Farm Land

[iowagirl]

Does anyone here invest in farm land? I have questions and need advise at where to start.

[Fishindude]

Yep, have farms in IN and IL.
Getting ready to purchase another chunk adjacent my IN farm.

[iowagirl]

Would you be willing to educate me on it? I was going to start this several years ago and then lost my job, got sick and well now that I'm bailing out of all of that and things are looking better I need to know where to start. Is it possible to purchase with no or little money down, will it make enough annually to pay for itself?

[SeattleCPA]

My wife and her brother inherited the family farm...

Though they come from a farming family, I observe that there's a lot of industry specific knowledge you benefit from knowing if investing in this.

FWIW, wife and brother-in-law should not be in farming...

P.S. The tax return is surprising complex because it's out of state, has government programs income, etc.

[iowagirl]

Some people shouldn't be anywhere near a farm, I agree, I know a few of those.

I work in the AG industry but we have nothing to do with buying/renting so my resources here a limited.  I'm not too worried about taxes as long as we get a lot of that worked out in the beginning and I plan to keep it in state for now.

[Fishindude]

Is it possible to purchase with no or little money down, will it make enough annually to pay for itself?

Unless you have other paid for assets you are willing to use as collateral, you will almost certainly need a hefty down payment.
It appears you are not a farmer, so NO the ground will not pay for itself and is not a very good investment if you need to borrow a bunch of money to purchase it.

Here is about how it would work around me:
Buy 100 acres wide open crop ground, pay cash $5,000 per acre = $500,000
Cash rent to a farmer to raise corn / beans for $200 per acre = $20,000
Minus property taxes of approx. $3,000 and you net $17,000 annual income.
That's a 3.4% return on your money which isn't great, but that money is there every year, your efforts are minimal, it's very safe, and could be sold rather rapidly in a pinch.
Also heck of a lot better than you'll yield out of a CD, and the value of land should appreciate over time.

My first farm was 100 acres purchased 25+ years ago for $75,000 which was a good per acre price back then.
It has returned an average of $10,000 per year that entire time and is now easily worth $500,000
So it has paid for itself 3.3 times and is worth approx 7X what it was originally purchased for.

[MightyAl]

When I worked in Davenport I had a boss whose mother died and had farmland.  He was talking to me about purchasing the land from the family and leasing it out but was concerned with the upfront costs.  I asked him what his annual yield would be on the investment and he said around 7%.  I told him to get on the phone and buy it now.  I really couldn't believe he was waffling about a 7% annual return when no flat acre in IA goes unturned ever. 

I have looked into it myself and farm land gives good steady returns but is low compared to the market but you also won't see the fluctuations that happen in the market.  Risk is low but returns are low but as fishindude said it is better than a CD.

[iowagirl]

Is it possible to purchase with no or little money down, will it make enough annually to pay for itself?

Unless you have other paid for assets you are willing to use as collateral, you will almost certainly need a hefty down payment.
It appears you are not a farmer, so NO the ground will not pay for itself and is not a very good investment if you need to borrow a bunch of money to purchase it.

Here is about how it would work around me:
Buy 100 acres wide open crop ground, pay cash $5,000 per acre = $500,000
Cash rent to a farmer to raise corn / beans for $200 per acre = $20,000
Minus property taxes of approx. $3,000 and you net $17,000 annual income.
That's a 3.4% return on your money which isn't great, but that money is there every year, your efforts are minimal, it's very safe, and could be sold rather rapidly in a pinch.
Also heck of a lot better than you'll yield out of a CD, and the value of land should appreciate over time.

My first farm was 100 acres purchased 25+ years ago for $75,000 which was a good per acre price back then.
It has returned an average of $10,000 per year that entire time and is now easily worth $500,000
So it has paid for itself 3.3 times and is worth approx 7X what it was originally purchased for.

Thank you. That is what I'm trying to figure out. I want to purchase some to cash rent and plan on it being paid off by the time I retire for my retirement income. Back when I originally planned to do this land was cheaper and the pay off was about as good as it now. I was about a year from having it wrapped up in a nice package when the company I worked for closed and then it was about impossible to find a job so I ended up living off the money instead.

[Fishindude]

A major plus for us is that we live on the farm and truly enjoy country living and the recreation activity that goes along with it. 

[iowagirl]

A major plus for us is that we live on the farm and truly enjoy country living and the recreation activity that goes along with it.

I live out in the country as well. I only have 2 acres but surrounded in farm land and I wouldn't trade it for anything. I keep telling my kids they are going to bury me there. If they moved me back to the city I probably wouldn't survive. I don't even like to go in town to shop because I've lived out there so long.