Farm land leases - anyone know anything about this?

[Megma]

Hello MMMers! Does anyone know about farm land leasing (cultivated and/or grass) or where I can read up on this?

My very generous father inherited various tracts farm land from my grandma when she passed away at the beginning of the year and is in the process of gifting me a piece of this land. There is some which is cultivated (wheat) and some which is pasture (cattle raising).

My husband and I own two rentals but I don't know squat about farmland leasing practices, rates, contracts nothing. My father has said he will help me learn, which is why he wants to give me the land now. My grandma had both properties leased (there is a strong market, people would call her without her even advertising) and my dad asked them if they want to continue for 2020 and they do. Great! Both leases are for cash rather than a crop share arrangement.

Dad has also said he will pay the 2019 taxes for me but I will need to pay them starting in 2020, when I will also start to receive the rental income. Dad doesn't know exactly how much the taxes are and I tried to look online but I couldn't find it under his name or grandma's and to be honest, it looked like half the county was owned by my father's extended family when I searched by our last name. Looking at similar properties, the taxes are maybe 1,000 a year.

Dad is also having his attorney review grandma's lease to make some suggestions - as we don't know if an attorney drafted it for her or where it came from originally (thank you Dad!).

So ok, now that I am apparently a farm land heiress, where online can I read/learn/research this more? I do not want to sell the land.

[Another Reader]

@SwordGuy inherited some farm land that he leases.

[fixie]

Congrats!

Try going to your county's assessor website.  Depending on the county, you can do a map search of the parcels in your area.  Figure out what the parcel/tax lot number is, and that will give you the plat map, owner, ownership history, tax history, assessed value, sometimes even cool old photos of the land and how it was used.
If your county doesn't have a good website, go "downtown" to the assessor and get some help searching.

Leases for crop or pasture are much like any other rental.  Terms, price, conditions etc.
If you plan to rent the land as pasture for cattle, be sure to have conditions in the lease about fencing maintenance, water access and availability, farmer's access to the land, hours of access, hunting restrictions, liabilities, that sort of thing.  You may even want to put in some language about HOW the land is grazed, how intensively etc.  Are the cattle finished on the land or do they spend their whole lives there?  Are they moved around in paddocks to improve grazing quality or just left to loaf and degrade the quality and cause erosion?  You want to make sure that the quality of the land is preserved, not just extracting value(mining) from some inert thing(that is, if that is what you value).  All those kind of things.
I bet you can find local, relevant information on rates for AG land as well.  Perhaps you can get more money renting to a market gardener, hunters, wild edible foragers, who knows?  If the land was rented to a grazer for a long time, chances are decent they are now underpaying for the grazing value.  If it has been used as pasture in the past, it's likely that that is the best use of the land, but that is totally up to you.
Check out acrevalue.com for really good info on the types of soils on your land, use history, soil quality index, and that kind of thing.

Good luck!
-fixie

[Megma]

Congrats!

Try going to your county's assessor website.  Depending on the county, you can do a map search of the parcels in your area.  Figure out what the parcel/tax lot number is, and that will give you the plat map, owner, ownership history, tax history, assessed value, sometimes even cool old photos of the land and how it was used.
If your county doesn't have a good website, go "downtown" to the assessor and get some help searching.

Leases for crop or pasture are much like any other rental.  Terms, price, conditions etc.
If you plan to rent the land as pasture for cattle, be sure to have conditions in the lease about fencing maintenance, water access and availability, farmer's access to the land, hours of access, hunting restrictions, liabilities, that sort of thing.  You may even want to put in some language about HOW the land is grazed, how intensively etc.  Are the cattle finished on the land or do they spend their whole lives there?  Are they moved around in paddocks to improve grazing quality or just left to loaf and degrade the quality and cause erosion?  You want to make sure that the quality of the land is preserved, not just extracting value(mining) from some inert thing(that is, if that is what you value).  All those kind of things.
I bet you can find local, relevant information on rates for AG land as well.  Perhaps you can get more money renting to a market gardener, hunters, wild edible foragers, who knows?  If the land was rented to a grazer for a long time, chances are decent they are now underpaying for the grazing value.  If it has been used as pasture in the past, it's likely that that is the best use of the land, but that is totally up to you.
Check out acrevalue.com for really good info on the types of soils on your land, use history, soil quality index, and that kind of thing.

Good luck!
-fixie

Unfortunately there is not a map view on the county's website, I spent like an hour looking at it last night but I will get more information from Dad about exactly where it is (he told me the general area but not the parcel number, he probably doesn't know it off hand because they use nicknames for all of the parcels they own) and then I can look it up. Also, I live fully halfway across the country from this land (so no going downtown) but next time I visit, I will go have a look at it in person!

