Buying a Hobby Farm

Quick history, I grew up on a farm here in SE PA. Not enough to keep the kids there so all 4 of us have left and my parents still farm it. Now I collect antique tractors and have a serious itch to hobby farm outside of my engineering day job.

Low and behold, an almost perfect place is up for sale on my way to work every day (I think maybe known to a member on here?). Not enough house though for my family so I'd have to keep my current house/mortgage.

Now the fun. How on earth do I convince a bank that a hobby farm is a good purchase? Rent some land, rent the house, use the barn for my antique tractors and raise some hay and produce on a few acres. Members of my family also have some goats. It would just be too perfect not to at least consider. Anyone ever tackle this situation? Farming grants? I'm just fearful another developer is going to scoop it up and develop it. It's perfect road front property and they've been taking anything that comes up. In our area, farmland is just a ticket to build recently. Farming is dying so this sounds like a ludicrous plan on my end.
 
The only investment the bank cares about is theirs. If you have good credit and a means to pay them back and equity in the property if you don't then they could not care less if it is a good idea for you.
 
Yup, credit and all are good but I think I'd have to show a revenue plan to justify it. Otherwise, based on my current income it would throw off my debt to income. It's kind of chicken and egg thing. I don't have the income without the land and I'm not independently wealthy. I plan to visit the local farm credit just to see. If nothing else, this will be a good exercise for a future place.
 
We had a bit of good fortune, and were able to buy five acres across the valley. Its a little hillier than I like, but is on a good, hard surfaced road, and overlooks the valley. A couple of flat spots for a house and shop, and a 7 1/2 GPM well. There's really not enough land to do anything more than exercise my tractors, but there are some small pieces of land up the road that could be rented. All in all, it's limited as far as farming goes, but it's a great spot to set up a machine shop and do the work I want to do, rather than what I have to do. If you can make it happen, bite the bullet, take the plunge, and go for it. You're probably not the only guy in your area looking for a nice spot.
We looked at a lot of places around the district, but distance to town and road conditions are factors. This place is thirteen minutes on pavement to the grocery store, and is the first road ploughed in the winter. I don't think we'll get hurt down the road, as property values in this area have shown a modest but steady increase over the years. Best of luck, unc
 
> How on earth do I convince a bank that a hobby farm is a good purchase?

The lender could care less if your purchase is "good". If that was a loan requirement, half the new car dealerships in the country would close. All the lender cares about is whether you are likely to repay the loan. If you can't make the payments just on your current income, your chances of qualifying for a mortgage aren't good.
 
Tricking the bank ain't the problem its making the payment that will be the problem.I've always been able to borrow more money than I figured I could realistically pay back.If the bank says you can't afford it most likely you can't afford it.
 
That might be the better way to word it. If I was just buying the land to look at it, yes, that would exceed my income. But, on 20-30 acres, you can generate some revenue that on the surface would make it sustainable. But, I don't think I can use those numbers when talking with the bank, correct? I can only use my current income figures.
 
My son did exactly that 19 years ago. Bought it at auction that does take some nerves!! His debt/income ratio was sky high; land in east Pa will turn out to be a very good investment. An engineer is look upon a excellent credit risk. Go for it.
Jim B
 
First, I think you really want to live out in the country, or have someplace to enjoy your old tractors. I have no idea how old you are, but could you put a house or find 20 acres where you could live, and still have your daytime job? Really you shouldn't need to borrow money for this should you? Unless you are younger.
I found a nice farmstead that is 20 acres, and sure if I can buy more land I would. Honestly, this is what I have wanted all my life. I couldn't be happier, I have a place all ready with water and power, for a new home, and plan to build a 40x80 shed for my machinery. I have a huge garden, ( Mrs. calls it a farm, and it does have potential). I have lots of old machinery, and gas engines, so lots of work.
 
