Is Mississippi Land a Good Investment?

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Is Mississippi Land a Good Investment?
By

Bart Waldon

Mississippi is located in the Southern United States, bordering Louisiana, Arkansas, Tennessee, and the Gulf of Mexico. Known as the Magnolia State and the birthplace of blues music, it contains rich culture, natural landscapes like forests and farmlands, and major economic centers like state capital Jackson. With average land prices lower than the national average, some view Mississippi real estate as enticing for investment purposes due to potential for cashflow from resource development or long-term appreciation. However, localized economic and demographic factors also impact real estate investing here.

Mississippi's Economy and Real Estate Market Dynamics

Like much of the South, Mississippi’s economy has modernized over the decades but still depends significantly on agriculture and natural resource industries. The state ranks high in timber production and mineral extraction of oil and natural gas, although output fluctuates with global commodity prices. Major employers include the healthcare, manufacturing, government, hospitality and casino gaming sectors. However, average incomes trail national levels, with the state frequently ranking low for metrics like GDP growth and educational attainment.

Uneven Growth and Pricing Across the State

Real estate markets vary greatly within Mississippi as local economic conditions diverge. The state’s three key metro areas – Gulfport, Jackson and Memphis suburbs – account for over half the population and have seen stronger home price appreciation than rural areas. However, markets are highly localized and even neighborhoods within the same county can have vastly different demand dynamics. For example, areas around key transport corridors and industrial zones often outperform, while remote areas lag.

Affordability Relative to Other Markets

The median home price in Mississippi is approximately $155,000 as of late 2022. While 36% higher than five years ago, this price level still lags the national median of $384,800. With lower average incomes but fairly stable property tax rates around 1%, housing in Mississippi is relatively affordable for buyers able to secure financing. This enhances investor appeal, with strong yields possible on rentals or land development deals at current pricing levels compared to other U.S. markets.

Oversupply Conditions in Some Segments

Development has outpaced demand in some market segments in Mississippi, especially rural lands. The state has an abundance of undeveloped land tracts, much held by timber companies and absentee owners. Buyer interest is limited due to factors like poor road access, lack of infrastructure, and distance from major economic centers. Without fundamental population and economic growth to spur housing demand, conditions favor buyers able to purchase at discounted pricing. Though affordable, caution is still warranted around rural land investing until market absorption accelerates.

Key Factors Impacting Land Investing

Raw, undeveloped land can potentially produce attractive returns from long-term capital growth, cash flows from interim use like farming or timber, or holding for future development. However, land is among real estate’s most complex asset classes - proper underwriting is crucial before investing here.

Returns Highly Speculative and Long-Term in Nature

Forecasting long-term appreciation on vacant lands contains major uncertainty compared to existing rental properties with established income streams. Rural lands may see flat prices for years until a catalyst like a new highway nearby spurs interest. Land investing success often depends on development occurring nearby and general economic tailwinds. Target holding periods of 10+ years are common for significant capital gains to accrue.

Specialization is Essential

Each land type - agriculture, timber, residential development, commercial use - has unique valuation drivers, risks, regulations, and development costs. Investors must focus on a specific niche to amass granular market knowledge and accurate financial modeling capabilities or risk misjudging demand drivers and usage feasibility. Occasional policy changes around zoning and density can also impact returns.

Local Expertise Offers Major Advantages

Out-of-state investors often struggle to accurately gauge hyper-local demand trends and buy/sell dynamics in Mississippi’s land submarkets. Partnering with specialized local companies can provide superior access to off-market deal flow, critical for buying at significant discounts. These partners also have resources for essential tasks spanning site analysis, permitting, development oversight and end user marketing on niche land deals.

Marketing Efforts and Carrying Costs Add Up

Even attractive land parcels do not sell themselves, especially rural tracts. Investors must prepare detailed marketing materials highlighting property attributes and research demand sources. Online aggregators see limited buyer traffic for raw lands - traditional channels like industry conventions and farming publications lead to most deals. Installation of visual signage and regular land showings also necessary in many cases. With long average market times from listing to sale, larger investors budget for direct marketing staff to reduce broker commissions. Carrying costs like property taxes and maintenance also continue accumulating on unsold inventory.

