Author Topic: Anyone own Farm land?  (Read 3865 times)

Seeking the Brass Ring

  • 5 O'Clock Shadow
  • *
  • Posts: 44
  • Location: Madison, WI
Anyone own Farm land?
« on: November 13, 2014, 05:27:17 AM »
I'm interested in finding more information about renting farm land.  It seems like this could be a good option for long distance landlording since there's really no upkeep necessary with renting an empty field.  I do have questions about how to find renters, how to gauge market rent, how the deals are structured etc.

Bobberth

  • Bristles
  • ***
  • Posts: 318
Re: Anyone own Farm land?
« Reply #1 on: November 13, 2014, 01:07:06 PM »
I am no expert, nor have I done this, but I am originally from Kansas and I have heard about some farmland rental agreements.  If you have grazing land, it is what you usually associate with renting with $X/year/acre.  If you have crop land, usually you do something the farmers call "shares".  The shares that I heard of were 2/3 & 1/3.  That means the farmer that did the farming put up 2/3 of the expenses, farmed the land and harvested-all of the work.  The person that owned the land would put up 1/3 of the expenses and allow the farmer to work their land.  Then as the harvest came in, the farmer owned 2/3 of the crop and the land owner owned 1/3 of it.  It's possible that there could be other ways to set up a farmland rental agreement but I would imagine that most would include some type of 'sharing' as the value of farmland comes from it's productivity and a farmer may have an issue with paying a set amount in rent in case there is a bad year (unless the set amount was really low).  Since farming is such a local thing, it will mostly be driven by local customs.


Gone Fishing

  • Magnum Stache
  • ******
  • Posts: 2771
  • So Close went fishing on April 1, 2016
    • Journal
Re: Anyone own Farm land?
« Reply #2 on: November 13, 2014, 02:43:47 PM »
Around here ROE's are a little low.  Land rents from $50-$150 (depending on pasture/hay or crop) an acre that may be worth $2-3000.  By the time you pay your property taxes and income taxes, there is not much left.  Most landowners rent just to pay the taxes so they can hold onto their land without it costing an arm and a leg.  Madison is a whole-nother place though.  Might be different up that way. 

Rented land can be a great way for someone young to get into farming though.  The $50 rent would probably be the least of one's expenses on an acre of anything!     

Seeking the Brass Ring

  • 5 O'Clock Shadow
  • *
  • Posts: 44
  • Location: Madison, WI
Re: Anyone own Farm land?
« Reply #3 on: November 14, 2014, 05:26:12 AM »
It's my understanding that there are some pretty good tax breaks associated with farm land.  I'm sure it's a matter of finding the right deal.  Land around here is expensive but I thought it might be one way to diversify a bit.  You're right about Madison being 'a whole-nother place' for sure ;)

GrayGhost

  • Bristles
  • ***
  • Posts: 389
  • Location: USA
Re: Anyone own Farm land?
« Reply #4 on: November 14, 2014, 03:07:44 PM »
I researched this a few months ago, and I learned that overall, returns are low. Like 5%, at best. Obviously it's different if you find a place that's neglected or under exploited and you manage to add value, but at that point you're nearly running a business.

Another exception is if you take advantage of government subsidies and those sorts of things, but I'm not sure that that's ethical, so that's why I take a pass on farmland.

I understand the allure for sure, as almost all of us have farmers in our very recent ancestry, but the numbers just aren't there these days. And if humans do turn toward aquaponics or vertical farms in the near future, which they very well may, farmland isn't going to be worth a whole heck of a lot.

I'd stick to traditional real estate or stocks.

notsofast

  • 5 O'Clock Shadow
  • *
  • Posts: 9
Re: Anyone own Farm land?
« Reply #5 on: November 20, 2014, 07:29:29 PM »
I grew up on the farm in MO and the wife and I are preparing to buy a 1/4 from a family member next year.  Cash rent has grown rapidly in popularity the last few years as non-farmers have flocked to land for investment purposes.  Land values have come off during recent months in most areas as the grain complex has come off recent highs.  Generally you will need 30% down to finance land as an investor.  In some areas it is very common for land that is cash rented to be put up for bid when the current lease term is up.  Most of these agreements require the tenant to fertilizer the land back to a stated level of nutrients to keep the land owner whole and to prevent the tenant from depleting those nutrients. 

