Chapter 2, Setting the Parameters

O.K., now you have decided on one Broker to represent you in the search for and purchase of your “dream” ranch.  You have ensured that this broker has participated in the sale/purchase of similar properties in the past in the areas you prefer. I harp on experience for several reasons, one in particular.  As a new salesperson, I went on my first showing alone with the buyer.  We went all over this ranch, climbing into deer stands, turning on water wells, peeking into sheds and barns, a good, through, look at the property.  It was not until I returned to the office and began gathering answers for the Buyer’s questions that I noticed some irregularities.  There were six wells, not four, and the field near the camp was no more than 30 acres, not the 125 in the brochure.  Turns out I was on the wrong ranch the whole time.  I had done an excellent job of showing a ranch that was not for sale.  I thank my lucky stars the Buyer was not interested enough to make an offer!

Now it is time to meet or call your (experienced) Broker and set the parameters for your search.  The first is of course, price.  What do you want to spend on this ranch, knowing that there will be expenses after closing to develop the property?  Unless you’re paying cash, or doing a 1031 tax-free exchange, you should contact your sources of money to learn about interest rates and loan types to see what you’re qualified for well before you start looking at ranches.  Ranch loans come under a different category than either residential or commercial loans and ranch loans may be structured differently with different rates.  Your local bank or credit union will probably not make a ranch loan.  If it does, the rate may be higher than a financial institution that specializes in such loans.  Again, using the internet, typing in “farm and ranch loans” in your search engine will bring up a list of such institutions, such as the Southwest Texas ACA, Crockett National Bank, Capital Farm Credit, etc.  Remember to include improvements and equipment in your loan estimates.  Many a time, I’ve seen new ranch owners over-extend themselves, trying to make improvements on a shoestring budget; having to wait several years before they can afford to make the improvements they want.

While stretching improvements out over several years is fine, at a minimum, leave enough in the kitty to allow you to enjoy the place; that’s ultimately why you’re buying a ranch, to enjoy, not worry.

Size of your dream ranch is a function of price and location.  First of all, ranches are normally priced per acre, as opposed to the total, unless the improvements are a significant contributor to the total.  This helps Brokers and Buyers compare ranches and use comparable sales as references.  If you have $5,000,000.00 to spend, you must decide if you’d rather have 3,300 acres in Kinney County, 2,000 acres in Dimmit County, or 500 acres in Kerr Co.  Why the big difference, in a relatively small area?  Prices vary greatly and are determined to some extent by several variables in a very imprecise, fluid manner.  In South Texas, location, primarily distance from San Antonio, is perhaps the greatest variable, as Buyers from Houston, Austin, or Dallas are in for a long trip regardless.  Prices decline as drive time from S.A. increases.  An exception would be the George West-Beeville area, where easy access from Houston on Hwy. 59 and Corpus on IH 37 seems to inflate prices a bit.

Another factor is wildlife potential, particularly Whitetail deer.  Today’s Buyer is primarily interested in deer, with brush selling much quicker, and for more money, than improved rangeland or farmland, even though farmland has a potential for income and can be easily converted to good quail hunting.  Deer hunting still drives the market however, so ranch property in counties with a reputation for producing big deer sells for more.

The “golden triangle” is a good example.  This area, bounded by Cotulla, Laredo, and Eagle Pass has been promoted over the years as having produced superior deer.  While it is true that Dimmit Co., smack in the middle of this triangle, has more listings in the Boone and Crockett book, “book-worthy” deer are becoming more prevalent throughout the region, due to high fencing, supplemental feed, and sound management.  While I still get calls for properties in the “golden triangle”, more buyers today are looking for sand or red sand, a soil type rather than a location.  This is because of the greater vegetative response to moisture with sand and sandy loam soils and because it is harder to get stuck on opening morning in red sand than in clay.  Hunters are nothing if not practical.

Soils in South Texas vary greatly but have been well mapped by the Natural Resource Conservation Service (NRCS), formerly known as the Soil Conservation Service (SCS).  On one ranch I managed for a time, I had 12 different soils on 1,600 acres, each with its’ own characteristics.  Start with a general soils map, like the one below, to narrow your search for specific soils, knowing that variations will occur.

Parts of South Texas are well known for certain soils.  For example, Dilley to Carrizo Springs is red sand and Tilden to Freer is clay loam.  North of Hebbronville is a sandy-clay soil with caliche outcrops while south of town it turns to a deep sand.  This ties in with vegetation; if you want guajillo, you’ll want to focus on the counties with sandy, gravelly ridges.  If you want blackbrush, look to those areas with more clay.