Mitigating Risk is Paramount

While vacant lands offer tantalizing return potential compared to other assets, they rank among real estate’s riskiest categories. Numerous contingencies outside investor control – environmental issues, title disputes, zoning changes, natural disasters – can impede returns or even lead to losses. Conducting rigorous due diligence around title claims, resource rights, mineral deposits and hazards containment reduces downside risk. Setting targeted returns thresholds high enough to offset the speculative nature of land investing is also prudent.

Should You Invest in Mississippi Land?

Mississippi offers some enticing attributes when it comes to land investing, including low property costs and rich natural resources. However, its economic uncertainty gives some investors pause. Performing rigorous due diligence is key before deploying capital into the Magnolia State’s real estate markets.

The Bull Case

Lower Valuations 

Mississippi's average land prices come at a nearly 60% discount to national per-acre averages, lowering the capital needed to invest at scale. Compared to Northeast and West Coast markets, land here provides much higher potential yields.

Abundant Natural Resources 

The state contains ample farmland, mineral deposits and over 18 million acres of timber - the second most in the country. For investors targeting resource-linked land plays, Mississippi provides a strategic long-term supply.

Infrastructure Improvements Coming 

Mississippi is slated to receive over $3 billion in federal infrastructure funding under the 2021 Bipartisan Infrastructure Law. Investments into roads, bridges, ports and broadband could positively impact land values in surrounding areas.

Reasons for Caution

Economic Headwinds 

Mississippi frequently ranks near the bottom for GDP growth, income levels and other economic markers. Job creation and wage growth have lagged national trends, weighing on housing demand.

Fragmented Markets 

Pricing, development momentum and investment viability differ greatly between counties and even neighborhoods. Out-of-state investors often struggle gauging hyper-localized demand dynamics.

High Speculation Factor 

Rural lands may see flat prices for years until a catalyst like a new highway spurs interest. Accurately forecasting the timing, likelihood and impact of such external factors adds uncertainty relative to existing rental properties.

Mississippi real estate markets offer selectively attractive risk-reward profiles but require extensive local market expertise to mitigate uncertainties around long-term investing. Investors taking appropriate precautions can capitalize on still-discounted land pricing stemming from uneven growth conditions statewide. However, broader economic tailwinds would provide added confidence.

Bottom Line - Potential Exists but Caution Still Warranted

In summary, Mississippi offers selective opportunities for high investment upside from land holdings– but only among sophisticated investors willing to mitigate risks. Significant local expertise is needed to accurately underwrite deals in fragmented submarket conditions. State economic uncertainties also necessitate caution until broader population and business growth accelerates. Investors able to target discounted land parcels, particularly following periods of market turmoil, can potentially generate outsized returns over 10+ year hold periods. But proper specialization, underwriting rigor, and risk management practices remain imperative amid a highly complex asset category.

Frequently Asked Questions (FAQs)

Is Mississippi's land cheaper to buy than other states?

Yes, land prices in Mississippi tend to be lower on average than many other states. The state has an abundance of undeveloped rural and timber lands held by absentee owners, which depresses values in some markets with more remote or unimproved parcels.

What yields can be expected from Mississippi investment land?

Potential rental yields vary widely based on land type, location desirability, resource attributes, and more. However, in general, land in Mississippi provides higher possible yields than comparative properties in more expensive states closer to the national average. Target yields often fall between 4-8%.

What factors most impact Mississippi land valuations?

Key drivers include proximity to economic centers, access via roads/transportation, availability of basic infrastructure like utilities, adjacent development momentum, and localized supply/demand dynamics. Environmental attributes, natural resources, and zoning permissions also impact pricing.

Is a land investment in Mississippi safer or riskier overall?

There are more uncertainties around vacant land investing compared to existing properties with operating histories. While Mississippi offers relative affordability, its state economy lags national averages. Investors should factor in higher speculative risk relative to market timing, development costs, carrying periods and other variables.

Is local expertise vital for successful Mississippi land investing?

Yes, specialized insight on micro-market supply/demand, private deal access and accurate property valuation are very difficult for out-of-state investors to match. Experienced local partners are highly advantageous for mitigating Mississippi's added volatility and information gaps.

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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