Investing in Farmland?

[theo]

http://news.goldseek.com/GoldSeek/1284704579.php

I see these articles about investing in productive farmland about once a month and while they are great at stating the obvious they aren't very helpful. Are they suggesting the we travel up to Michigan and drop $1 million on a small farm? Are there any options for the 99% us who can't directly invest in farmland?

Outside of ADM, Monsanto and a few agricultural ETFs, I don't see any real options for investing in agriculture. I wonder if I'm missing something.

[Rodebaugh]

No Farmland here, however I have some WV ocean front property....real cheap…..act now!.....paypal gift only.

Joking aside, Thanks for the article

[Lemon Thrower]

this is something i have been thinking about for over 2 years. the idea is that commodities including corn and soybeans are likely to double, triple or more. so if you own productive farm land you can capture a multiple of that. i think its a solid idea, just very hard for most folks to implement.

i'm a city boy but even i have figured out its a lot more complicated than that.

farmland costs roughly 3500 an acre. if you lease it to a farmer, you get about 75 an acre, which is a measly 2% before income and property taxes. thats basically break even for you. if you want to farm the land yourself and have the equipment and capital to do so, remember you have to shell out a lot of money to make money. for corn, you might shell out a few hundred bucks for seed, fertilizer, and weed control and if everything goes right make $100 an acre with the chance to lose a few hundred an acre and a very small chance of making a few hundred an acre. that is a lot of work for very poor odds.

now, if i had a few acres, i would definitely put in a very large organic garden, learn to put up what could be stored, and try to monetize the surplus. that is a low risk, part time way to get a little bit extra income and a lot extra security.

[horgad]

Another thing to consider is to invest in commercially unfarmable land that is only used for hunting and very occasionally logging. The taxes can be very low or even free is some special cases and in a pinch you can go and live there. Just because it is commercially unfarmable doesn't mean that it won't support a nice garden.

My neighbor got an unbelievable deal on some land by buying using local knowledge and buying direct from an owner. The prices I see doing a quick search seem way inflated by comparison.

[Lemon Thrower]

what sort of price per acre did he get?

[horgad]

I didn't post the price because I doubt that it was typical. But the point is valid that if you dig into local by owner sales (and auctions I suppose), make low offers, and be patient you will pay far less than what you see advertised by agents.

Anyhow it cost less than $1,500 per acre for a relatively small plot (50ish acres) maybe 5 years ago and he has already made most of it back by having it selectively logged (again I am not suggesting that the logging windfall is typical). Also, the property taxes are dirt cheap. He owns it solely for hunting and it is for sure in the middle of no where Indiana.

At a quick glance, I see similar properties listed today for around $3,000 an acre.

Example (see lot 8): http://www.brunerland.com/MorinFarm.htm

With some legwork, I think finding 35ish acres in southern Indiana for less than $2,000 an acre would not be too difficult...

Edit: Looks even cheaper if you head further into no where...how does 39 acres in Kentucky for $46,700 listed sound?

http://www.brunerland.com/Kentucky/LunderganFarm.htm

[Lemon Thrower]

thanks for posting that.

to be clear, that is not farm land. its forest land. it probably has hardwoods on it which really only have use for firewood or pulp and paper. a saw mill is not likely to buy the timber.

best case is the land is fertile and all you have to do is clear the trees. that's a lot of work, especially to get rid of the stumps. you then have to grow grass for a few years to get the soil in condition to grow crops.

still, its a good price and has road access.

there are a lot of properties here:

http://www.landandfarm.com/

in the areas i have looked, to get forest land under $2000 an acre you are in the middle of nowwhere, no utilities or outbuildings, probably no road access, and probably are on the side of a steep mountain.

cleared pasture land or cropland is hard to find in my area for less than $3500 an acre.

it just all depends on what you want.

land that is close to an urban area and can be used as a 2nd home is going to be bid up to where its not economical for farming. but then land that is cheap enough to farm profitably is not going to be close to where you can get a decent job.

[Delawhere Jack]

I'm keeping an eye on many acreage listings in my "area of interest". I've seen in the past few weeks that prices are PLUMMETTING! The area is basically one big sandbar - peninisula. Most of the lots I'm watching are wooded or partially cleared. One listing, 18 acres was recently reduced from $49k to $18k!!!

I'm keeping my powder dry and waiting.

[TXTim]

Watch out for the annual tax bite.
There are many places with lots of affordable farmland but you must pay attention to qualify for ag exemptions, etc.
If you buy and can't afford to operate it as an exempt property, you may get into trouble.
All of the taxing entities are keeping a sharp eye for opportunities to reclassify property these days.
It can be like buying a pet - the purchase price is nothing compared to the vet bill.

