All Forum Posts by: Colter DeVries

Hey BiggerPockets Community,

Let's discuss a hot topic: Western ranches and why they're the ultimate lure for syndicate investors.

1. Wide-Open Allure: Picture endless landscapes – rolling plains, towering mountains. That's what draws investors seeking a natural retreat from the city grind.

2. A Versatile Gem: Western ranches aren't just about livestock; they're playgrounds. Think hunting, fishing, and eco-tourism. Syndicate investors love the multifaceted income potential.

3. Nature's Guardians: These ranches often link with conservation efforts. For investors, it's a chance to protect ecosystems and enjoy the rewards.

4. Cash Flow Haven: Managed right, ranches bring in money. Farming leases and events – it's a steady income source.

5. Diversification Magic: If you're heavy into urban real estate, ranches diversify your portfolio from asset classes to geography.

6. Long-Term Gains: Land appreciates, and Western ranches are no exception. They grow in value, promising lasting wealth.

Now, your turn. What's your take on Western ranches for syndicate investors? Are you in or thinking about it? Share your thoughts – let's chat about this exciting investment choice!

Looking forward to hearing from you!

In the ever-evolving landscape of ranch management, where changes in ownership, investment strategies, and leadership are on the horizon, it becomes essential to weigh the value of cherished traditions against the opportunities of modernization. Just as a savvy investment broker carefully assesses market dynamics, let's consider the traditional practices that resonate deeply within the ranching community:

Cattle Branding: Much like a brand symbolizes a company's identity in the business world, cattle branding serves as a centuries-old method of ownership identification. Its heritage and symbolism cannot be understated.

Cowboy Ethos: Just as a successful investor values discipline, hard work, and respect for assets, so does the rancher uphold the cowboy ethos. These values are the bedrock of the ranching way of life.

Horse Handling: In the world of finance, one must navigate complex terrains and make strategic decisions. Similarly, horse handling remains a vital skill for navigating challenging ranch landscapes.

Fencing Techniques: Just as financial portfolios are designed for long-term durability, traditional fencing techniques are favored for their robustness in preserving the ranch's boundaries and security.

Generational Ranching: Passing down the reins from one generation to the next is not unlike the legacy planning that investors undertake to ensure wealth endures. In ranching, it's more than just land; it's a legacy.

As an investment broker of sorts for the ranching world, I'd encourage you to ask yourselves and your audience: What is the optimal balance between preserving these cherished traditions and embracing modern innovations to secure the ranch's future success? How can we blend the time-tested with the innovative to create a sustainable and thriving legacy?

Just as a diversified investment portfolio is designed to weather market changes, so too can a ranch evolve while honoring its rich heritage. By carefully assessing the value of tradition alongside the promise of innovation, we can ensure that the ranching legacy remains robust for generations to come.

For ranch owners: Would you consider opening your property for recreational activities such as hunting, camping, or private events like weddings to get your ranch monetized? Why or why not?

Owning a ranch requires a lot of meetings, documents, legal requirements, and so on. Without the guidance of a seasoned attorney or broker, things can quickly go awry. Opting for a syndicated ranch lightens the load, allowing contributors to share responsibilities while reaping significant rewards. Here are the items you will have fewer worries: 

Market Research: The general partner and his team will dive deep into research to determine the feasibility of ranching in the chosen location. They will keep you attuned to market trends, demand, and potential risks.

Legal Compliance: They will fully comply with all relevant legal and regulatory requirements, including zoning and environmental regulations.

Property Assessment: They will evaluate available ranch properties and weigh the pros and cons of location, size, existing infrastructure, and expansion possibilities.

Syndicate Formation: They will organize the investment group and outline roles, responsibilities, and ownership shares among participants.

Financial Analysis: They will perform a detailed financial analysis, accounting for all expenditures, revenue forecasts, and risk mitigation strategies to make informed investment decisions.

What do you think of this streamlined process? 

Quote from @Scott Krone:

@Colter DeVries - Like in life, I think the answer to your question is "depends". Most syndications are based upon a defined time frame in order to generate an attractive IRR based upon the risk level. The longer the hold the IRR declines or remains flat without a sale or refinance transaction.

If the goal is to generate a higher than market IRR, then "no".

If the goal is to reduce risk, pool resources (ie, equipment, horses, feed, etc) for greater buying power, than "perhaps" if the group wants a steady, consistent return.  It could be a similar model to a "co-op".

