Is Illinois Land a Good Investment?

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Is Illinois Land a Good Investment?
By

Bart Waldon

Known as the "Prairie State," Illinois has a diverse geography, economy, and cultural heritage. Chicago may be the first thing that comes to mind when you think of Illinois, but the state stretches far beyond its famous Windy City into prairies, rivers, forests, and even suburbs. Agriculture has long been a huge part of the Illinois economy—in fact, it leads the nation in production of soybeans and corn. But Illinois also boasts multiple Fortune 500 company headquarters, renowned universities, Abraham Lincoln historical sites, fascinating museums, music festivals, and unique natural wonders like Garden of the Gods and Starved Rock State Park. Though criticized for its political corruption and high taxes, the Land of Lincoln remains a major industrial, scientific, and tourist hub in America's heartland.

Illinois is located in the Midwestern United States, bordered by Wisconsin to the north, Iowa and Missouri to the west, Kentucky to the south, and Indiana to the east. The state has a population of around 12.8 million people and a diverse economy spanning manufacturing, agriculture, services, government and tourism. But is land in the Prairie State a wise investment in 2023? Let's take a closer look.

The Illinois Real Estate Market

The Illinois real estate market has seen steady growth over the past decade, with median home prices rising from around $175,000 in 2012 to over $250,000 in 2022. While prices took a hit during the 2008 financial crisis, the market has since rebounded and continues to appreciate year-over-year. This indicates a healthy demand for housing in many parts of the state.

Commercial real estate is also strong in Illinois, especially in and around major metro areas like Chicago, Springfield and Peoria. Vacancy rates have fallen to pre-recession levels while rents have risen across most commercial property types. This strength is underpinned by job growth in sectors like healthcare, education and professional services.

Farmland values in Illinois have likewise trended upwards, more than doubling over the past 20 years. The state has some of the most productive agricultural land in the country. But growth has slowed recently due to lower commodity prices and international trade issues affecting the farming industry.

Benefits of Owning Land in Illinois

There are several potential benefits that make Illinois land attractive to investors:

  • Appreciation - As noted above, real estate values have consistently risen over the long term in Illinois, outpacing national averages in many markets. Owners can build equity as their land increases in value over time.
  • Income - Land can generate ongoing income through leasing, rental properties or farming. Illinois farmland rents have risen to over $260 per acre on average.
  • Development opportunities - As cities like Chicago expand, well-located parcels may have high commercial or residential development potential.
  • Natural resources - Mineral rights, timber, water resources and more can provide additional revenue streams from land ownership. Illinois has significant oil reserves downstate.
  • Recreation - Rural lands with features like woods, wetlands and meadows have value for hunting, fishing or other recreational activities.

Risks & Challenges of Owning Illinois Land

However, there are also a number of risks and challenges to be aware of:

  • Property taxes - Illinois has one of the highest average effective property tax rates in the U.S., around 2.1% of home value. Taxes eat into returns on investment properties.
  • Regulations - Getting development projects or infrastructure improvements approved often requires navigating extensive red tape at multiple government levels. Permitting can be complex.
  • Maintenance costs - From mowing and irrigation to drainage tiles and fences, owning rural land involves regular upkeep expenses. Buildings also require ongoing repairs.
  • Commodity volatility - Grain, oil and other commodity prices fluctuate, causing Illinois farmland incomes to rise and fall along with broader trends.
  • Future uncertainties - Factors like climate change, population shifts and natural disasters could impact the value and viability of land in unforeseen ways.
  • Illiquidity - Unlike stocks or bonds, land can take a long time to sell. Finding a motivated buyer who meets your price isn't always easy.

Top Illinois Regions for Land Investing

Certain regions of Illinois may be better suited to land investment based on development potential, natural attributes or economic strength:

  • Chicagoland - As the nation's third largest metro area, Chicago offers a robust real estate market and steady demand. Areas adjacent to the city or close suburbs can be ripe for commercial development.
  • Central Illinois - Home to the state capital and a major public university, Springfield anchors a region with strong median income and a diverse economy.
  • Southern Illinois - Although more rural, this area has significant oil resources in places like Wayne County. The Shawnee National Forest also boosts land values.
  • Northwest Illinois - Galena and nearby towns have seen a boom in tourism, recreation and second-home buyers. Pastoral landscapes draw those looking for rural retreats.
  • Champaign County - With the University of Illinois' main campus in Urbana-Champaign, this county has major education and research assets to drive economic growth.