[Lemon Thrower]

Watch out for the annual tax bite.
There are many places with lots of affordable farmland but you must pay attention to qualify for ag exemptions, etc.
If you buy and can't afford to operate it as an exempt property, you may get into trouble.
All of the taxing entities are keeping a sharp eye for opportunities to reclassify property these days.
It can be like buying a pet - the purchase price is nothing compared to the vet bill.

what do you have to do to qualify for the ag exemption typically? what if you leave it dormant?

[horgad]

Sorry I took a side road off the main topic. Forest is not your traditional "farmland", but it is an interesting idea that I have played with off and on over the years. So that is where my mind wandered...

Benefits:
1. Its relatively cheap. So more people have the means to invest in it.
2. Property taxes can be near 0 in some cases ($1 per acre).
http://www.in.gov/dnr/forestry/files/fo ... ochure.pdf
3. With some planning and some stealthy property improvement it can double as a WSHTF retreat providing water, food, heat, and shelter.
4. It will eventually (think in terms of decades in many cases) pay for itself assuming the $1 per acre property tax rate and some tree harvesting.

I would look at it as more of a store of value rather than an investment with a hoped for yearly return. Of course stores of value could be getting more and more popular as the economy continues its decline. Its the old thing were people stop worry about the return ON their invests and start worrying about the return OF their investments.

[Lemon Thrower]

understood but you have to understand the costs involved.

around here, in very rural areas, taxes are about $10 an acre and you can lease the land for hunting for an amount equal to the taxes.

as for water, you would have to drill a well and that can be expensive. probably no other utilities.

you can thin pines after about 12-15 years and get some income, and sell pine timber at about 22-25 years.

[TXTim]

Watch out for the annual tax bite.
There are many places with lots of affordable farmland but you must pay attention to qualify for ag exemptions, etc.
If you buy and can't afford to operate it as an exempt property, you may get into trouble.
All of the taxing entities are keeping a sharp eye for opportunities to reclassify property these days.
It can be like buying a pet - the purchase price is nothing compared to the vet bill.

what do you have to do to qualify for the ag exemption typically? what if you leave it dormant?

One personal example - Montgomery County, TX:

At least 15 acres, 80% cleared for pasture, at least 8 head of cattle and show that the cattle are the primary income for the property. If you qualify and get approved by the tax assessor the exemption allows you to pay on 10% of the assessed property value.

There are many types of ag exemptions and they vary tremendously.

This is a lifesaver for me because of the subdivisions that grew up around my home and property. Land values skyrocketed and the upside is that the property is worth more than 23X what I bought it for back in the 80's but the taxes are almost prohibitive w/o the exemption. I could sell but never could replace it for near the sale price.

[uncklebuckie]

Long time lurker, but will wiegh in on this subject as I did the same thing a few years ago. I bought 40 irrigated acres in central Nebraska and paid $1500 per acre. If I were to sell it today it would easily bring $2600 to $3000 per acre. Taxes are currently around $15 per acre and is rented to a farmer for $120 an acre. My intention is to farm it myself in a few years, I am slowly accumulating smaller and older equipment. I don't think you will go wrong buying, slowly there are moritoriums being implemented on the water that will make irrigated farmgound hold and escelate in price for the foreseeable future.

[Lemon Thrower]

that is a nice rent you are collecting, and nice upside potential because of the irrigation. you are probably getting such high rent becuase its irrigated. sounds like you made a very good buy back when.

If you sold the land for only $3000 an acre, the buyer would yield 3.5% after netting the property taxes but before income taxes.

so while there is some security and upside built in to such a purchase, and you made a nice buy back then, its hard to justify buying that land now at today's prices.

[alpacafarmer]

If you want to find cheap land just pull up the locations of all the wal marts and if you can find an area that doesn't have one within 30 miles in any direction you can buy cheap. That's where I live.

[vrbsroma]

Interesting thread and something I've been thinking about. Farm land vs. forest land. SHTF BOL...