Seeking the Brass Ring

  • 5 O'Clock Shadow
  • *
  • Posts: 44
  • Location: Madison, WI
Re: Anyone own Farm land?
« Reply #6 on: November 22, 2014, 06:33:50 AM »
Quote
Most of these agreements require the tenant to fertilizer the land...

Thanks for the response.  This was an issue I had not even thought about.  I'll keep doing more research before taking any kind of risk with this stuff.  At this point it's more of an idle speculation rather than a serious plan.  I'm having trouble finding good housing rentals to invest in right now.   

Gone Fishing

  • Magnum Stache
  • ******
  • Posts: 2771
  • So Close went fishing on April 1, 2016
    • Journal
Re: Anyone own Farm land?
« Reply #7 on: November 24, 2014, 01:18:29 PM »
Quote
Most of these agreements require the tenant to fertilizer the land...

Thanks for the response.  This was an issue I had not even thought about.     

Yep, fertilizer is a big deal. Just for a visual aid, each one of those round bales of hay they take of a field has about $15 worth of fertilizer in it give or take.  If the land in an area that needs pH work from time to time, lime or sulfer might need to be added into that calculation as well.

johnhenry

  • Bristles
  • ***
  • Posts: 304
  • Age: 40
  • Location: Midwest
Re: Anyone own Farm land?
« Reply #8 on: November 26, 2014, 01:27:35 PM »
I'm interested in finding more information about renting farm land.  It seems like this could be a good option for long distance landlording since there's really no upkeep necessary with renting an empty field.  I do have questions about how to find renters, how to gauge market rent, how the deals are structured etc.

I own (and farm) productive crop farmland in the midwest.  Due to the high price of land, I'm not aware of any locales where land be bought and rented for cash at a rate that provides a return that's favorable when compared to residential or even commercial real estate rental.

As others pointed out, the taxes and insurance on farmland are often VERY low when compared to real estate with structures, but the cash rents are just not sufficient to cover the mortgage payments if you are buying at today's prices.  As you point out, there's little upkeep "required" on land.  But the downside is, as investor, you lose the benefit of depreciation which is basically tax deferral (at worst) and tax avoidance if you are willing to hold the asset till death.

Finding land tenants and gauging market rent would not be difficult.  In fact many states publish details records of farmland statistics including yields, cash rents, soil types, etc.

Many farms are rented on a cash basis, but many are still sharecropped as well.  The land owner will often pay for 1/3 of the cost to put out the crop, while the farmer puts out 2/3.  The proceeds are then split the same way.  Subsidies from the government may be split along the same line, or they may be kept by one party or the other.  An arrangement like that allows the land owner to take a little risk with the hope of a return quite a bit higher than a cash rent(which carries little risk) would produce and it serves to align the motivations of both parties. 

You may assume that farmers would always be motivated to produce the highest yields/returns possible, but that's not always the case.  And you may assume if you are getting cash rent, you aren't concerned with the farmer's yields.  But...if a farmer is cash renting land that isn't owned by himself, he's not necessarily motivated to keep it well drained, fertilized, sprayed, etc.  When soil quality is neglected it can take a few years of treatment to rebound to it's full potential.  A farmer who knows what he's doing cash renting from a land owner who does not, can be a recipe for manipulating yields(in reality or as reported) to make the land appear less productive than it is.  Crop land enrolled in any government programs requires yield reporting.  All the farmers in the area can find out how that farm has produced over it's history.  What they'd be willing to pay to buy or cash rent the land for will be artificially deflated if the operating farmer has been neglecting the soil as part of strategy to reduce his cash rent or buy the land at a song.  Because only he may know what kind of time and money have been spent maintaining the soil quality....he's got the upper hand on the landowner and all the other farmers in the area.

OK, those are some potential pitfalls of a landlord unfamiliar with farming cash renting land to a farmer.  But sharecropping by splitting costs/revenue basically forces you to keep VERY close tabs on exactly what your sharecropping farmer spent and produced and sold where that land is concerned.... or to trust him completely.  Your farmer is likely running a farm that includes more than just your land.  He's got lots of other expenses related to his own land that can land on your desk, for you to pay 1/3 of.  And unless you are following the grain truck to the market, you have no way to know that several hundred bushels of your corn didn't wind up as feed for HIS cattle.

What I'm trying to say is, I'm interested in farming land for you if you happen to buy any near me :)  Just kidding.  I am saying be careful.