Estimating Value of Illinois Land Parcels

Determining an appropriate price to pay for a piece of land in Illinois requires looking at a variety of factors:

  • Location - How close is the parcel to major roads, towns or other infrastructure? Is it in the path of development? What amenities are nearby?
  • Zoning and land use - What type of development does current zoning legally allow? Are there any restrictions?
  • Access and utilities - Does the parcel have road frontage and connections to power, water and sewer lines? If not, what would it cost to add?
  • Size and shape - A larger parcel may have more potential uses but an irregular shape can limit what you can do.
  • Improvements - Does the land already have buildings, fencing or other improvements that add value? Are there liabilities to remove?
  • Natural attributes - Unique features like water bodies, wetlands or stands of mature timber can boost desirability.
  • Recent sales data - Prices paid for comparable nearby parcels will give you an idea of current market rates.

This data provides a baseline for evaluating the fair market value of a property. But setting an offer price also requires considering your own goals, ability to add value through development, and overall budget.

Smart Ways to Invest in Illinois Land

When looking to put your money into Illinois real estate, there are several approaches that can set you up for success:

Target Parcels Near Growing Metro Areas

Focus your search outside major cities like Chicago, Rockford, Springfield and Peoria. Land in suburban areas and exurbs is likely to increase in value as development spreads outward from urban cores. Research projected growth patterns to identify parcels well-positioned to benefit.

Seek Out Distressed Properties

Sometimes you can find discounted land parcels where owners need to sell quickly due to financial hardship or other challenges. Work with real estate agents who can notify you about motivated sellers. Act fast when opportunities arise.

Buy Land with Income-Producing Potential

Look for properties suited for farming, mineral rights, cell phone towers, billboards or other commercial uses. The income generated can help cover your carrying costs and offset risks.

Pool Funds with Other Investors

For larger development projects, consider teaming up with other investors to make the deal happen. This spreads risk across multiple parties. Just be sure to clearly define roles and responsibilities upfront.

Utilize Self-Directed IRA Funds

Investing through a self-directed IRA allows you to put retirement savings into alternative assets like land. Work with a custodian to set up the account correctly for maximum tax advantages.

With the right strategy, Illinois land can produce solid returns over time. Conduct thorough due diligence and partner with real estate professionals to find and vet potential deals. Patience and persistence are key.

Final Words

Illinois offers investors many promising real estate markets, rich natural resources and infrastructure to support development. But there are also regulatory hurdles to navigate as well as taxes and maintenance expenses that eat into profits.

To capitalize on Illinois land opportunities, focus your search on high-growth areas where you can realistically envision adding value to the asset over time. Come in with realistic expectations around budget, timeline to sell and likely returns. And remember that market conditions can shift quickly, reducing paper gains to reality.

With the right parcel, investor expertise and careful financial planning, Illinois land can generate good income and represent a solid long-term investment. But pursue opportunities with eyes wide open to the risks and challenges involved. Do your homework before committing to ensure the deal pencils out.

Frequently Asked Questions (FAQs)

What types of land investments are best suited for Illinois?

Farmland, timberland, and vacant residential/commercial development land near major cities can all be good options. Look for parcels with potential for appreciation and income generation. Stay away from flood-prone properties.

What is the average cost per acre for Illinois farmland?

Prices vary widely based on soil quality and location. But statewide average values tend to range from $7,000-$10,000 per acre for good to excellent cropland. Less productive land will sell for under $3,500 per acre.

How risky is it to buy undeveloped land as an investment?

There are always risks, including securing zoning/permits, covering taxes and maintenance, and waiting for the right buyer. But with proper due diligence and patience, vacant land can pay off handsomely. Start with smaller parcels to mitigate risk.

What expenses are involved in owning rural land?

Ongoing costs may include property taxes, liability insurance, maintenance/repairs of any structures, weed control, irrigation, drainage tiles, and more. Budget for both annual recurring and periodic capital improvement expenses.

How liquid is land compared to stocks or bonds?

Land is an illiquid asset that can take weeks, months, or years to sell. The limited buyer pool means you have to work harder to find interested parties. Consider the tying up of capital before purchasing.

About The Author

Bart Waldon

Bart, co-founder of Land Boss with wife Dallas Waldon, boasts over half a decade in real estate. With 100+ successful land transactions nationwide, his expertise and hands-on approach solidify Land Boss as a leading player in land investment.

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