The Outlaw Report

A friend of mine who works as a loan officer with First South Farm Credit, Austin Outlaw,  publishes an e-report with information from First South Farm Credit, and has graciously allowed me to re-post that report to this blog.  This will become a regular occurrence here.  Austin and the other good folks at First South Farm Credit are available to help you with lending on land and farm purchases.


Hope everyone has had a Merry Christmas and a Happy New Year.  I wanted to take the time and show how rates closed out in 2012.  Below is a look from August till December 31.

10 year fixed rate for August – December 2012

There has been a change in First South for 2013.  We now only require a maximum of 2% of the loan amount or $1,000 in stock rather than the previous $5,000.  As you probably already know, First South returns a portion of its profits to its borrowers.  Our unique cooperative structure puts money in your customers pockets.  As profits are returned to your customers, their cost of borrowing is reduced.  They get a competitive rate from First South and we reduce their effective interest rate with our profit sharing refunds (As shown below).

*Rates may vary depending upon daily changes and credit quality

Thank you,

 Austin Outlaw | Loan Officer |First South Farm Credit
Office (256)-831-6778 | Mobile (251)-362-1131
Fax (256)-831-6882 | Anniston-Oxford Branch
2341 Ala. Hwy. 21, South | P.O. Box 3288
Oxford, AL 36203-3288 |

NMLS# 910612

Closing Costs: Who Pays What?

I just completed an article for the LandThink Blog entitled, “Closing Costs: Who Pays What?”  I know many of you don’t deal with real estate and land transactions nearly as often as I do.  These things can be confusing to anyone.  As the article states, closing costs are negotiable.  However, who typically pays what varies by type of property and area the property is in.  Many times, negotiations hinge on the payment of closing costs.  Some services are done for the benefit of one party or the other.  Take a look at this article, hopefully it will help you to be more informed in your next transaction.

Buying Land with Cash

Most land and farm transactions I work with are cash transactions. This is not to say that I work with only the independently wealthy. The majority of people that pay cash for a property have recently sold some other type of investment and are simply moving that investment into another investment that works better for them.

Many investors prefer the cash method as it is the most hassle-free and gives the buyer a negotiating advantage. The general thought is that a cash offer is stronger and that because the terms of the offer are stronger, the investor can offer a lower buying price. The seller perceives that they are dealing with a financially-able potential buyer and will usually give them more consideration. If the seller happens to be time-motivated in selling his property, cash makes an impression as well. Generally, a cash buyer can perform on a contract much quicker than one who needs to borrow money. Time is money, and it is never more true than in negotiating a real estate transaction. Of late, buyers that must borrow funds to close a transaction have taken anywhere from 15-45 days longer to close than transactions that were made with cash. A cash offer is a definitive statement from the buyer that says, “I want the property at this price and I can buy it.” Many times today, buyers want a property at a given price, but cannot close on it due to financial difficulties. Informed sellers are aware of this, so a cash offer gets their attention.

LandThink Summit 2010

Yesterday, I attended the LandThink Summit 2010 along with a few of my colleagues from AlaLandCo and land industry professionals from all over the country.  The goal of the Summit was to bring together professionals from different aspects of the land industry.  There were land brokers, investors, land lenders, foresters, consultants, surveyors, and other professionals there.  We had a number of speakers on topics ranging from financing land purchases to real estate trends to timber prices.  It was a great opportunity and a great success.  My hats off to the folks at LandThink for organizing and hosting the event.

The keynote speaker was former Florida State University coach Bobby Bowden.  He presented a great motivational message on some of the aspects of successful leadership.  If you ever have the opportunity to hear Coach Bowden speak, take advantage.

LandThink is a great resource for information about land-related issues.  It is a blogging platform with contributors from many aspects of the land industry.  I, along with Jonathan Goode contribute there regularly.  One of the founders of, (which is one of the most successful Internet land listing sites) Ryan Folk, started as a way to provide information to a public that is eager to learn about land.  The readership there has grown tremendously and the information available there has as well.  I encourage anyone interested in land to subscribe to LandThink.

There was a great deal of valuable information presented during the Summit and some of it will be made available on the LandThink Blog.  As it becomes available, I will be directing you to some of it.  There was a great deal of insight into the market that should be interesting to all.

I can’t still get a 100% mortgage, can I?

If you are paying any attention to the mortgage loan market at all, you know that rates are at record lows. You know that if you could refinance right now, you could save thousands in the life of your mortgage. But you can’t because you do not have enough equity in your house to qualify for all the new standards. WRONG! If you have lived in your home for over 2 years, you might be eligible for a mortgage at up to 125% of your home’s value…yes, right now in 2010. You may have to provide a little more proof and income verification than you would have a few years back, but there is money available. People are getting these types of loans. I have a family member in the mortgage business. She tells me that she is currently working with a couple that is refinancing and will save over 7% on their APR with the re-fi. That’s unbelievable! I also know that 15 year mortgages can be gotten for under 4% for those that qualify.