Thank you for the acrevalue.com website, I'll check that out.

The types of restrictions you listed make sense - just like residential RE leases, "you can do X,Y,Z but not A, B, C". I could like collect money from people who want hunting permission, however, that is tricky to police when you are not there to monitor hunting you haven't allowed. Probably the cattle are just allowed to roam (good point on density!) and then grain finished, as this is typical in the area but I will look at the lease and see.

So the pasture portion is leased to my dad's cousin, so yes he vary may well be paying under market and I might ok with letting him continue to do so but I would like to have an idea of what the rate should be.

There definitely could be some other uses long-term, there are wind farms in the area, mineral rights and other leasing opportunities.

@Another Reader thank you also!

[SwordGuy]

@SwordGuy inherited some farm land that he leases.

More accurately, I inherited some land that my uncle leased on the family's behalf.   He's passed on and now his son is handling the details.

You've now pretty much reached the limit of my expertise on this topic.  Sorry.

[wbranch]

I am a CPA that has worked with a lot of agriculture clients and farmland owners. Also grew up on a farm, family still farms a small hay/grain/pasture rent operation and my in-laws manage a large cash crop and feedlot style farm. So there is a ton of variety out there. Look at your state extension office website to get more info - for example here is U of MN extension office info: https://extension.umn.edu/business/farmland-rent-and-economics
So google the state you are in. See link for lease terms and examples as well.

Typically cash farmland rent on a per acre basis is best. Commonly 1/2 of rent paid in spring and 1/2 paid in fall. Messing around with crop shares is a bad idea, so good that they haven't been doing that. 

Pasture rent can be per acre or per cow/calf pair or other animal unit. Try to get some good info on what recommended grazing rates are in your area. Tons of overgrazed pasture all over the country. If you can see a significant "browse line" on property border or in wooded areas that is not good. Extension offices should have info on that as well.

Wooded areas could be rented to hunters for turkey, deer and upland bird hunting. Varies from $10-$30+/acre per year depending on the state and specific habitat types in your area. That would be exclusive use to the group that is leasing hunting rights.

[Megma]

Thanks @wbranch that is really helpful information. I read one article from the state extension page about rental rates and I'll keep poking around there for more.

I looked at the US Dept of Ag website today to see what average rental rates are in the county where the land is and given land prices in the area I am shocked how low they are - $15/acre for pasture and $35/cultivated. Does this seem right?  I don't want to sell the property but it is probably worth enough to pay off the house we just bought ourselves in the spring. So I am surprised the rental prices are so low!

I will find out more from my dad also, how much is being paid now and on what schedule, how much the taxes are, what he thinks he property could sell for, etc.

[Lucky Recardito]

My husband and I own two rentals but I don't know squat about farmland leasing practices, rates, contracts nothing.

Because of the above... I would strongly consider hiring a farm/land management company. They can handle the business of setting reasonable rent (and "reasonable" may change a lot according to the price of commodities, in a way and on a cadence that's not obvious if you're not in the farming business yourself), securing a quality tenant, and all sorts of other details that a non-farmer/grazer expert is likely to be unaware of (for example, land management to make sure that your tenant fertilizes properly and doesn't strip all the good stuff out of the land... water management to make sure that runoff is handled properly to avoid a decline in value or pissing off neighbors... good crop rotation practices... etc.) Someone who is local to the area where the land is can also be a valuable resource in terms of knowing what's happening in the community (see also, "securing a quality tenant").

This has worked well for my family with inherited farmland... and family members who know nothing at all about farming.

[Lucky Recardito]

I looked at the US Dept of Ag website today to see what average rental rates are in the county where the land is and given land prices in the area I am shocked how low they are - $15/acre for pasture and $35/cultivated. Does this seem right?  I don't want to sell the property but it is probably worth enough to pay off the house we just bought ourselves in the spring. So I am surprised the rental prices are so low!

FWIW, the farmland in our family returns only 2-3% per year (often less if repairs/improvements are needed). Compared to the stock market, it's not the most profitable thing out there. You can keep land if it has sentimental value, or if you like the diversification in your portfolio... but based on my (very limited!) experience, it's quite possible that selling the land and investing the proceeds is a more profitable option.

[Fishindude]

I am a CPA that has worked with a lot of agriculture clients and farmland owners. Also grew up on a farm, family still farms a small hay/grain/pasture rent operation and my in-laws manage a large cash crop and feedlot style farm. So there is a ton of variety out there. Look at your state extension office website to get more info - for example here is U of MN extension office info: https://extension.umn.edu/business/farmland-rent-and-economics
So google the state you are in. See link for lease terms and examples as well.

