant land.

Final Words

Ohio offers investors unique advantages thanks to its central location, diversified economy, and still-affordable real estate. While not without risks, strategic land investments here can deliver stable long-term gains as development accelerates across the state. Partnering with local market experts is key to identify promising opportunities and avoid potential pitfalls. For investors with a prudent approach, Ohio land represents an undervalued asset class with exciting upside potential in the years ahead.

So in summary - Ohio land can be a good investment if purchased wisely based on thorough due diligence and understanding of local market dynamics. The state provides a balance of development demand drivers and relatively low land costs. While holding periods may be longer for vacant land, Ohio's expanding housing market, active farmland market, energy production and regional tourism provide diverse channels for land value appreciation over time. With the right strategy, Ohio land offers investors a compelling risk-return profile compared to other alternatives in today's real estate environment.

Frequently Asked Questions (FAQs)

What are the main benefits of investing in Ohio land?

Some of the key advantages of Ohio land investment include rising demand from homebuilders, increasing property values in major metros like Cleveland and Columbus, affordably priced farmland, energy production driving rural demand, and tourism growth in select markets. Ohio provides a balance of demand drivers and relatively low land costs compared to other Midwest states.

What are some risks or downsides to be aware of?

Investors should be cautious of areas with minimal development potential or weak real estate demand. Market cycles driven by agriculture and manufacturing can cause fluctuations in land values. High property taxes in parts of Ohio should be evaluated. And vacant land typically takes 1-2 years to sell, requiring a long-term investment timeframe.

What areas or types of land are best to target in Ohio?

Growth corridors near expanding suburbs, along major highways, and close to job hubs offer the best opportunity. Farmland in highly productive agricultural counties can be appealing. Land near top tourism attractions such as Cedar Point or Lake Erie also see strong demand for development. Checking factors like utilities, zoning, and surrounding uses is crucial.

How can investors research the Ohio land market?

Working with local real estate professionals like brokers, appraisers and land developers provides valuable insights you won't find in national data. Property records, zoning maps, and county assessor data help assess comparables and demand drivers. Economic development plans and news sources identify potential growth areas.

What creative strategies can investors use when buying Ohio land?

Negotiating fair seller terms, like through seller financing, can help deals close. Conservation easements reduce property taxes for vacant land. Sale-leaseback agreements allow farmers to monetize land while still operating. Partnerships with developers de-risk projects and enhance returns. Creative deal structuring opens unique opportunities.

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