buying farmland....

[Anonymous-0]

Hi,
There is a farm coming up for sale next to my parents farm. I have a great job and work off the farm, yet help plant and harvest the crops on my parents farm. Now with the neighbors farm coming up for sale, I would like to buy her land.
I need a bit of advice to see if this makes sense before I pursue it further. Typical yields are 45 bpa for beans and 150 for corn. I expect it to sell for 4,000/acre. It is 80 acres, so estimate purchase price would be $320,000. I can put 10% down or $32,000. With typical interest rates, would this land cashflow if I brought in $175/acre net from farming it (either renting to my family or on shares?) How do I calculate this?

Just aweful hard to pass this up as my great, great grandfather used to own and farm this land in the 1800's and it has been out of the family since then.
Of course, maybe my money is better(safer) off in the stock market the way things are going there...what are your thought?
I value your opinions...

 

[Anonymous-0]

If I could get it for that,I would take the leap.My granparents and great-grandparents places were lost to the county(along with a lot of others)in a emminent domain grab in the mid sixties.Would give my right arm and leg to get a shot at getting those back.If you can swing it,go for it.

 

[PGpower]

$288,000 6% int - 360 months = 1726.71/month or 20720.52/yr. payment plus property taxes.

$175/ac * 80 = $14,000/yr. plus tax benefits.

Best advice is to go talk to your financial advisor.

 

[kyplowboy]

I am in the same boat! 56 acres next to my grand mother. Been in the family since late 1700's (land grant for envolvment in revolution) sold off in '83. If you are tight with the owner and she don't care to wait for the money, and you can qualify for a begining farmer loan try USDA. I close Monday on the 56 acres, $2150/acre, 100% loan for 40 years, at 5.375%, payments of $7,200 year for 40 acres of crop land, rate locked in, no early payment penalty. It has taken 9 months to get it done, but I do not see how it can be a bad deal. When the farm was sold in 83 it sold for $600/accre, even with inflation they are still doubl'n thier money, that is better than some have done on wall street. I feel land, even if you have to put some of your off farm money into it, is still the safest long term investment you can make. The granddad part just makes it worth more to you. Good luck and let us know how it works out.

Dave

 

[Leon R]

Buying land in never a bad idea if you can make the payments. Land that we thought was way too expensive five years ago seems cheap today. I wish I had of bought more 40 years ago. buy it and have fun farming it even if you have to supplement the payments with your off farm employment.

 

[kyhayman]

Land is hard to beat as an investment. Particularly the way the market is behaving lately. Look at the rallies, every one driven by a cut in interest rates, and every rate cut means drop in the dollar, and an increase in the price of crude oil. With that said, I havent seen any banks loaning money on land with 10% down. Most I have been hearing 20-50% down. The banks havent forgotten the 1980s.

For that location, can you afford not to purchase it. When I purchase land, I do like it to cashflow the interest. Never yet seen it cash flow the principle (well, there have been a couple of farms I bought that did, but I had to sell off part of it for building lots to get the price per acre down). 4000 dollar an acre land at 10% would be a $400 rent or profit, and I dont see that happening. Even at 8% thats 320 dollars. Not doable in my book, BUT...... can you afford to see it go into houses, mega dairy farm, dense pack hog houses, or 'recreational vehicle use'.

My philosophy has always been I dont want all the land, but I want every piece that joins me. One of the biggest regrets I have was not buying 135 acres that joined me in 1995 for 1350 an acre. I couldnt make it cashflow, but I should have worked extra for it. Its now tied up in a corporation, part of a 2000 acre block they own.

