Is New Mexico Land a Good Investment?

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Is New Mexico Land a Good Investment?
By

Bart Waldon

New Mexico, known as the Land of Enchantment, spans over 121,000 square miles in the southwestern United States. This expansive state is renowned for its diverse landscape, encompassing high desert plains, Rocky Mountain peaks, and fertile valleys. New Mexico is also home to a colorful mix of cultures from Native American communities to Hispanic villages and frontier towns. All this unique scenery and character shapes the real estate potential across New Mexico.

When considering land investments in New Mexico, it helps having a local perspective. Land values and development trends differ greatly between north and south, urban and rural areas in the state. We'll explore key factors like market conditions, land use regulations, and investment risks to understand whether New Mexico land offers strong ROI.

Assessing the New Mexico Real Estate Market

Over the past decade, New Mexico’s real estate market has seen gradual recovery from the 2008 housing crash. Home prices dipped severely during the recession but have been bouncing back, especially in metro areas like Albuquerque and Santa Fe. The median home price rose to about $220,000 in recent years. Rural markets are appreciating slower but also lifting off lows hit after 2008.

At the same time, New Mexico has gained reputation as an affordable place to live and retire. Its low cost of living and open spaces keep attracting transplants from pricier states. For these reasons, demand is strengthening for not just homes but also vacant plots for residential and recreational development.

Ranch and farmlands are equally drawing investor attention, thanks to rising agricultural commodity prices. New Mexico farmlands grow mainly hay and forage crops, while sprawling cattle ranches graze over one-third of the state. As meat and dairy prices improve profitability of livestock operations, there is a push for acquiring grazing acreage.

In summary, positive momentum in broad sectors of the New Mexico real estate industry points to a healthy environment for land investments. Establishing the right strategy tailored to local dynamics can lead to lucrative returns.

Factors Influencing Land Investments in New Mexico

Land Development Regulations

One key determinant of land valuation and saleability is county zoning codes and land use policies. Development feasibility relies heavily on what use classifications and density allowances govern a property.

Across New Mexico, residential zones permit single family housing on quarter to half-acre lots. Light commercial buildings are also viable for properties adjoining highways or town centers. On the other extreme, rural municipalities impose one house per 10+ acres in agricultural areas to conserve resources.

Understanding such land use constraints will inform rational pricing for raw acreage. Any investor should verify local zoning implications before committing on vacant land. Misjudging entitled development rights severely impacts achievable sale price and buyer pool.

Infrastructure Access

Unlike structural real estate, vacant land itself generates no occupancy value. But lands next to roads, power lines and community amenities tend to attract higher bids based just on location.

Properties near employment hubs like Santa Fe or oil boomtowns in the Permian have greatest upside for commercial builds. Lands bordering highways draw interest for easier residential/retail development. Even rural lands with utilities access warrant higher valuations than remote backcountry parcels lacking infrastructure.

When looking at New Mexico lands purely as investment assets, checking infrastructure proximity determines financial feasibility more than physical traits of the land itself.

Water Resources

In New Mexico’s arid climate, securing water rights poses a major hurdle for developing raw land. Urban zoning densities require guaranteeing adequate water supply, while rural homesteads rely on securing domestic wells. Lands lacking pre-existing water rights thus need substantial capital commitments to establish new wells or storage facilities before qualifying for building permits.

Moreover, complex regulations govern surface and groundwater allotments across New Mexico. Navigating these rules to acquire sufficient water rights adds another complicating factor for investors - not just developers - dealing in raw lands. Adjacent parcels can demand drastically different pricing based just on state water administration policies.

Opportunities and Risks in New Mexico Land Investments

Returns Potential

Despite nuances of New Mexico’s land market, patient investors can realize substantial returns on vacant acreage over 3-5 year hold periods. Undeveloped lands in high-demand residential areas near expanding metros may appreciate over 15% annually. Values of rural recreational and agricultural lands also tend to hold steady or grow through economic cycles.

Seller-financed land contracts deliver additional income streams from holding raw land. Investors providing financing to buyers can earn up to 10% interest on the loan principal. Utilizing such creative deal structures opens passive revenue sources from land assets.

