Buying Rural Land in Texas

2 Seeing the End from the Beginning

Seeing the End from the Beginning 2 Front gate of a ranch near Bryan. Photograph by J. P. Beato III 16 | cHaPTer 2 T hree broad aspects of ownership rest on the validity of the set of assumptions landowners make when they buy land. First, owners normally assume they have maximum control over activities pursued on their acreage. However, that assumption hinges on the bundle of property rights transferred. The content of that bundle defines the extent of an owner’s control and can limit or materially affect management possibilities.Government regulations can also limit the extent of management activities. Second, buyers assume that a particular basic social and economic structure is in place and supporting their ownership goals.The potential to manage the propertyefficientlydepends on correctlyassessing the realities of this structure.Third, the future path of those social and economic forces determines the likelihood of realizing futurevisions of delivering the property intact (to a subsequent owner or buyer) and enhanced to function well under a future configuration of those forces. Current performance and capital gains critically depend on both the owner and property living up to these assumptions. To avoid disappointment, a potential land owner should test each aspect of these assumptions against the realities of both the community and the market context of the land theydesire to own. A systematic review of facts related to expectations following from the assumptions provides the information a buyer needs to assess the risk of deviating from foreseen results. The buyer can then use this risk analysis to devise a strategy for acquiring a property that is a good match for his or her goals for use and eventual transfer to another party. The Need for Risk Analysis For some owners and for particular property uses, the risk analysis may involve compiling quantitative performance measures. For example, a buyer might project cropyields over time under normal price and weather conditions to estimate income from farming activity. Deviations from projected outcomes can result from deficiencies in rainfall or changing crop prices. Actual results can exceed or fall short of projected results based on historical norms. Examining the possible array of outcomes under various combinations of the variables produces a corresponding array of potential payoffs, and the careful buyer can assume that each potential outcome has a particular chance of occurring. This kind of risk analysis provides a potential buyer with both a worst case and a best case scenario.The buyercan anticipate the challenges pre- seeinG THe enD frOM THe BeGinninG | 17 sented by theworst case scenario and assess his or herability towithstand those reversals. Further, having assembled quantitative measures to analyze competing properties, the potential buyer has thus gained insight into the relative merits of each candidate site. The assumptions about various levels of risk and potential income translate into numerically expressed expectations. For recreational property the risk analysis might become more qualitative . An owner might foresee transforming a rugged property with poorly accessible areas into an integrated property with improved roads and the type of amenities popular in the recreational users’ market.With most of the measurable return likely accumulating as capital gain, quantitative measures of the returns will likely be highly speculative. The risk analysis may thus focus on a subjective evaluation of the likelihood of achieving the envisioned improvements and transforming the property into what the owner envisioned. Failure to identify that envisioned future state might be the greatest risk for the land buyer. Because achieving the ultimate goal for the property lies far in the future, a buyer often blithely assumes things will work out well. Without a cautious acknowledgment of possible changes that may negatively impact plans for the property, the owner may fail to recognize the problems and resulting costs that such changes could generate. Plans to use a site as a hunting retreat may be thwarted when the owners of a nearby propertydevelop the land forapartments . A country retreat for family activities may splinter family unity as heirs squabble over how to use or divide the land. For everything there is a season, including a time to sell. A wise buyer will carefully take into consideration alternative future states of the community, economy, environment , and the condition of the land. Some of these scenarios may enhance the owner’s vision, while others may detract from it.The value of “seeing the end from the beginning” results from first recognizing that a risk has...