Multiple studies have confirmed the medicinal benefits of marijuana, but what about its impact on the health of the housing market? Does medical and recreational legalization lead to growth in home values or is the pot industry just blowing smoke?

This past year, voters in California, Massachusetts, Maine, and Nevada all legalized recreational use while Florida, Arkansas, North Dakota, and Montana voted to legalize or expand medical use in those states.

One thing is clear, pot entrepreneurs are contributing to real estate booms in commercial and residential markets in states that have legalized the drug for medical recreational use.

Impact on Commercial Sales:  Previously vacant warehouses and factories are now home to growers while long-abandoned strip malls have become the storefront for pot shops. The pot industry has created a huge demand for commercial operations. As a result, states like Colorado and Washington are seeing premium prices for building leases and purchases within the proper zoning.

​Buying real estate is an attractive asset to marijuana growers and retailers because it provides a safe haven for their profits that many banks are still reluctant to manage due to federal regulations and give them more freedom to create specialized spaces for their business. Landlords also notoriously price gouge marijuana tenants, so buying makes good business sense over renting.

Successful owners of marijuana businesses quickly turn to real estate and become landlords themselves. In Colorado, Polk and Stone rents properties to marijuana businesses with the agreement that rent will increase only 3 percent a year. In an industry where rent can increase by 50 percent from year to year, this business model is enticing to marijuana entrepreneurs.

​Impact on residential sales:  Colorado's state law allows for counties to determine if they and how they want to legalize and regulate the drug. Areas where it’s legal attract more homebuyers, including marijuana users as well as entrepreneurs and job seekers. As more growers and retailers open up shop in these municipalities, the demand for workers rise. The influx of new residents inevitably leads to more home sales and higher rents. There are also plenty of people moving to pot-friendly states without intent to work for the industry, but rather to enjoy the bud of its labor.

Impact on home values: Realtor.com reports the four states with at least a year of experience with recreational marijuana sales showed a marked increase in home prices — well above the national median price.

The data from Colorado provides some of the best insights on what happens to the housing market after recreational use is legalized because it has permitted its use the longest. Since the first shops started operations on January 1st, 2014, the median home sale price in the state has risen from $248,000 in the first half of 2014 to $298,000 in the first half of 2016 according to the realtor.com analysis. In jurisdictions where the drug can be purchased, the median sales price of homes in the second quarter of 2016 were a hit $305,200 while homes in areas where it is banned only went for $267,200. Of course, there are other industry sectors that have been experiencing rapid growth in Colorado, so it’s difficult to contribute the rise in home prices strictly to the rising business of pot, but it's an obvious leading contributor.

Unfortunately, not every homeowner in states with legalized weed is getting a good deal. On the flip side, Colorado neighborhoods harboring grow houses lose value. The pungent odor the plant emits turns off home seekers.

Concern for criminal activity: One of the greatest concerns of detractors of legalization is the claim it will encourage more crime and further reduce home values of those living near grower, manufacturers, and retailers. Looking to Colorado again, in Denver, the crime has grown by 44% as reported to the National Incident Based Reporting System since legalization. But police argue that the system potentially over counts crimes and prefer to cite the FBI's Uniform Crime Report which indicates only a 3.5% increase over the same time. It's important to note, however, the city began tracking marijuana-related crimes as well, which make up less than 1% of all offenses. Experts conclude that the rise in crime is tempered when taking population growth into account, and not directly tied to the sale or use of the drug.

Dealing with real estate transactions: From a real estate professional perspective, a lingering question is how to deal with money that comes from an industry that is still federally prohibited under the Controlled Substance Act. There is a serious lack of banking services for commercial operations in the medical and recreational marijuana business. Although many title companies will help close on a cannabis deal, they will not facilitate the exchange of funds. That's because banks refuse to work even indirectly with marijuana business owners. As a result, title companies have formal policies against serving as escrow, especially when the land is designated for pot-related use, but will issue limited title insurance policies on the land that won't cover federal governmental actions such as civil and criminal forfeiture.

As more states pass legalization, this will provide opportunities for agile and creative real estate brokers to provide much needed professional guidance for marijuana business owners.

The purchase, sale, funding or even leasing options for commercial property often hinge upon the appraised value of the building. Assessing that value, however, is no simple matter. Whether it’s multi-unit housing, an industrial space, a retail shopping center, or an owner-occupied business structure, commercial appraisals are generally more subjective than residential valuations. 

