Ag land as an investment

[huskerfan1000]

Anyone have any experience with this locally, I have been working with a real estate agent.
Its my understanding that these are the important variables, topography, whether it has a well/water, soil rating and how close to the city, Lincoln in my case.

I would like to rent the land for someone to farm, but have no ideas how easy it is to rent, what they would grow . terms etc, any input is welcome.

 

[HuskerTimOmaha]

@Corn Coast Phenom

 

[LBremser]

Anyone have any experience with this locally, I have been working with a real estate agent.
Its my understanding that these are the important variables, topography, whether it has a well/water, soil rating and how close to the city, Lincoln in my case.

I would like to rent the land for someone to farm, but have no ideas how easy it is to rent, what they would grow . terms etc, any input is welcome.

This is a good starting place for numbers, there are some useful articles in the "Publications and Resources" section as well.
http://agecon.unl.edu/2015-nebraska-farmland-values-and-rental-rates

 

[grayhairedfreak]

I'm in this industry. Some general observations...
*Midwest farmland is currently overpriced relative to history. But, a lot of farmers are struggling with low crop prices so you might see some price declines in the next couple years.
*Highly encourage you to talk to a farm management company or Ag lender about the specific area you're looking to buy in for some ideas on rental rates. Irrigated will get you more than dryland but will also cost more to buy.
*Cash rent is simplest for a landlord but is tough for tenants when crop prices are bad. Be prepared/willing to re-negotiate cash rents to good tenants. Landlords that won't budge on rents and don't care who they rent to get a local reputation real fast. You can also do a crop share arrangement or other flexible lease avenues.

 

[B1G RED RULES]

Anyone have any experience with this locally, I have been working with a real estate agent.
Its my understanding that these are the important variables, topography, whether it has a well/water, soil rating and how close to the city, Lincoln in my case.

I would like to rent the land for someone to farm, but have no ideas how easy it is to rent, what they would grow . terms etc, any input is welcome.

I live in Iowa, but farmland is a good long term investment. Biggest drawback is it takes about 50% down payment to make it cash flow. The Ag economy is starting through some challenges similar to what the rest of the economy did in 2008, so waiting a couple years will get you a better deal.

 

[siebo454]

Major thing depends on if its irrigated or dryland. I know one of my customers gets $400/acre cash rent in central Nebraska. Overall depending on your age farm ground would be a wise investment. It is guaranteed income for the rest of your life, continuing on down throughout your children and grandchildren.

 

[Nobull]

I'm in this industry. Some general observations...
*Midwest farmland is currently overpriced relative to history. But, a lot of farmers are struggling with low crop prices so you might see some price declines in the next couple years.
*Highly encourage you to talk to a farm management company or Ag lender about the specific area you're looking to buy in for some ideas on rental rates. Irrigated will get you more than dryland but will also cost more to buy.
*Cash rent is simplest for a landlord but is tough for tenants when crop prices are bad. Be prepared/willing to re-negotiate cash rents to good tenants. Landlords that won't budge on rents and don't care who they rent to get a local reputation real fast. You can also do a crop share arrangement or other flexible lease avenues.

Grayhaired is very accurate with his information.

 

[dinglefritz]

Anyone have any experience with this locally, I have been working with a real estate agent.
Its my understanding that these are the important variables, topography, whether it has a well/water, soil rating and how close to the city, Lincoln in my case.

I would like to rent the land for someone to farm, but have no ideas how easy it is to rent, what they would grow . terms etc, any input is welcome.

Invest in things you know something about. It sounds to me like you don't have enough knowledge of farming and farmland to make a wise investment decision. Farmland values and rent is all about the quality and location of the land. Land is high right now and there are ways even if you know something about farming that tenants can take advantage of you with their farming practices. Some renters will mine the nutrients out of the land and then leave you with a depleted piece of dirt that needs a lot of fertilizer. I haven't bought any more land for the past 4 years due to the price inflation. Farm income has been very good recently and farmers have driven land prices up by re-investing their profits. We'll see if the commodity price declines cause land price deflation.

 

[tithay01]

Taxes are killer

 

[huskerfan_12_05]

I'm in this industry. Some general observations...
*Midwest farmland is currently overpriced relative to history. But, a lot of farmers are struggling with low crop prices so you might see some price declines in the next couple years.
*Highly encourage you to talk to a farm management company or Ag lender about the specific area you're looking to buy in for some ideas on rental rates. Irrigated will get you more than dryland but will also cost more to buy.
*Cash rent is simplest for a landlord but is tough for tenants when crop prices are bad. Be prepared/willing to re-negotiate cash rents to good tenants. Landlords that won't budge on rents and don't care who they rent to get a local reputation real fast. You can also do a crop share arrangement or other flexible lease avenues.

I'm also in this industry, listen to this guy ^^ As far as my advice goes, I would not buy right now as if crop prices stay where they are land is looking at taking a little bit of a hit as well as cash rent. The farm economy is beginning to feel the pains of grain prices sky rocketing a few years ago as prices now have gone way down while input prices, especially land, remain high. If you don't know much about the industry I strongly encourage you to have a farm manager as an advisor at least, if not managing the thing for you entirely.

