Looking at Ranches for Sale? Here's What You Should Know
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Love nature? Dreaming of owning your own piece of paradise out in the country? Or, maybe just looking to scoop up and lease out a plot of land for some passive income?
If so, buying a ranch for sale might be a great idea: The market for ranches for sale has been booming over the past few years as people move to the countryside to escape cramped cities, and family ranches and farms produce over 86% of US agricultural products.
Whether you're a business owner or investor, owning a ranch can be an incredibly rewarding experience. But, as with anything else, you should never overlook due diligence.
Here, we'll cover some of the most important things you should know when looking for ranches for sale. Let's get started.
Buying a Ranch as an Owner/Operator
Owning and operating a ranch can be a deeply rewarding experience, but it's not without its difficulties. Smaller ranches tend to struggle with rising operating costs and competing with larger, consolidated entities. Not to mention that ranching is a full-time job and can require a significant upfront investment.
Ranches typically generate the majority of their income from either agricultural production or cattle rearing. Ranches can also generate income through tourism. According to data from ZipRecruiter, the typical US ranch owner makes about $131,000 per year. However, earnings can vary depending on several factors.
One great benefit of buying a ranch is you can pass the land down to future generations. Ranches also allow you to live independently around nature, away from the hustle and bustle of larger cities. Unlike renting a property, owning a ranch means you have full control over the land and buildings.
What Are the Costs of Owning and Operating a Ranch?
Cattle ranches can range in size from just a few acres to dozens of square miles and deal with a wide range of agricultural and animal products. Below are a few of the major costs of owning and managing a commercial ranch.
#1 – Wages
Wages and salaries for farm and ranch workers will likely take up the majority of your operating expenses. According to career data from Zippia, the average annual ranch hand salary is about $27,500 a year. Your ranch will probably need at least three full-time ranch hands, which comes out to about $80,000 a year for salaries and wages.
#2 – Rent/Mortgage
Most owner-operators will either get a mortgage to finance their purchase of a plot of commercial land or lease/rent the property to run their business. If you get a land loan, you can expect to pay a 6% or higher interest rate. The average cost of farmland in the US is about $3,800 per acre and a small ranch can have at least 200 acres.
#3 – Construction/Building Costs
Budgets must also include the cost of building structures: Ranches usually have multiple buildings, including a main farmhouse, cattle enclosures, warehouses, and agricultural storage (e.g., silos).
#4 – Machinery
Ranchers also need several pieces of machinery, like tractors and harvesters. Some ranches are even incorporating robots and AI into operations. Machinery is a large capital cost, and you also need to account for maintenance and repair costs.
#5 – Utilities
Ranches usually exist on rural land away from local power grids, so many rely on natural gas and oil to power facilities. If you buy a plot of undeveloped land for your ranch, you'll need to factor in utilities installation and setup costs.
#6 – Commercial Seed
Commercial ranches may also need commercial seeds for growing crops. The costs of commercial seed can vary significantly depending on the type of produce. For example, soybean seeds cost about $25 per acre and corn seeds can cost up to $70 per acre.
#7 – Irrigation
Ranches will also need to budget for irrigation needs, including irrigation equipment setup and the cost of acquiring water rights.
#8 – Livestock
Ranches also need to account for annual livestock purchases and care costs. Livestock costs differ greatly depending on the animal. For instance, goats cost an average of $250 but a dairy cow can easily cost over $1,000.
#9 – Miscellaneous
Other miscellaneous costs for a ranch business include:
- Insurance;
- Property taxes;
- Legal & accounting fees;
- Repairs & maintenance;
- Interest; and
- Veterinary expenses.
Ranching costs are also seasonal. For example, irrigation and water costs will be most likely higher during peak growing season and lower during winters.
Is Owning a Ranch Profitable?
Yes, owning a ranch can be profitable. According to studies, a ranch yields a 24% to 33% profit per head of cattle per year. So, if each cow costs $1,000, you can expect a profit between $240 and $330 per cow.
The real difficulty is that ranch profits can vary considerably from year to year. Changes in land policy and government subsidies, droughts, crop/herd disease, and shifting overhead costs can all affect potential revenue and profits.
The variable nature of ranch income is why it's crucial ranch owners nail down their fixed costs and accurately estimate variable costs when budgeting.
Buying a Ranch as an Investor
Ranches can also be a good option for commercial real estate investors who want to diversify their assets. Aside from agricultural production and animal husbandry, buying some ranch commercial property can be lucrative because you can rent or lease the land.
Land appreciation values also hover between 3% and 4% and, in some cases, land can hold value better than housing.
What's the Best State to Buy a Ranch In?
Ranch costs can vary significantly depending on the state and city. However, two of the best states in the country to buy a ranch are Texas and Montana.
Whether you're looking for Texas ranches for sale or ranches for sale in Montana, we highly recommend working with a commercial real estate broker if you are looking at ranches for sale as an investment. An experienced broker can identify investment candidates, analyze real estate financials, and negotiate any sales or lease agreements.
#1 – Texas
Land in Texas is abundant and the state has a rich history of ranching. Texas ranches for sale cost about $2,900 per acre and the state offers several tax benefits for ranch owners, such as homestead and conservation exemptions.
Texas ranches for sale have exploded in popularity in the past few years, jumping nearly 17% between 2020 and 2021 alone.
#2 – Montana
Montana is another popular rancher state that has experienced excellent growth in the past few years. Ranches for sale in Montana cost about $4,000 per acre and Montana land prices jumped 16% between 2021 and 2022.
One of the best places to look for ranches for sale in Montana is in the Yellowstone River Valley due to its fertile soil, irrigation capabilities, and open land plots. This region also has most of the small-to-medium-sized ranches in the state.
Is Owning a Ranch a Good Investment?
Yes, generally speaking, owning a ranch can be a good investment because they produce income and have practical use-value. Land is a finite resource and, even if you're not herding cattle, you can lease the land to others.
You can lease your land to a developer to build things like industrial warehouses, farmland, flex space, mining facilities, and more.
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