Why? Commercial values are often dependent upon uncontrollable elements like the current market price for which spaces rent, fewer available comparables and overall maintenance costs (which can vary dramatically from industry to industry). And then, of course, there’s the tricky question of how much a buyer is willing to pay.

With so many variables to consider, how does an investor or small business owner price a potential property? There are five valuation methods often used to determine intrinsic value.

Cost Approach: This valuation method considers the cost to rebuild the structure from the ground up, taking into account the current cost of associated land, construction materials, and other costs that would be associated with the replacement of the existing structure.

Cost approach is generally applied when appropriate comparables are difficult to locate, such as when the property contains relatively unique or specialized improvements, or when upgraded structures have added substantial value to the underlying land.

Sales Comparison Approach: Also known as the “market approach,” this method relies heavily upon recent sales data for comparable properties. By seeking recently sold buildings with similar properties from the same market area, a buyer hopes to ascertain a fair market value for the property in question.

For example, an office complex might be compared to another that sold in the same neighborhood just a few months earlier. While this valuation method is typically used to value residential real estate, it does have one significant drawback. Depending on general and localized market conditions, it can be difficult to find recent comps that have similar properties.

Income Capitalization Approach:  This valuation method is based primarily on the amount of income an investor can expect to derive from a particular property. That projected income could be derived in part from a comparison of other similar local properties, as well as from an expected decrease in maintenance costs.

Say a building is purchased for $1 million, and the expected yield is 5 percent, based on local market research. That $50,000 per year in expected income could be enhanced by tightening inefficiencies, or by passing along other associated costs to the tenant, like electric or water usage. All expected future income is discounted to reflect present value.

​Value Per Gross Rent Multiplier: The Gross Rent Multiplier (GRM) is a calculation used to measure and compare a property’s potential valuation by taking the price of the property and dividing it by its gross income. This method is generally used to identify properties with a low price relative to their market-based potential income.

Value Per Door: Occasionally used to value apartment buildings, this valuation method breaks down the building’s worth by the number of units. A building with 20 apartments priced at $4 million, for example, would be valued at $200,000 ‘per door’ irrespective of each unit’s size.

In the end, every buyer values property differently. The valuation of commercial property does have a subjective and unscientific component. The best commercial real estate investors and brokers have honed their gut instincts around finding the most attractive deals, and the most effective valuation methods for each particular type of transaction. At the end of the day, no matter how much analysis has been conducted, the value of commercial real estate is always in the eye of the beholder.

The final post of this series on land buyer due diligence focuses on physical attributes that can significantly influence property value. Please keep in mind that this is only a primer for buyers of land for sale, to assist them in identifying a property.

Soils Outside of forestry and agricultural circles, soil is perhaps the most under-appreciated and misunderstood factor in successfully growing and managing a healthy crop.. Understanding the various soil types, specifically their capacity to retain or hold water, is an important consideration when developing long-term forestry plans.

​To learn more about soils and their importance to forest health, there is no better source than the USDA Natural Resource Conservation Service. While you’re there, check out the “Soil Survey” section, which provides a process to access published soil data to create a detailed soil map of the parcel of interest.

Water:  Many buyers seeking recreational land for sale desire some type of water body. Some seek ponds, lakefront, rivers or even open water wetlands. While we often chuckle when we read “babbling brook!” in the property description, real estate agents are simply appealing to market demand. Given a choice between land with no water and land with a small brook, buyers will often gravitate to the latter when all other aspects are relatively equal.

Regardless of the water body type or size, it’s a good idea to consider the surrounding land use patterns to determine what “upstream” activities may impact water quality. Using Google Earth Maps, study the surrounding topography contributing to the water body on the parcel of interest. Ask the broker or the seller about the land use history of the parcel. If it’s a large parcel (>100 acres) consider conducting a Phase I Environmental Site Assessment (ESA), a visual site inspection conducted by a licensed environmental consulting firm to identify any prior or present evidence of hazardous contamination. Part of a Phase I ESA includes a voluntary interview with the landowner to document what they know about the past land uses of the property.

If forestry is the primary use, understand the buffer zone laws and setback distances from various water bodies for forestry activity. Consider timber retention in these areas as part of your forest management plan.

If fishing is a passion, then you will want to know the native fish populations and fishing regulations. Is it a warm water fishery hosting bass, perch and pickerel or a cold water fishery hosting trout and land-locked salmon? Some states, have historical lake and pond surveys that offer the water depth, type of fishery and stocking status. These surveys are often dated (>10 years old) but still offer useful information for avid anglers.