Lastly, rainfall affects price.  In general, rainfall in South Texas decreases as you move westward from the Gulf of Mexico and southward from the Balconies Escarpment or Hill Country.  Within this general rule, there are exceptions, as always; areas that always seem to miss the rains or get more than others.  An experienced Broker can help you with this, as can talking with locals.  Long-term averages are helpful, although I was told a long time ago that the 10-year average rainfall in South Texas is the result of a “hurricane followed by 9 years of drought”.

So, distance from the big cities, wildlife potential, soils, and rainfall are the gross determinants of price.  Water is critical to the development and enjoyment of a ranch and critical to the investment value of a ranch in today’s market. Rapid changes in how we view, use, and regulate water resources make water a very important consideration in buying a ranch.  We’ll talk more about water as it relates to development, but it should not limit your search area unless you intend to use it for irrigation.  As always, there are exceptions to this rule too.  Some areas of South Texas do not have well water, at least not at depths that are economically feasible.  I once sold a place SW of Tilden, an area known for very deep well water.

   Those new owners had to re-enter a plugged oil well, drilling out five concrete plugs to finally reach water at 4,800 feet.  Even with that, the water produced is hot and full of mineral once it finally reaches the surface.  Situations such as this certainly affect the utility of the land and   ultimately the price.

Politics and social considerations may well figure into the choice of location as well.  Some areas have reputations for trespass, poaching and/or burglary, and operating a ranch in these areas, while not prohibitive, requires additional thought regarding safety and security

Remember too, this doesn’t have to be your only or “last” ranch.  If new to the experience, buy a smaller place, fix it up, and trade it in for a bigger one several years down the road.  I know quite a few people who do this and sometimes make good money at it.  Just don’t expect to get rich at flipping ranches unless you have the capital and the time to get good at it.

Improvements are a personal matter.  I’ve heard several times over the years that a Buyer would take the ranch offered if it did not have the improvements in place.  If the house does not match the idea of what you (or your wife) want, it probably won’t work.  The house aside, look for basic improvements done well; water, fencing, outbuildings, fields, roads, etc.  These are generic improvements that cost a lot in both time and money but usually are not reflected in the price.  Unless you plan to buy a ranch big enough to justify a caretaker or manager, making improvements can be a frustrating, drawn out process.  Arranging for, then meeting with contractors at the ranch can require several trips a week.  Buying a place with a barn or water well already in place saves you a lot of hassle.  And just for grins, taste the well water, you may be surprised!

Speaking of traveling to the ranch, access is usually near the top of most Buyers’ wish lists.  Paved frontage, while increasing the chances of trespass, does ensure that you can get to, and home from the ranch.  Preferred access options include paved access on a dead-end road, so poachers and burglars feel “trapped” on that road, but the landowner can still get in and out easily.   Conversely, some buyers want isolation and prefer to be at the very end of the road or at the end of an easement.  This works if you plan to stay at the ranch for extended periods of time or have the money to weather-proof the entry road.   Always remember that, even in deep South Texas, there are occasions, usually during deer season, when dirt roads may become impassable and four-wheel-drive trucks are nothing more than very comfortable, stationary deer blinds.   Four days before writing this, I was stuck in La Salle Co. in a new 4WD pickup, extended cab with all the bells and whistles.  It was so stuck, in red SAND, that a jeep could not move us, another truck could not budge us, and it was not until a road grader arrived four hours later that we were pulled from that damn hole.  While I freely admit the sunset was beautiful, it was not nearly as beautiful as that old motor grader coming over the rise.

Lastly, minerals, or the lack thereof, should be a consideration when deciding on your search parameters.  Because minerals, and now water rights, are such an important part of the value of rural property, particularly in South Texas, this is one area that should be thoroughly explored in the early stages.   Whether or not you receive any mineral interest at all, whether there is, or could be, any mineral activity in your area, and whether or not you could live with drilling, pumping, hauling, etc. are all very important considerations.  Do not go to the contract stage simply asking for “all owned minerals”.  Find out what minerals are owned and what percentage will be conveyed.   This is a key negotiating point in the purchase and you should know going in what you’re getting and what you require to be satisfied.  If the ranch has not changed hands for many years, the owner may not know what mineral rights he/she owns.  This is rare with today’s “oil boom” in Texas, but it still may happen.  If you feel you must have some mineral rights to be comfortable with a purchase, say so early on and make it a condition of the purchase.  Be cautious of a prospectus that says, “minerals to be determined by title search”.  This may well mean there are no minerals to convey and the just want to get you on paper hoping you’ll learn to live with a surface-only (no mineral rights) ranch.

