Today's ranch buyers: It's all about income

By Gary Hubbell

United Country Colorado Brokers, Hotchkiss, CO 970 988 2122

There is a time for everything in the real estate world, and ranch real estate is no different. Back in the go-go days of the early 2000's, people were making money, the economy was rip-roaring, and payments were no problem. The feeling was that it was going to last forever. Buyers were looking for recreational retreats where they could retreat from the busy world, go fishing with their kids and grandkids, ride a horse, go hunting, and let someone else take care of all the chores. 

In fact, that's where the term "cocktail ranch" evolved, as canny developers sought to take advantage of this market demand and provide all the experience with none of the work. They targeted ranches with a high recreational value--good fly-fishing, nice trails for horseback riding, bordering National Forest for easy access to big game hunting, a ski area just up the road--and split these ranches into multiple homesites, while keeping the heart of the ranch intact. The concept was to keep the hayfields producing, so that owners could look at open vistas of grass waving in the breeze, with a ranch manager hired to do all the work. The buyers could enjoy their cocktails from their luxury homes while watching someone else buck the hay bales.

On a larger scale, wealthy buyers spared no expense on their dream ranches--grand estates, thousands of acres, colossal gates, huge horse barns, massive stone fireplaces, "enhanced" trout streams, and of course, palatial residences with all possible amenities. No expense was spared, and cost was no object. 

Well, we all know what happened next--the ugly years of 2007-2014 (funny how those years have coincided with the Obama presidency) happened, and it was a completely different world. Fortunes were made, and fortunes were lost. "Uncertainty" became the word of the new decade. Investors didn't know what would happen with world currencies, with real estate values, with the stock market, and with our national direction. Entitlements, a hugely expensive mandatory health care plan, an indefensibly high minimum wage, and government giveaways became more important than economic growth. Was there money to blow on trophy ranches? No.

The luxury ranches of the 1990-2007 era are expensive properties. Many of them run up a monthly bill for maintenance, taxes, staff, fuel, utilities, and other expenses well in excess of $10,000 a month. Wealthy people still want to own land; they still want to have a dream retreat; they still want to go skiing, fly-fishing, and elk hunting, and their wives still want to breed quality horses. But they don't want to throw their money away--they want INCOME. They want properties that at least cover their own expenses.

There is a ranch listed in my neighborhood for $13 million. It has several thousand acres, good water rights, good hunting, and a year-round carrying capacity of 500 AUM's, or cow-calf pairs. Let's do some quick math. The monthly payments on a $13,000,000 note would be around $62,000 a month. With a 500-pair cattle ranch, the gross income would be about $275,000 a year, or about $22,000 a month. So the cost of ownership on this ranch would be $40,000 a month. Ouch! I don't care how good the hunting is or how beautiful the setting, you can book a week-long elk hunt and shoot a monster bull for $20,000, and that's the very top end of the scale. You can take your wife on a two-week vacation in Spain, Belize, Montana, or any number of places and just go crazy and still not spend $20,000. Am I wrong here? The $40,000 you just spent is just one month's expense for owning that ranch.

The problem is, however, not many Colorado ranches will produce income of any magnitude. That's why those ranchers are driving 15-year-old pickups and wearing worn-out Carhartt's. Productive ranches with good improvements are hard to find, and when they come on the market, they usually sell quickly. Currently there are several ranches in my local area that are for sale, but they need large capital investments to make them productive again. It's one thing to buy a ranch for $2,000,000, but it's quite another to realize there's not even a functional home or barn on it; the place needs a complete new $600,000 irrigation system; the fences are terrible and will cost $75,000 to replace; and the fields are choked with weeds and need to be sprayed and re-planted, which will cost another $150,000. So the $2 million ranch becomes a $3 million ranch in a big hurry, and not many buyers want to take on a project like that, especially for a property that will only produce about $100,000 in net income two years after the work starts.

So what are you buying when you buy a Colorado ranch? Well, you are buying mountain views, trout streams, nearby ski areas, and lifestyle. If it was only about owning a farm or ranch, there are more productive plays to be made. You could buy property in western Nebraska, where there are some nice cattle ranches for sale. You could buy a hay farm in Wisconsin--there's all kinds of good farmland up there. You could buy a nice place in Missouri, where there are many nice farms for sale. But none of those are Colorado. People don't dream of owning a Missouri farm like they dream of a Colorado ranch. People want to saddle a horse and gather cattle in the high country; they want to stalk a monster mule deer buck; they want to load the kids in the SUV and spend a day skiing on the slopes of some of best ski areas in the world. That's why they want a Colorado ranch.

Colorado ranch buyers need to take into account that there is income to be made on Colorado ranches, but don't expect to see the kind of return that you might realize with other investments. If you can buy the property, pay the bills, and still net $50,000-$100,000 a year, you're doing pretty good. You shouldn't think that the ranch will be your entire source of income. The satisfaction of watching a grandkid learn to build fence, seeing a son catch his first trout on a dry fly, a girl falling in love with her horse--those are the quiet rewards of owning a Colorado ranch. 

When you do decide to make that investment, plan wisely. Hire a knowledgeable broker who understands water rights, grazing allotments, hay production, climate, and local land values. It's a big decision and a big investment, and you need to best counsel in your corner.

 

 

 

 

 
Aspen Ranch Real Estate
United Country Colorado Brokers

Hotchkiss, CO 81419
Broker/Owner, ranch specialist
CLICK TO EMAIL GARY HUBBELL
Office Phone 970 872 3322
Office Fax 866-663-0406
Cell Phone 970-988-2122

 


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As a lifelong resident of Western Colorado, I truly appreciate the place where I live, work, and raise my family. My goal is to keep it green! I want Colorado to stay as beautiful, pristine, and peaceful as possible.






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