​Written by Patrick Hackley, a professional forester and timberland broker with Fountains Land who has served timberland owners and buyers in the northeast since 2005.

Last month, we began a series of posts on what land buyers should consider before purchasing land (see Land Buyers Checklist: Part I – Due Diligence). Remember that we call the research to ensure that a property satisfies all of the buyer’s criteria “due diligence.” Last time, we discussed due diligence on access, boundaries and deeds. Today, we’re on to the next group of considerations.

Location:  The location of the land for sale is an important consideration. The owner’s primary use, whether it’s for investment, recreation, a second home, or a blend of these uses, will dictate where the property is located.
For those seeking a recreational get-away that can be visited on the weekends, many buyers try to limit the travel time to about a half day’s drive. That way, one can sneak out of work on a Friday afternoon, drive about four hours, and be grilling steaks by dinner time. Other buyers, seeking more remote retreats, may only need to have a local airport within an hour of the property with someone local to drive them the rest of the way. Keep in mind that “remote” has many meanings and is sometimes more of a feeling than an actual geographic location.

Timberland investors who may need to visit the property once a year can acquire tracts in any part of the country or even abroad. While the actual location may not matter for timberland investments, there are three important location related attributes that timberland investors must consider: 1) a good road system for hauling forest products; 2) a variety of wood markets within the region; and 3) availability of forestry services and an established logging and trucking workforce.

State & Municipal Regulations:  Imagine that you are fortunate enough to find your piece of paradise. You have established that you have good access, you know the acreage and you have reviewed the deed. However, will your desired use be compatible with town or state regulations?

If the intention is to build a year-round dwelling, then it’s important to first confirm the municipal requirements for road frontage on a publicly-maintained road. If there is no road frontage, some towns will allow building on unmaintained roads; however, they will require the owner to sign a liability waiver if town vehicles are unable to access the dwelling in an emergency.

If the intention is primarily forest land management, then knowledge of town and/or state forestry laws is necessary. Each state has its own set of laws, some more restrictive than others, relative to harvesting limits, water quality and wildlife habitat protection. Adherence to certain forestry practices is required to qualify for discounted tax programs. Consult with a local forester to understand these laws and determine if the regulatory climate in that state will be compatible with your long-term goals before acquiring the property.

If the intention is to eventually sub-divide the property, check the deed (again) to ensure that there are no restrictions limiting subdivision. Next, review the town zoning ordinance and site plan review process to understand what is required for a subdivision proposal. In many small rural towns, there are no formal zoning ordinances, only minimal requirements for building lot size and road frontage. However, never assume this! Always contact the town directly to inquire about their zoning and planning process or any statewide regulations that the town may have adopted into their ordinances.

If you are considering energy generation, wind or solar, or communications towers, this will undoubtedly trigger a unique set of regulations. You should be prepared to hire a land-use attorney experienced in the permitting process for these projects.

Taxes:  Fortunately, landowners of ten to twenty-five acres or more in New England and New York qualify for a discounted property tax rate for maintaining some or all of their land in an undeveloped condition. These laws are often referred to as “current use” laws because the tax rate is based on its current use (agriculture, forests, pasture, wetland, etc.) rather than their potential use to support development (residential or commercial uses). A major premise of these laws acknowledges that undeveloped land provides inherent values to society (open space, clean water, wildlife habitat, and recreation) while requiring little to no municipal services. Therefore, a lower tax rate allows these landowners to maintain their land in an undeveloped condition rather than be forced to sell due to escalating taxes.

Each state administers their respective current use programs differently so contact the state revenue agency to obtain and understand the enrollment criteria as part of your due diligence.

Federal Income Tax: Timber income is subject to federal income taxes. There are a significant number of ways to reduce your tax exposure. Keeping excellent records from the very start of your due diligence process is one way. For a thorough overview in managing federal timber taxes, visit the National Timber Tax Website.
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Ben Franklin famously quipped, “Nothing can be said to be certain, except death and taxes.” Understanding your tax obligations on the local, state and federal levels prior to acquisition will go a long way in helping you manage your land investment wisely, just like old Ben.

Written by Patrick Hackley, a professional forester and timberland broker with Fountains Land who has served timberland owners and buyers in the northeast since 2005.

Owning a parcel of land is the dream of many. Whether it’s ten acres or several thousand, land ownership represents an investment in a solid, tangible asset – one that holds intrinsic value to the owner and signifies means and permanence in society.
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In order to ensure that the land for sale provides the enjoyment and utility that the buyer is seeking, it is critical to thoroughly research the property before entering negotiations to purchase. We call this due diligence – that is, ensuring the property satisfies all of the buyer’s criteria. So, what should a prospective buyer consider? The following is the first of a three-part list of key items with a brief primer to get one started on the due diligence process.

