A common stock market technique to value and gauge the price point of an asset is to compare to other similar assets.
Below I have a comparison between 3 different pieces of land in 3 different states. I try to take into account many aspects, Price, Rent, Rainfall, Appreciation, Yields, Taxes and so on.. I then ranked the attributes from the best (1) to the worst (3).
In this scenario, the Nebraska Farmland is getting the greatest percent return, at around 2.9%. However our ranking puts the Indiana piece of land as having the most #1's qualities. What does this mean?
Indiana's land characteristics are better then both Nebraska and Missouri, meaning its a higher quality piece of land. Yet the cash rent does not reflect this. Nebraska is charging more cash rent then Indiana.
This could mean 3 things:
- Maybe the Nebraska farmland is over-valued and the cash rent is a reflection of that.
- Potentially the rents in Nebraska are far too high.
- The last most important point is maybe the cash rents in Indiana are under-valued and the quality of land means a land owner could be charging more.
Comparison allows an investor to place to like assets next to each other and understand flaws and opportunities.
What do you think?