First of all, let me say that as a Broker, I refer all mineral questions to an attorney.  Minerals in Texas are separate from the surface and a precise understanding is necessary.   I often hear from Buyers that they want 50% of the minerals so they will be “in control” of any mineral development.   It is just not that simple.   I believe I am safe in saying that mineral rights in South Texas are usually marketed in three forms; mineral rights, executive rights, and royalty rights.  This is a dangerous generalization as the mineral estate can be divided into more than three simple parts.  In yet another informative publication; “Rights and Responsibilities of Mineral Cotenants”, Judon Fambrough, a down to earth attorney for The Real Estate Center at Texas A&M University states:  “The mineral estate comprises five separate and distinct interests: (1) the right to lease the mineral property, sometimes called the executive right; (2) the right to develop and produce the minerals; (3) the right to receive bonuses; (4) the right to receive delay rentals; and (5) the right to receive royalties.”   These five rights may still be all in one bundle, but they may be separated out and available to you, the Buyer in varying percentages or not at all.  Suffice it to say, this is an important aspect of buying land in South Texas.  Basic information on minerals, and a wealth of other subjects concerning rural land, is available from The Real Estate Center at A&M (http://recenter.tamu.edu/).  Certainly, if there is ever any question, ask an attorney, preferably one experienced in oil and gas law before you commit.

I recently negotiated a sale where the Sellers did not know what mineral interests they had.  They thought they owned all the minerals and were offering half of all owned minerals.   To avoid surprises, my buyer wrote in that he would receive 50% of 100% of the mineral estate, or the deal was off.  This choice of words eliminated the chance of an “oops!” at closing, where the Seller finds out he/she really did not own any minerals, yet the Buyer is already thinking what color to paint the barn.  It’s in awkward situations such as this that everybody calls their lawyers.  Such situations should never occur.   If a Seller is unsure of what portion of the mineral estate they own, it should be researched even before the asking price is set.  True, some of it will come out in the title search, but minerals are not generally well defined by the title commitment and are not guaranteed by the title policy.  A plus of the current oil boom is that landmen, people that research mineral rights, are plentiful and a mineral search is fairly inexpensive.  A mineral search can usually be done in two weeks and is a good expenditure during the Option Period (see contracts following).

Sometimes the Seller does not own any minerals or simply does not want to convey any.  That is not to say the property is worthless to you as a buyer.  As the new owner, you will still own the surface, and have some say in what goes on.  You can still manage the deer, plant crops, dig stocktanks, you just may have some new “neighbors” move in and bring their drilling rig with them.

It is important to know that the mineral estate is dominant to the surface estate.  In Texas, if they have a right to recover minerals from under your land, they can do pretty much anything reasonable without your consent.  If you can live with that, and many do with no problem, then you can get good ranch property at a reduced cost.

I hear from a lot of Buyers that oil production equates to poor deer since all the trophy deer are shot by the roughnecks or by the gaugers.  While this may have been true at one time, and while I do not doubt that it occasionally happens today, most oil field workers have no interest in shooting your deer.  For one thing, they would have to conceal the carcass in their vehicle to get it off the property, blood, guts, and all, exposing themselves while loading it and having to remove all signs of blood.  For another, they would have to carry a rifle with them, against the rules on an oil lease, and hope no one hears the shot.  Violation of the restriction against hunting or carrying a firearm is grounds for dismissal so, unless the worker doesn’t need his job, or the whole crew is in on it, it’s just not going to happen.

I am often asked what is the minimum number of acres needed to produce quality deer or quail in huntable numbers?  There is no “minimum” as long as the animals can pass freely across your boundaries.  Of course, depending on the species, this means that under a certain size, you will be “sharing” wildlife with your neighbors.  High fencing addresses this issue for most mammals, by enclosing wild populations inside a net wire fence that restricts movement.  With a high fence, you can manage a pen of less than 1 acre for trophy deer; is that then the minimum?   Bobwhite quail normally distribute themselves over suitable habitat for nesting at a density of one pair for every 4 acres.  Is that the minimum?  Of course not.  If you want to manage a self-sustaining, free-ranging population, but your financial situation limits your ranch to a modest size, study your potential neighbors carefully.  A smaller size tract does not necessarily mean you cannot have an enjoyable experience as a landowner; it just means that the smaller tracts require more management planning and may involve cooperation with your neighbors.