Access:  This is perhaps the most critical characteristic influencing value. The nature and extent of access dictates the type of uses the parcel can offer. Does the parcel front a publicly-maintained road with power and utilities? Does the parcel have a deeded right-of-way across an adjacent landowner? Does the condition of the road surface (e.g. gravel vs. pavement) relegate it to seasonal or year-round use? Research the access thoroughly and understand all the associated benefits and limitations to be sure you can use the parcel as you envision.

Boundaries:  Parcel boundary markings exist in many forms and, in some cases, not at all  Always inquire first if a survey exists. It doesn’t necessarily have to be registered at the county registry of deeds, but it must have the imprint of a licensed surveyor to be legitimate. If no survey exists, start with the deed description and obtain a copy of the town assessor map. However, beware of the latter source as most municipal assessor maps are meant for general location reference and not boundary identification.

When physical evidence and legal documentation is lacking or uncertain, a licensed surveyor may be necessary to locate and re-mark the boundaries. Don’t be afraid to engage a professional to help you ascertain the parcel boundaries. It will be money well spent.

Deeds:   A registered deed is the most important document to review. The seller or his/her broker can provide you with a copy. In some cases, you may need to obtain one from the town or country registry of deeds. Many registries are on-line and one can easily download copies of the deed, sometimes for a nominal fee.

The deed confirms the owner’s identity, who they purchased it from, and when. Most importantly, it provides a physical description of the property, and references any encumbrances or exclusionary rights of other parties – e.g. “excepting and reserving a 50’ right-of-way to Edna Johnson, her heirs and assigns, to access her property…” Other encumbrances may include water rights held by an adjacent landowner to a natural spring on the subject property. Likewise, there can also be mineral rights, timber rights, gravel rights or a camp right held by another person or entity. In some cases, these rights can be extinguished by negotiation with the third party.

Read the deed carefully – more than once – and understand what is for sale, where it’s located, and any encumbrances that may exist. It is strongly advised that an attorney review the deed prior to sale, often done as a contract contingency, and that they conduct a thorough title search to ensure a “clean, marketable” title. There is no substitute for sound legal review in the acquisition process.

​Written by Patrick Hackley, a professional forester and timberland broker with Fountains Land who has served timberland owners and buyers in the northeast since 2005.

Land surveys are an important but often overlooked part of real estate due diligence.  Sometimes a lender will require some type of survey or certificate from a surveyor before a title company issues a lender’s title insurance policy, but that’s not the case everywhere. Often, the survey used in a new real estate transaction is an old one conveyed by the seller. Whether you're a real estate agent, investor or a savvy buyer who's been through a closing, you've probably heard this before. While this may be an acceptable standard in the real estate and title industry in certain regions, it’s not ideal for a new homeowner and could cause major problems for the buyer in the future.

Below is excerpts from an interview between Amanda Farrell with PropLogix and Akkad Bakhsh with First Choice Surveying  to give more details on why a survey is so important to the investment experience.

1. What is the worst advice you’ve heard about land surveys? 
That a new survey is not needed if an old survey can be provided.

2. Is there any new technology in the industry changing the way you do surveys?
GPS and drone surveying are making a huge impact on the accuracy and speed of conducting a survey.

3. What is the most important thing for home buyers to know about land surveys when looking for a home? 
Always order a survey, even when the current sellers have one.  A seller could say they didn’t make any changes to the property and sign a document saying that but the problem is if a neighbor makes a change to their property.  For example, the neighbor may build a concrete slab that encroaches slightly onto your property and if somebody happens to fall on that concrete slab that is partially on your property, you are now liable to for any injuries to that person.  In my opinion, it’s always best to get a new survey that is certified to the current buyer.

4. How many hours does it usually take to conduct a standard survey?
This is a difficult question to answer because surveys require different phases and time in between each phase to get completed.  If I had to give it an hourly breakdown I would estimate 5-8 hours, spread over multiple days.

5. What was the most difficult survey you've done?
One that comes to mind recently was a commercial lot where we could not find any control points or corners. There was absolutely nothing on the property that could help us create the survey.  We worked on it a for a week and had to go back to the client and tell them we couldn’t complete the survey.  That was the only time that we have been unable to figure out a boundary on a property.    

6. What are some common misconceptions about land surveys?
Again, that a new survey is not needed when an old one is provided.  