[franklin]

To Lemonthrower:
Regarding qualifications for ag exemptions, the best source of info will be your appraisal district since they are the ones who will decide if what you are doing will continue to qualify. Most areas have minimum acreage just to exclude Joe Citizen from getting a couple of horses and putting them on his 5 acres and claiming a huge tax break. If your acreage qualifies but your appraiser wants more animal units per acre than it can sustain, contact your local USDA office (used to be Soil Conservation Service) and they can, for free, evaluate your soil type and determine stocking rates that might be less than the appraisal district's suggestions.
If animals are not your bag, crops such as fruit trees, hay, etc. can usually qualify if you show a legitimate effort. If acreage that you are interested in buying is currently being utilized in a tax favorable style, the new purchaser is oftentime better off just continuing to lease that land to the operator/farmer/rancher. As long as the use stays the same, it doesn't matter who is doing the work.
20 years ago, my wife and I were operating a horse boarding stables as a sideline. The appraisal district swept thru the county and declared horses were not a legitimate tax qualification. We had 18 horses on 20 acres! We switched to sheep, paid full taxes for 5 years until we had established a 'history', and then our taxes went back to ag exempt status. We now have the biggest Rambouillet flock in the county and I can tell you how to keep a sheep alive, whether you want to hear it or not.
Just do your homework before you jump into that kind of land ownership. My personal belief is that it will be a worthwhile investment if you can get it at a reasonable price.

[Lemon Thrower]

thanks franklin.

so it sounds like you are saying most taxing authorities have a lower rate for ag property provided that its being used sufficiently actively for ag and you can demonstrate a history. but if you let it just lie dormant then the taxes are slightly higher. interesting.

[franklin]

I wouldn't say slightly higher, more like significantly higher, depending upon the valuation of the property. If a shopping center or apt. complex goes in next to an agricultural piece on the edge of town, the value of the surrounding property generally goes up, at least to the taxing authority. I have seen ag exemptions save property owners up to 10x the tax of non-qualifying, nearby properties. And remember, that is EVERY year.
Letting a property lie dormant without some effort generally will get you kicked off the exempt roll , unless it is highly erodable and has been entered on the USDA's qualifying program for providing a cover crop such as permanent grasses. Some programs usually stipulate 10-20 years of non-activity. It just depends, like everything else.

[alpacafarmer]

In our area the tax savings is 1/3rd and they have been cracking down on who gets it. You either need to actively farm for profit or have the property in a timber management program. The county will tell you you no longer qualify for the exemption a lot of time just to see your reaction. If you don't call them they remove it and charge you for 3 years worth of the taxes you saved. They have tried this with me 3 times in the past 10 years. I call them up and invite them out to my farm and they always say don't worry about it we know you farm. Here you need at least 10 acres of crop land..

[horgad]

"If you don't call them they remove it and charge you for 3 years worth of the taxes you saved."

That is an interesting point of comparison between the Ag exemption and the forestery excemption. With Ag I am guessing it is easy to live on the farm and still qualify for the exemption? This is something I need to look into furthur. Does the home on the farm fall under the exemption because the "workers" live there or does the exempion only cover the farmed acres? Also would it be different if you lived on a farm, but didn't work the farm (leased the farm land to a farmer)?

With the forest exemption, I doubt very much that you could get away with putting a "house" on it. Hunting trails and a campe site are OK. Hunting cabin is probably OK. Not sure exactly how far you can stretch the rules. Also the kicker is that if you decide to drop the forestry excemption to do something else, they expect up to 10 years of back taxes plus 10% yearly interest. So once you go forest, the pressure is on to stay forest.

For forest, to do it right you probably need to have your land taxed two different way from the start. A small part that is fully taxable for your (planned) your shelter and garden and the larger part for your forest (fuel and meat).

[franklin]

For forest, to do it right you probably need to have your land taxed two different way from the start. A small part that is fully taxable for your (planned) your shelter and garden and the larger part for your forest (fuel and meat).

horgad:
I think this is the most common setup around my neck of the woods. With my sheep enterprise, I have an acre where my house sits in non-ag taxation and the rest of my acreage has the ag (open land) exemption. I believe that my home state of Texas has rolled forestry into the general ag exemption but there are certain criteria that must be met. In addition, the state legislature, a few years ago, created a category called Wildlife Management which also reduces the taxes in an identical manner. However, you can't just declare that you are managing wildlife and demand like treatment. Our Dept. of Parks and Wildlife determines whether or not you have done enough to qualify but, after following their recommendations, an individual is given a Wildlife Management Plan which in turn is submitted to the local taxing authorities as proof of qualification. Lots of ways to do it. Larger the parcel of land, the better chance you have of qualifying.

[Beau]

I have land here in La. is only about 8 acres, with road frontage the tax is about $40. per year. it is timber land not fenced.
I see the land about twice a year. it is about 12 miles out of town.
I have been thinking about selling it. should I sell or not ?

[Lemon Thrower]

its a question of alternatives.

do you have land where you live to grow a large garden and have a well and trees for firewood? if not, keep this land. I would clear 3 acres and start a large garden including some fruit trees, berry bushes, etc.

if you are self sufficient, then sell it and plow the proceeds into gold.

it likely will increase in value if it will grow crops but that is really a speculation and its likely not to increase as much as gold.