So how does all this relate to a land guy? Well, during the “boom” years, I had many customers that took out equity lines on their primary residences to purchase land. I had some that refinanced and took out equity to purchase land. If you were one of those people, now might be just the right time to refinance and save thousands of dollars on those loans. If you have been thinking of buying a property and you have equity in your home, it might be a considerable tax advantage to you to borrow against that equity. Any investment adviser will tell you that when money is cheap (low interest rates), it makes sense to borrow money rather than take it out of other investments. Now I am not an investment adviser or a mortgage broker, but I am a land agent…one that has been around a while. Now is a good time to buy land. Buy Low, Sell High!…

If you are looking to refinance and take advantage of equity in your current home mortgage, let me know. I will be happy to point you in the right direction.

Finding Ways to Make Rural Land Pay- Justifying Your Rural Land Investment

By Jonathan Goode

Land ownership means owning more than “just land”; it means owning a “bundle” of rights associated with a particular property. In this economic climate many people are considering making an investment in rural land or are looking for ways to justify purchasing a recreational tract.

I always recommend having an exit strategy when buying land in the event that you need to sell your property in the future. It is also wise to evaluate what potential sources of income your prospective purchase can generate. If you were to split off pieces of your ownership bundle and lease or sell them, you could generate income and help with the carrying costs associated with your land. Here are some ideas about the pieces of your bundle of rights that can be sold or leased.

1. Hunting rights– Big game, deer, turkeys, dove, squirrel, you name it, someone hunts it. In Alabama owners are leasing their land to hunters for $6 to $17 per acre.

2. Timber– Timber can be thinned, harvested, or leased. One great thing about a timber investment is that it has the potential to generate some income with some frequency depending on the site index, species, and age of timber.

3. Mineral and Gas rights-This can be a  boon for a landowner if the lessee finds something of value. Exploration companies will often pay an up-front fee per acre for 5 to 10 years for the right to retrieve minerals or gas from your land. Royalties are paid to the owner if extraction is undertaken.

Desirable minerals and gases would include: oil, natural gas, coal, coal-bed methane, chalk, clay, gravel, chert, river rocks, iron, gold, silver, fill-dirt, and numerous others.

4. Conservation Easements- Wetland mitigation, native forests and grasslands, and many other options are available to consider placing your property into a conservation easement for tax benefits

5. Renewable Energy Potential- Solar, mini-hydroelectric generation, wind, and geothermal

6. Cellular phone tower, radio tower, electric utilities, and natural gas transmission lines– These entities pay to lease a portion of your land to further their corporate mission. Payments range from monthly to once every 40 or 50 years.

7. Carbon Sequestration Offsets

8. Cropland, Pasture, Livestock Grazing land- Cash rents in Alabama range from $25/acre for hay cutting to $90/acre for agricultural cropland

9. Fishing

10. Renting out your lodge or hunting cabin

11. ATV, horseback, bicycle trail riding, and hiking

12. Mud bogging and off-road competitions

13. Landing Strip

14. Water rights from wells, streams, or rivers

15. Billboards and advertisements

16. Birding and wildlife observation

17. Caves, waterfalls, or other natural formations that are of public interest

18. Weekend flea market

19. Boarding Horses or other animals

The preceding list was meant to jumpstart your thoughts about the potential of leasing some of the rights associated with your property. It is by no means exhaustive, but my aim is to show that there are ways to help generate some income from your tract.

Thinking creatively and looking for opportunities can pay significant dividends. I heard of a landowner in Alabama near a car manufacturer that was approached about leasing some of his land to the manufacturer for them to park some of their excess inventory for a few months while they waited on vehicle sales to pick up.

Be sure to weigh all of your income-producing options when evaluating a prospective purchase. This is one way an experienced land agent can assist you by providing information about potential revenue sources. You just might find that purchasing a rural property now is a reasonable and justifiable investment.

Jonathan is a Land Agent with AlaLandCo serving the Blackbelt region of West Alabama.  If you are looking for land in West Alabama, get in touch with Jonathan.
Jonathan’s Website

1031, Starker, and Like-Kind Exchanges

1031 Exchange

By: Tom MacKillop

Why Do a 1031 Exchange?
Investors can trade up, consolidate, diversify, leverage or relocate their investments and not be penalized by having to pay either capital gains or recapture (the amount deducted while owning the property is taxable if the property is sold). The taxes are deferred until the investor does a non 1031 exchange sale or dies.

1031 exchanges can be both a powerful wealth building tool and a way of adjusting investment portfolios to more accurately reflect life style choices and circumstances. An example would be an apartment owner wanting to trade into net lease properties that do not require management.

What are the general guidelines for a 1031 Exchange?