In summary, New Mexico lands present varied avenues for capital gains and consistent cash flows that may outpace returns from equity or rental property markets. Aligning investments with local infrastructure and demographic trends improves prospects further.

Regulations and Illiquidity

However, realize that vacant lands involve more complexities than other real estate. By nature, raw lands generate no occupancy value before development. Local zoning barriers or infrastructure costs also hamper site readiness. And selling costs plus longer marketing duration influence investment horizons.

Beginners seeking simpler passive income may prefer built residential or commercial assets over raw land projects. Inexperience navigating New Mexico’s development regulations poses high risks for investors focused on quick flips.

A disciplined buy-and-hold approach suits the illiquid nature of land deals better. Be prepared to cover carrying costs for potentially 1-3 years before surface value gets realized through sale or development. The upside of efficiently underwritten land acquisitions can reward such patience.

Market Volatility

While New Mexico land prices are recovering gradually, the vast supply of developable acreage creates risk of localized slumps if demand shrinks. This probability rises further in rural counties lacking robust housing demand drivers. Investors must carefully assess territory-specific trends rather than generalizing statewide outlooks.

Cyclical risks also bear monitoring when venturing into ranch lands for agricultural or recreational usage. Grazing lease rates fluctuate based on cattle/hay pricing heavily influenced by volatile commodities markets and climate patterns. Land buyers banking on continual lease income need reasonable buffers against temporary revenue dips.

In summary, land markets lack the stability of money-flowing residential or commercial asset classes. While 10%+ appreciation is no rarity, New Mexico’s discounted land prices also remain vulnerable to occasional corrections that equity-heavy investors must withstand.

Key Takeaways on New Mexico Land Investments

For risk-tolerant real estate investors, New Mexico's varied terrain offers plenty of appeal at affordable valuations. Strong lifestyle and job markets across the state are driving demand - hence pricing power - for correctly positioned lands plots. Strategic buy-and-hold investors stand to earn substantial ROI from both value gains and income streams off patiently executed land deals.

However, newcomers face a steep learning curve understanding the state’s development regulations, infrastructure needs and water rights administration for raw acreage - major drivers of land valuation and sale ability. The remote, undulating topography also leads to extreme localization of market conditions; statewide generalizations misguide land analysis.

Lastly, while land values are recovering statewide, oversupply risks and revenue volatility from agricultural/recreational lands merit cautious underwriting. Passive investors may prefer less complex property types than raw vacant acreage.

In closing, New Mexico real estate warrants attention from serious land investors willing to embrace the challenges. Market intricacies here pose exciting puzzles for professionals who can balance measured risk-taking with patient execution. For those select few pursuing the calling, the Land of Enchantment promises just rewards.

Frequently Asked Questions (FAQs)

What types of land are best for investment in New Mexico? 

The most profitable investment lands in New Mexico are those positioned for residential, commercial, or recreational development. Plots near expanding cities like Albuquerque and Santa Fe or along highways draw strong buyer interest. Rural lands with good access, utilities and water rights also make solid holdings.

What returns can I expect from investing in New Mexico land? 

Depending on location and development potential, vacant lands in New Mexico may appreciate between 5% to 15% annually over 3-5 year hold periods. Seller-financed deals can further deliver 6% to 10% cash-on-cash returns. However, rural properties have higher risk of revenue volatility.

How long does it take to sell land in New Mexico?

On average, marketing periods range from 12 to 24 months for most vacant lands in New Mexico. Exceptional parcels in high-growth areas may sell within 6 months, while remote rural lands take over 2 years to move. Investors should factor in carrying costs for intended hold durations.

What are the biggest challenges with investing in vacant land? 

Raw vacant acreage generates no occupy income before development, unlike leased commercial/residential assets. Plus, navigating zoning codes, infrastructure costs, and water rights administration pose steep learning curves for land investors new to New Mexico.

Is investing in New Mexico ranches profitable? 

Cattle ranches and farms can deliver attractive yields but have higher revenue risk from commodity/climate shifts affecting grazing lease rates and crop yields. Serious ranch buyers must buffer temporary dips with sufficient cash reserves or operating capital access.

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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