 

[John T]

Id say if you cant afford to buy it if it doesnt yield a certain x amount of positive cash flow, better not HOWEVER dont let that stop you, if it had me Id never of owned any of the several farms Ive had over the years lol which did pay off handsomely when I re sold them (despite negative cash flow during my ownership). I guess what Im saying if you need some sort of guaranteed income from it and would go belly up without it, better be careful... but a family farm cant be measured in dollars alone, ITS YOUR CALL

John T

 

[Tradititonal Farmer]

If its just open land you will not most likely get a loan with only 10% down.Because commidity prices are high right now farm land is also high when prices drop as they always do so will the land unless it has development potential.Many farmers went broke in the late 70's early 80's betting crop prices would never fall.They were wrong

 

[Lee in Iowa]

If corn drops back to $2/ bushel x 150 bushel will you still have $175 net income? In one of the posts the payment divided by the acres is $259 per acre. 150 bushel at $2 is only $300 income that only leaves $41 for crop inputs. Even at $3 corn you would only have $191 for crop input most of them figure $200 or better now. The only way might be the beginning farmer loan suggested in the other post, but his payments were $180 per acre borrowing $2150 instead of $3600 to $4000. I don't like to be negative, but if its not going to do you any good why buy it. You cannot count on land always going up, just look back at the 80's and look at what's already happening in other real estate. People bought houses with interest only loans thinking the market would continue to go up and now its not. I bought land in the 80's for 400 to 600 that would have brought 2000 or better in the 70's. I hope not, but that could happen again. My dad always said whenever there's a boom there's a bust sooner or later. Lee

 

[Walt Davies]

I'm 69 bought my place when it was $100,000.
I say go for it and never look back you just can't go wrong buying good farm land now-a-days.
besides the kids will love living out in the coutry.
Walt

 

[VADAVE]

Here in VA and if I remember right in WA it is next to impossible to get a regular loan from a bank--like you would if you were buying a house. However follow Kyplowboy advise, go to USDA and get a loan.
The other thought, planning on the crops paying for it is not real wise--farming has just to narrow a margin. Figure your off-farm income to make the payments then when the crops help you'll fell on top of the world.

 

[Dave from MN]

If you can do it , do it. 80 acres adjacent to your family farm, NICE. Cant say nothing about the price,$4000/acre here is a bit below average. You cant really base buying it for cash flow, unless you are gonna be dependant on it to pay for itself, Sounds more like you want to buy it as a life investment, having your own land is the best investment you can make(in my opinion), it ussually pays off financially over time and does alot for your personal and emotional investment in your life. Look at it this way, God is not making any more land(short supply), people are continually gobbling it up( high demand), grab it when you can get it. IF, and only if, you can make the payments using 50% of what you expect to make for income from the land, and your regular income. As people suggested, check USDA loans, some states have rural financing programs for farms/ag land also. Good luck

 

[buickanddeere]

Purchase or always wish you had. Too much "wished I had" in my house.

 

[supergrumpy]

adjoining land is worth a lot more than something way down the road

see if seller will carry the mortgage, they could pay their taxes on the sale over time using installment sale and have the interest income stream besides

doesn't hurt to ask

 

[MF#1]

"Nobody is making any more land." If you can afford it now is the time. Ask yourself this, "When will I be able to buy land that borders my parents" land?".

 

[8N'r--WI]

Needy----you write----

"There is a farm coming up for sale next to my parents farm"

"my great, great grandfather used to own and farm this land in the 1800's and it has been out of the family since then"

Ask yourself when you think the planets will allign themselves like they are doing now and offer this opportunity to you again.

I can't offer any advice on crop yield, prices, etc. being able to cash flow this deal.......
but, if you can swing the payments, you should go for it....

I had an opportunity to buy some land next to my farm that was 3rd generation farmland. I figured this would be the only chance in my lifetime to buy it, so I did.....looking back have not had any regrets.

Whatever you decide to do for you and your family, do not look back, as your decision will be the correct one.

I say, go for it, and best of luck.

Tim

 

[Lee in Iowa]

"Nobody is making any more land" I heard that a lot in the 70's not so much in the 80's. Lee

 

[dhermesc]

It will never cash flow.

You are financing 3200 per acre at 7.5% (if you're lucky) thats $240 per acre in interest alone, before you even make a principal payment. You can pretty much count on that going up a point or two (to $304 an acre) or down as much as a point (to $208 an acre) at the most.