* The value of the replacement property must be equal to or greater than the value of the relinquished property less any selling expense.
* The equity in the replacement property must be equal to or greater than the equity in the relinquished property.
* All of the net proceeds from the sale of the relinquished property must be used to acquire the replacement property.
* Constructive receipt of sales proceeds is prohibited during the exchange process.
* Deadlines for identifying and closing on the replacement property must be followed.

What is Boot?
Boot is any property received by the taxpayer in the exchange which is not like-kind to the relinquished property. Boot is characterized as either “cash” boot or “mortgage” boot. Realized Gain is recognized to the extent of net boot received.

What is Like Kind?
Real or personal property of the same nature or quality is like kind. Generally, real property is like kind to all other real property as long as it is held for investment or productive use in a trade or business. Foreign real property can be trade for foreign real property while US properties can only be exchanged for US properties. Personal Property must be either the same General Asset Class or Product Class.

What are the 45 and 180 Day Deadlines?
The clock starts with the close of the property being sold. From the close date there are 45 days to identify the properties to be purchased and 180 days to complete the purchase (or the due date for your tax return-whichever is earlier). Both periods are calendar days. If the 45th or 180th day falls on a weekend or holiday, the deadlines still apply. There are no extensions for legal holidays or Saturday or Sunday.

What Constitutes Proper Identification of Replacement Property?
Property is properly identified only if you clearly describe it in a written document signed by you and hand delivered, mailed, faxed to the person obligated to transfer the replacement property to you (typical a Qualified Intermediary (QI) or to any other person “involved in the exchange” other than you or any one disqualified under Treasury Regulation 1.1031 (k)-1(K). An unambiguous description would be if it described the property using the legal description, street address or distinguishable name. If more properties than are permitted are identified it will be treated as if no replacement property was identified and the exchange will be disallowed.

To Defer Taxes How Much Must be Invested?
The minimum amount to be invested must be equal to or greater than the sales price on the property being sold less any selling expenses. If there is debt on the property being sold that amount needs to be replaced by new debt or cash from the investor’s pocket.

How Many Properties May Be Identified
as Replacement Properties?

* Three Property Rule: Any three properties of any value.
* 200% Rule: Any number of properties not to exceed 200% of the sold property.
* 95% Rule: Any number of properties of any value. 95% of identified properties must be closed in 180 days or the exchange will be disallowed.

Can Multiple Owners of a Single Property Exchange
into Different Properties?

If the intent of varies owners of a single properties is to go their separate way it is important to first review with legal counsel the manner in which the property title is held before selling. Once any title issues are resolved the property can be sold and exchanged. In such a circumstance one investor can do an exchange while another can receive cash and pays taxes. It is very important that the investors be clear on their intentions before entering into an exchange agreement with a Qualified Intermediary (QI). Once the property being sold is closed and all exchange investors have entered into one exchange agreement the exchangers lose their options to divide the proceeds and buy separate replacement properties.

Does the Investor have Access to the Sale Proceeds
During the Exchange?

Part of doing an exchange is that the investor does not take constructive receipt of the sales proceeds. If no property is identified during the 45 day identification period the investor can receive their money on the expiration of the identification period. If the investors identifies properties during the 45 day identification period then does not close on an identified property the investor will have to wait the full 180 day waiting period to receive their money. There are a few limited exceptions to this rule.

Is a Delayed Exchange the Only Way to do a 1031 Exchange?
There are five ways to accomplish a 1031 exchange. They are a Delayed Exchange, Reverse Exchange, Simultaneous Exchange, Improvement Exchange and a Personal Property Exchange.

How Should the Replacement Property Be Vested?
The investor needs to hold title in the replacement property exactly as they held title to the property they sold. What this means is that the person or entity beginning the exchange needs to be the same person or entity ending the exchange. An exception would be a husband and wife (or individual) holding a revocable living trust which is a true pass through can sell then take title to the new property as individual(s). Other exceptions would be a single member LLC sells and the sole member buys as an individual or if an individual dies after selling his or her estate can purchase the replacement property.

Can an Investor Use a Personal Bank Account
To Hold Sales Proceeds?

No. The IRS regulations are very clear. The taxpayer may not receive the proceeds or take constructive receipt of the funds in any way, without disqualifying the exchange.

Is it too late to start a tax-deferred exchange after signing
the sales contract before closing?

No, as long as title has not been transferred. Once the sale is closed it is too late to do a 1031 exchange even if the proceeds check has not yet been cashed.

What is a “multi-asset” exchange?
A multi-asset exchange involves both real and personal property. For example the sale of a hotel frequently involves both real estate and furnishings and equipment. In this example an exchange would be done for the land and building and another exchange for the furnishing and equipment in a separate exchange. The definition of like-kind for personal property and equipment is much narrower than for real estate.

What is the difference between “realized” gain and
“recognized” gain?

Realized gain is the increase in the taxpayer’s economic position as a result of the exchange. In a sale, tax is paid on the realized gain. Recognized gain is the taxable gain. Recognized gain is the lesser of realized gain or the net boot received.