If the goal is to infuse cash into the business, expand the business, or a new business, then an exit strategy for returning the capital will be mostly likely required by an investor.

Is there a use-case from the investor side in transferring the cost of capital risk to capital markets other than banks/debt?

Historical asset appreciation on ranchlands is 4-6% with a wider variance above 6 due to changes in consumer tastes and preferences, as well as crazy post-2020 conditions, but generally and historically if you hold for 10 years you will likely hit 6% CAGR on the ranchland asset.

Banks are lending at 6% but P&I is difficult to cash flow for the borrower/operator with operating net margins of 10% (on all capital assets).

I understand we are all in a funky time of low cap rates and high interest rates, so in trying to be creative squeezing blood from a stone, is there a demand on the investor side for assuming the risk in order to obtain the appreciation and tax benefits with historically low volatility?

I know there are many other groups, even “institutional” types such as Farmer’s Business Network who are trying to create products for this. FBN is VC-backed, so they have other interests around that lending-relationship to monetize.
I’m curious if this type of sole-investment attribute at $50,000 fits in a passive investor’s $20MM portfolio for a little diversity/exposure.
Historically a Treynor Ratio improvement, though I don’t even know if the $20MM portfolio does Treynor assessments.
Loose parameters above, naturally.

Thank you Scott

Quote from @Doug Smith:

I grew up on a farm in IL and this caught my eye. We're primarily a lender, so our model centers primarily around short-term lending, but we've done some small investor work with real estate. My big question is the revenue model of a ranch. Are these working farms where the revenue the syndication receives is coming from the ranch operations or is it coming from the rental of the properties? That's an interesting model either way. I would think you would really need to produce a detailed pro-forma and make people comfortable that with historical financial documentation of the ranch and operator experience. I look forward to following this question. 

Thank you Doug!

I made this comment in some other forum but it applies here so I would like to receive your feedback on it directly in this thread.
Passive (leasing) ranchland annual yield is 0.05%-2.5% depending on Location.
Bozeman = 0.05%

Carlsbad New Mexico = 2.5%

The livestock enterprise profit margins should double that, thus taking one’s Net annual yield on all capital assets (cattle & equipment) to 5% (with immense risk behind that).
The livestock operating entity may not be that compelling of an investment pitch without integrating the historical risk/return performance of rural land, though there are lease operators who are probably in the annual net profit margin of 10-15% (lean operators.)
The intangible and “psychological” benefits do (subjectively) provide a higher annual yield; quality time with family, being in nature, hunting and recreation, freedom independence and diversity of one’s day/month/year.
Does this make it a “lifestyle” business much like cupcakery and boutique pottery? “Uninvestable”

All in, with tax benefits, I would say the annual yield (cash and non-cash) is closer to 15% for just a straight commercial/commodity. We all put a price on “quality of life,” so if I were a straight commercial r/e investor-operator interested in Section 8 housing, my discount rate would be much higher than that of a ranch in Anywhere USA.
Question from that: how do you “democratize” syndicate and “crowdfund” an asset that is primarily “psychological” returns?

I am looking at a deal much the same.
Where could I find the trust docs and articles of organization?

Ranch Real Estate and 10+ year hold transitional real estate have very low annual yields. 0.50%-1.5% cap rates.
Ranch real estate historically appreciates 4-6% annualized (excepting many anomalies in 2020,21,and 2022) so that basically becomes appreciation only.
I don’t believe any pension funds or institutional asset managers invest for appreciation alone. Row crop Farmland might be the lowest they go with a pre-2020 cap rate of 3.5%
I too am interested in what the conditions for “appreciation only” investments would be.
Thank you John.

I don’t, and I won’t as I have a r/e brokerage and would just do direct-exposure.
Definitely following this though to hear what the beat on the street is.
Thanks for posting G. Brian

Following. Is it of the general consensus that online real estate syndication is too high fee, an alternative asset that was highly correlated to the exuberance witnessed from lots of dry-powder in 20/21/22, not something active real estate investors do, and thus likely going to tank with the downturn in the economy?
Long term view: here to stay, great for access for retail type investors, being worked out and will only grow over time, won’t be dominated by the big boys of Goldman Sachs and Merryl, REITS, and institutional mutual funds?.
Good post Kyle.