The corners in the ground are always correct. Sometimes, those corners can be pulled up and moved.  This can be corrected, but it takes additional detective work and creative problem-solving.

The fee for a survey should be the same on all properties that are the same size. The size of the property doesn't always dictate the difficulty of completing a survey. Land, especially un-development or under-development land, isn't all the same. Finding corners in a rural parcel that might be small won't be as easy as a completing a survey in a PUD (Planned Unit Development).​

Still think you don't need a survey?
It's common in the real estate industry to suggest that the buyer use the old survey from the seller because a new survey may seem like an unnecessary cost, but this is a common misconception with potential for massive disappointment for the new owner. Even though a survey isn't required by every state or lender, the value of a survey is evident. Is saving a few hundred dollars on one of the biggest investments you will ever make really worth taking that kind of risk? 

Amenities: Check the potential neighborhood for current or projected parks, malls, gyms, movie theaters, public transport hubs and all the other perks that attract renters. Cities, and sometimes even particular areas of a city, have loads of promotional literature that will give you an idea of where the best blend of public amenities and private property can be found.

Building Permits and Future Development: The municipal planning department will have information on all the new development that is coming or has been zoned into the area. If there are many new condos, business parks or malls going up in your area, it is probably a good growth area. However, watch out for new developments that could hurt the price of surrounding properties by, for example, causing the loss of an activity-friendly green space. The additional condos and/or new housing could also provide competition for your renters, so be aware of that possibility.

Number of Listings and Vacancies: If there is an unusually high number of listings for one particular neighborhood, this can either signal a seasonal cycle or a neighborhood that has "gone bad." Make sure you figure out which it is before you buy in. You should also determine whether you can cover for any seasonal fluctuations in vacancies. Similar to listings, the vacancy rates will give you an idea of how successful you will be at attracting tenants. High vacancy rates force landlords to lower rents in order to snap up tenants. Low vacancy rates allow landlords to raise rental rates.

Rents:  Rental income will be the bread and butter of your rental property, so you need to know what the average rent in the area is. If charging the average rent is not going to be enough to cover your mortgage payment, taxes and other expenses, then you have to keep looking. Be sure to research the area well enough to gauge where the area will be headed in the next five years. If you can afford the area now, but major improvements are in store and property taxes are expected to increase, then what could be affordable now may mean bankruptcy later.

Natural Disasters:  Insurance is another expense that you will have to subtract from your returns, so it is good to know just how much you will need to carry. If an area is prone to earthquakes or flooding, paying for the extra insurance can eat away at your rental income.

The team at First and Main have helped many new and veteran landlords find their new profitable real estate investment. Call us today!

Rental properties, whether single family or multi-family can be an amazing and profitable investment. But for the best returns, do your research going in. 

Neighborhood: The quality of the neighborhood in which you buy will influence both the types of tenants you attract and how often you face vacancies. For example, if you buy in a neighborhood near a university, the chances are that your pool of potential tenants will be mainly made up of students and that you will face vacancies on a fairly regular basis (during summer, when students tend to return back home).

Property Taxes: Property taxes are not standard across the board and, as an investor planning to make money from rent, you want to be aware of how much you will be losing to taxes. High property taxes may not always be a bad thing if the neighborhood is an excellent place for long-term tenants, but the two do not necessarily go hand in hand. The town's assessment office will have all the tax information on file or you can talk to homeowners within the community.

Schools: Your tenants may have or be planning to have children, so they will need a place near a decent school. When you have found a good property near a school, you will want to check the quality of the school as this can affect the value of your investment. If the school has a poor reputation, prices will reflect your property's value poorly. Although you will be mostly concerned about the monthly cash flow, the overall value of your rental property comes in to play when you eventually sell it.

Crime: No one wants to live next door to a hot spot for criminal activity. Go to the police or the public library for accurate crime statistics for various neighborhoods, rather than asking the homeowner who is hoping to sell the house to you. Items to look for are vandalism rates, serious crimes, petty crimes and recent activity (growth or slow down). You might also want to ask about the frequency of police presence in your neighborhood.

Job Market: Locations with growing employment opportunities tend to attract more people – meaning more tenants. To find out how a particular area rates, go directly to the U.S. Bureau of Labor Statistics or to your local library. If you notice an announcement for a new major company moving to the area, you can rest assured that workers will flock to the area. However, this may cause house prices to react (either negatively or positively) depending on the corporation moving in. The fallback point here is that if you would like the new corporation in your backyard, your renters probably will too.