 

[huskerfan1000]

Ok thx for the great input from everyone, I can tell more complicated than what I want to do/learn, when I first brought up idea to my real estate agent I wanted just some raw land as a diversification investment not really looking to make money and he was the one who started talking about ag land so I could get income. I think just small investment in raw land and keeping as simple as possible is the route for me.

Any additional input is appreciated.

 

[dinglefritz]

Ok thx for the great input from everyone, I can tell more complicated than what I want to do/learn, when I first brought up idea to my real estate agent I wanted just some raw land as a diversification investment not really looking to make money and he was the one who started talking about ag land so I could get income. I think just small investment in raw land and keeping as simple as possible is the route for me.

Any additional input is appreciated.

Just remember. A realtor is always looking for a commission. They aren't an unbiased source for the suitability of the investment for you.

 

[PvilleHuskerTim]

Ok thx for the great input from everyone, I can tell more complicated than what I want to do/learn, when I first brought up idea to my real estate agent I wanted just some raw land as a diversification investment not really looking to make money and he was the one who started talking about ag land so I could get income. I think just small investment in raw land and keeping as simple as possible is the route for me.

Any additional input is appreciated.

A person needs to consider the income/expenses (cash flow) generated from the property as well. If I have my math calculations correct, based on average irrigated crop ground, it would take about $46.6K per year to service a loan to purchase an 80 acre parcel of ground in the "East" region (average purchase price, 20% down payment, and 6% interest rate). That only includes the loan payment, and does not consider other expenses (i.e. taxes). Below is a basic estimate.

Purchase price for 80 acres ($9,425 x 80) = $754,000
Less down payment (20%) = $150,800
Loan Amount = $603,200
Annual P+I (25 year amortization @ 6%) = $46,640

The above equates to about $583/acre in P+I payments. The average cash rent for the "East" region is $305/acre

http://agecon.unl.edu/2015-trends-in-nebraska-farmland-values-and-rental-rates

 

[samjackben]

Ok thx for the great input from everyone, I can tell more complicated than what I want to do/learn, when I first brought up idea to my real estate agent I wanted just some raw land as a diversification investment not really looking to make money and he was the one who started talking about ag land so I could get income. I think just small investment in raw land and keeping as simple as possible is the route for me.

Any additional input is appreciated.

It really isn't that complicated compared to most investments. Far easier to get up to speed than with most asset classes. I strongly agree with the others who have suggested to take your time. IMHO, be patient and you will buy ground much cheaper than you can right now. I personally won't buy more farms until we see a 20% - 30% + correction. I was offered a pretty nice irrigated farm near Grant last week, owned by a guy who lost a ton of money feeding cattle. Wanted $850k and I literally wouldn't pay more than $500k. I was offered a dryland quarter recently for $5500 per acre in SE Nebraska and I wouldn't pay more than $4000. So, I don't think the current land prices reflect the underlying economics. That said, if you can buy it right, it is one of my favorite long term investments. I probably have a little over 1/3 of my net worth in farms and ranches.

 

[huskerfan66]

Anyone have any experience with this locally, I have been working with a real estate agent.
Its my understanding that these are the important variables, topography, whether it has a well/water, soil rating and how close to the city, Lincoln in my case.

I would like to rent the land for someone to farm, but have no ideas how easy it is to rent, what they would grow . terms etc, any input is welcome.

Not sure what part of state you're interested in, but I'm looking for gt ground to rent.

 

[anndee]

Anyone have any experience with this locally, I have been working with a real estate agent.
Its my understanding that these are the important variables, topography, whether it has a well/water, soil rating and how close to the city, Lincoln in my case.

I would like to rent the land for someone to farm, but have no ideas how easy it is to rent, what they would grow . terms etc, any input is welcome.

contact me personally rfafarms@gmail.com 402-416-4585. I would be happy to discuss this with you.

 

[huskerfan1000]

Thanks for all the really good info and willingness to share your expertise, it really helped me to clarify best route for me with my limited knowledge on this matter. As some of you mentioned you have decent amount of net worth in this type of investment and have done well, I have to high a percentage in paper assests and thus land was of interest to me, I want to focus more on ease, simplicity and minimum risk and be willing to sacrifice on expected return. I think best route for me is small amount of raw land or pasture land close to Lincoln, something in the 30k-60k range, cash investment. Any additonal input is welcomed.

 

[kkotsch87]

A person needs to consider the income/expenses (cash flow) generated from the property as well. If I have my math calculations correct, based on average irrigated crop ground, it would take about $46.6K per year to service a loan to purchase an 80 acre parcel of ground in the "East" region (average purchase price, 20% down payment, and 6% interest rate). That only includes the loan payment, and does not consider other expenses (i.e. taxes). Below is a basic estimate.

Purchase price for 80 acres ($9,425 x 80) = $754,000
Less down payment (20%) = $150,800
Loan Amount = $603,200
Annual P+I (25 year amortization @ 6%) = $46,640

The above equates to about $583/acre in P+I payments. The average cash rent for the "East" region is $305/acre

http://agecon.unl.edu/2015-trends-in-nebraska-farmland-values-and-rental-rates

property taxes will take about 30-40% of what you will get in rental income.