Your annual carrying cost ranges from $16,640 to $24,320 while your income can range from $0.00 (or less) to $14,000. I'm not saying its a bad investment, but you need be in a good enough position to tote the note.

The above numbers only take into account interest expense - I'm sure the bank will expect principal to be paid occassionally and the county will also want some property taxes.

 

[dhermesc]

"Nobody is making any more land" I heard that a lot in the 70's not so much in the 80's.


X 2

When people are saying that its time to sell.

 

[MF#1]

I've heard it since the sixty's and I still hear it today, especially with all the home building going on.

 

[dhermesc]

"especially with all the home building going on."


You might want to recheck your sources on that - the market has gone through some big changes in the last 6 months.

Country Wide Real Estate wishes people were saying that.

 

[El Toro]

If you can handle the payments I would go for it.
When I had my house built my dad told me to offer less money and I told him he wouldn't and I wouldn't live to see houses to get cheaper. He bought a house after he left the farm for $12000.00 in 1959. My sister has the house now and it's in area where it could be rezone commerical and would probably be worth near $500,000.00. I paid $33000.00 in 1968 for my home and they just sold the house next to me for $357,000.00. I wonder what he would say now. Hal

 

[Anonymous-0]

No question, buy the ground if you can meet the payments even if you have an "off" year. Never purchased any land which would cash flow, but only regret not purchasing more. Purchasing farm ground along with astute equities investing (perhaps "lucky" equities investing), enabled me to retire comfortably at age 55.

 

[El Toro]

There's one thing I didn't tell you is that I didn't buy any new cars since I had a daughter to put through college too. I did buy a new truck
and I worked all the overtime I could get and I paid off the house in 10 years. You can do it if set your mind to it. Hal

 

[Tradititonal Farmer]

Actually there are other investments that would have given you a far better return.Of course you had a place to live but then again you had taxes,insurance and up keep

 

[Anonymous-0]

You really need to be able to come up with more than 10% down to make this work.Land quit cash flowing in the early 1970's.

The deal about no more land being made doesnt always hold true.I bought an adjoining farm in the late 1970's and had to get out from under it in the late 80's at half of what was paid for it.High interest and drought ruined things.Nearly half of my neighbors went out of business forever.

150 bushel corn ground should only rent for $150 per acre but you might get $175-200 per acre in todays market.If you paid $320,000 cash for it your return on it at $200 per acre rent is 5%.

Last Saturday here in rural MO I watched 318 acres all in grass sell at auction for $1650 per acre.Murphy hog farms bought it as it joins part of the 5-6000 acres they own in that area.No one else could afford it.$1650 is above market for this econonically depressed area.

Alot of this 318 acres could be farmed but would be better off left in grass.Pasture and hay ground rents for $40 per acre here.Thats less than a 3% retun.Crop ground rents for $65 per acre which is only a 4% return.

If you could swing 25% down and the payments on the remaining 75% can be made no matter what then go for it.

 

[El Toro]

Its like one of my co-workers once said you need a place live and you will never have anything by paying rent. Just cancelled checks. He said to consider house payments as rent, but you can deduct the interest off your income taxes and real estate taxes too. I had a place I rented out for 12 years and it was one the best tax write off that I ever had. Hal

 

[Anonymous-0]

Hi..Well heres some more of that fee Advil.
If you can swing it you will most likely come out on it and if you want something bad enough and are willing to sacrifice other things you can do a lot.
NOW,,I like land to but the reason land has been such a good investment is because inflation has made up for a lot of BAD management in the past and im a thinken with our new found national debt it will again????
Just remember that there is always an upper limit.

 

[MF#1]

I live in an area that has experinced HUGE growth in rural housing, subdivisions everywhere eating up good farmland. Even with the slowdown it goes on. When this bump is over it will continue. Your area may be different. Where in the US is land being made?