Typically cash farmland rent on a per acre basis is best. Commonly 1/2 of rent paid in spring and 1/2 paid in fall. Messing around with crop shares is a bad idea, so good that they haven't been doing that. 

Pasture rent can be per acre or per cow/calf pair or other animal unit. Try to get some good info on what recommended grazing rates are in your area. Tons of overgrazed pasture all over the country. If you can see a significant "browse line" on property border or in wooded areas that is not good. Extension offices should have info on that as well.

Wooded areas could be rented to hunters for turkey, deer and upland bird hunting. Varies from $10-$30+/acre per year depending on the state and specific habitat types in your area. That would be exclusive use to the group that is leasing hunting rights.

The above info is pretty accurate,

I own quite a bit of farm ground and cash rent several fields for crops and some for hay ground.   Row crops like corn and beans typically pay the best and it will depend on your location and the avg per acre yield.   I've seen rates from $90 per acre for rather poor ground to $300 for really productive ground.   Hay ground or pasture won't pay nearly as well, maybe 1/4 of what your crop ground goes for.

I do an annual contract based on a rate per acre, farmer does everything, provides all fertilizer, etc.   Be careful regarding lime, as some farmers want the land owner to pay for lime as it stays with the soil for several years.   I leave that all on my farmers, don't want any surprise bills.   Only thing I might have to do is maintain an access lane, or repair drainage issues.   It's beneficial to stick with the same farmer year after year so long as you are being paid fairly, as they won't deplete your soils, add no fertilizer and move on.   Have never used an attorney or any type of land manager on any of this, just have really simple contracts that both parties sign.   

Some farmers want to pay all at once, some make a spring and fall payment, it never really mattered to me.   Stick with a cash rent per acre deal rather than some type of deal based on production, as you have no way to monitor the harvest or affect the production.

Another option which I've got quite a bit of land in are the various government CRP wildlife habitat, conservation practices.   Some of these will pay better than what you can get for farming, lock you in for 10-15 years and will improve the land if you enjoy outdoor activities such as hunting.   There are restrictions of things you can't do with this ground when in such programs, so know what you are getting into.  You can find out all about these (if anything is available) at your county soils office.

Nice thing about farm income vs cash invested in the markets is that it is pretty much guaranteed income every year.  It's also pretty easy to sell farm ground pretty quick if you ever need to.   I think it's a great piece to have in your investment portfolio, plus you can have some fun on it.

[SeattleCPA]

I am a CPA that has worked with a lot of agriculture clients and farmland owners. Also grew up on a farm, family still farms a small hay/grain/pasture rent operation and my in-laws manage a large cash crop and feedlot style farm. So there is a ton of variety out there. Look at your state extension office website to get more info - for example here is U of MN extension office info: https://extension.umn.edu/business/farmland-rent-and-economics
So google the state you are in. See link for lease terms and examples as well.

Typically cash farmland rent on a per acre basis is best. Commonly 1/2 of rent paid in spring and 1/2 paid in fall. Messing around with crop shares is a bad idea, so good that they haven't been doing that. 

Pasture rent can be per acre or per cow/calf pair or other animal unit. Try to get some good info on what recommended grazing rates are in your area. Tons of overgrazed pasture all over the country. If you can see a significant "browse line" on property border or in wooded areas that is not good. Extension offices should have info on that as well.

Wooded areas could be rented to hunters for turkey, deer and upland bird hunting. Varies from $10-$30+/acre per year depending on the state and specific habitat types in your area. That would be exclusive use to the group that is leasing hunting rights.

Defer to @wbranch 's relevant experience here... but FWIW my wife and brother inherited a farm 1000 miles away. They've attempted to manage since their dad died seven or eight years ago and I think it's pretty problematic. Farming seems like a very complicated business for folks who aren't farmers. E.g., the department of agriculture requirements they have to comply with...

Coincidentally, we visited the farm this weekend and I was riding in a truck with a couple of wife's relatives who farm and ranch on what I'd consider a pretty large scale. Shared above comment with them. They just nodded their heads.

[Fishindude]

but FWIW my wife and brother inherited a farm 1000 miles away. They've attempted to manage since their dad died seven or eight years ago and I think it's pretty problematic. Farming seems like a very complicated business for folks who aren't farmers. E.g., the department of agriculture requirements they have to comply with...

If all you are doing is cash renting the ground to a neighboring farmer, it is the most simple business possible.   Sign a contract once a year, collect your rent payment, then pay your real estate taxes.    I have no dealings with the department of agriculture on ground I cash rent, all of that stuff is with the farmer.

If I have a problem such as an access lane that needs a little work or a drainage issue, the farmer (whom I have used for many years) takes care of that too and I pay the bill for it.

I've got a good friend who resides in Indiana and inherited a big farm in South Dakota.    He rarely ever visits the farm, it's all cash rented to a neighbor and he collects a fat check every year, so the long distance thing isn't a big deal.

[Megma]

but FWIW my wife and brother inherited a farm 1000 miles away. They've attempted to manage since their dad died seven or eight years ago and I think it's pretty problematic. Farming seems like a very complicated business for folks who aren't farmers. E.g., the department of agriculture requirements they have to comply with...

If all you are doing is cash renting the ground to a neighboring farmer, it is the most simple business possible.   Sign a contract once a year, collect your rent payment, then pay your real estate taxes.    I have no dealings with the department of agriculture on ground I cash rent, all of that stuff is with the farmer.

If I have a problem such as an access lane that needs a little work or a drainage issue, the farmer (whom I have used for many years) takes care of that too and I pay the bill for it.

I've got a good friend who resides in Indiana and inherited a big farm in South Dakota.    He rarely ever visits the farm, it's all cash rented to a neighbor and he collects a fat check every year, so the long distance thing isn't a big deal.

I think we're more the "sign the lease with the same farmer, get a check" scenario. The people renting have been renting from my grandma for several years already (one of whom is a distant relative) and I have my dad who is both local to the area and knows about farming to help me. He is giving me the land now so I can learn the ropes from him.

Though I did look up sales prices also and this will not be a very high percentage of yield each year...maybe 2% (land sales prices are high). However, I still want to keep it because 1) sentimental 2) portfolio diversification 3) potential future appreciation/uses/mineral resources.

[SeattleCPA]

but FWIW my wife and brother inherited a farm 1000 miles away. They've attempted to manage since their dad died seven or eight years ago and I think it's pretty problematic. Farming seems like a very complicated business for folks who aren't farmers. E.g., the department of agriculture requirements they have to comply with...

If all you are doing is cash renting the ground to a neighboring farmer, it is the most simple business possible.   Sign a contract once a year, collect your rent payment, then pay your real estate taxes.    I have no dealings with the department of agriculture on ground I cash rent, all of that stuff is with the farmer.

If I have a problem such as an access lane that needs a little work or a drainage issue, the farmer (whom I have used for many years) takes care of that too and I pay the bill for it.

I've got a good friend who resides in Indiana and inherited a big farm in South Dakota.    He rarely ever visits the farm, it's all cash rented to a neighbor and he collects a fat check every year, so the long distance thing isn't a big deal.

Hmmm. Census Bureau requires wife and brother-in-law to complete surveys... no way to offload that.

Also, they had some acreage in CRP that required paperwork for a while.

[Fishindude]

Hmmm. Census Bureau requires wife and brother-in-law to complete surveys... no way to offload that.

Also, they had some acreage in CRP that required paperwork for a while.

Do you consider filling out and signing these few papers each year problematic?
You can do all of this stuff long distance through the mail.   One of our farms is five hours away and it's never required a special trip for any of this stuff.
Seems like pretty minimal effort to me, in return for a nice cash rent check.

[SeattleCPA]

Hmmm. Census Bureau requires wife and brother-in-law to complete surveys... no way to offload that.

Also, they had some acreage in CRP that required paperwork for a while.

Do you consider filling out and signing these few papers each year problematic?
You can do all of this stuff long distance through the mail.   One of our farms is five hours away and it's never required a special trip for any of this stuff.
Seems like pretty minimal effort to me, in return for a nice cash rent check.

You've had a much different experience. I believe you that your experience is different btw...

But for one thing for us, the paperwork has been a real burden. (I wonder a bit if some of it is state rather than federal? These properties are in eastern MT.)

For another thing, not everything can be done via the mail or phone. E.g., the local Department of Agriculture office has some programs that farmers and landowners are supposed to attend in person. And then this headache. Eastern MT is incredibly remote in terms of its distant from Seattle. (Here's the route: Take the worst airline in North American from Seattle to Vancouver, do Canadian customs on the layover, again take the worst airline in North America form Vancouver to Regina, then drive three hours south into MT... on return trip, go in reverse only go through U.S. customs in Vancouver... again, all travel on the worst airline in North America.)

Part of the issue with the experience I observed is this land has been in family for generations and lots of legacy costs and complexity exist. E.g., wife's dad was a farmer but also worked for Dept of Ag and so they really optimized participation in federal programs. Also, wife and her brother have deep, century long ties to community and that makes process of setting fair rental rates both easy... and hard.

Again, I believe you that you've got it nailed. My father-in-law could deal with the land he'd held for decades with one eye closed. But it's been way too much fiddling for part-timers a thousand miles away.