Some good comments being made here. I will say as to the premise of making the hobby farm pay for itself I am skeptical. You could find a niche such as organic or
vegetables but then the chances are strong that market floods with product reducing profitability. The barriers to entry are to low to prevent competition from entering
unlike an automobile factory where extremely few have the means to produce a product. People here are WAGging as to how a bank is going to feel on a loan. The farm
you talk about is more than a McMansion which is outside the comfort zone of a number of lenders. For the sake of being clear you said you are from SE PA but did not
say exactly where this this farm is. Land is extremely valuable there and at the same time there is immense competition there for it so buying it on the cheap very
seldom happens. The Amish and Mennonites bid ground considerably past its economic worth for farming. Are you married? If so and by some chance you pull this off
and a third of your monthly pay goes to the mortgage and the mortgage is going to be a long haul how is she going to feel about it? It might be sunshine and roses
today but 5-10 years down the road she may be tired of not living to the full potential of your paycheck to pursue your dream.
 
Crunch the numbers, be realistic about what your markets will buy, market prices, and your production costs. Plan in at least two years of disappointing yields out of every ten. Crop insurance may reduce your risk. Are there any Corn Suitability Ratings available for the land?

Don't count on making any money renting out a farm house. Better to demolish it or move it off the property to reduce your property taxes or sell it as an acreage to reduce your debt - probably the best option.

In the Midwest, most farmland can't generate enough income from cash grains alone to pay off a 30 year mortgage for the land. Renting some land as a hobby farm may be lower cost and much less risky than buying farmland.
 
The house on this property I think might the nail in the coffin. I have a house in the country with a mortgage and we live about 3 miles away. With a wife and kids, this house is too small. It's just extra appealing because of the proximity to my current house.

It's in prime "new housing growth" area but I know the farmers who farm around the property. I'd be willing to rent a good portion off for it to stay farming (I think that's how they're doing it now, so keep status quo). However, I don't think those numbers show up on a purchase balance sheet. I'm pretty sure I don't stand a chance against developers right now.
 
There are a lot of really good comments here, please take them in stride, as we have all been there.

I think bottom line is that it will NOT cash flow, or even make the mortgage payments, so your other income must make those.
 
You need to bite the bullet as a family and live in the house on the acreage. Make plans to remodel add on or build new at a later time. The sale of your existing home will give you more for a down payment or for making the house suitable for your family. Your not buying a business, there will be no cash flow, your buying a life and living style, a great place to raise a family. Where kids can have dogs cats goats sheep calf's learn the responsibilities of being part of the family. It can be done, My wife and I and our children (3) did it. Go for it before it is gone. gobble
 
(quoted from post at 10:36:44 07/13/18) You need to bite the bullet as a family and live in the house on the acreage. Make plans to remodel add on or build new at a later time. The sale of your existing home will give you more for a down payment or for making the house suitable for your family. Your not buying a business, there will be no cash flow, your buying a life and living style, a great place to raise a family. Where kids can have dogs cats goats sheep calf's learn the responsibilities of being part of the family. It can be done, My wife and I and our children (3) did it. Go for it before it is gone. gobble
That is the exact truth of it as I look it over. Need to sell my wife on this vision. That might be harder than making hay in the winter!
 
Yes if she will not buy into the dream home, you don't want to go there. If being 20-30 minutes from the grocery store or mall gives her anxiety, you don't want to go there. If she's a born and raised city girl who has no interest in the country life, you don't want to go there. If her dream is a nice tidy 3bdrm house in a subdivision, you got some convincing to do. My wife put up with a lot of inconvenience, drywall dust, half done remodels, cold drafty old house, washing dishes in the bathtub, cooking on a camp stove. Its no mansion, but it is OUR home where we raised our children. Where Grandchildren came and stayed and had a great time. It was a nightmare at times, but we're still here and indeed we have and are living the dream. I think I know what your dream is,(just like mine). But it needs to be hers also, or it could cause, well you know what I'm saying. gobble
 
Yea my first wife wanted a house in a subdivision and that sort of thing I found the solution to that problem(LOL).Life is too short to live it like someone else wants you to live it
not like you want to live it.
 
Actually, this property is about 5 minutes closer to town than our current house. We're all about country living and 30 minute drives but, we do have a pool and this doesn't. Lol. This is on my way to town every day so I get to see it twice a day. Hence these ideas I create in my head to use and preserve farmland.

This is one of my tractors working at my parents.
https://youtu.be/gRzNIASShH8
 
I was in that situation 20 years ago. I got married and moved to the city and missed the country where my people settled in the 1820's. I got a chance to buy some land that was on the road I grew up on down the road from my mother and sister. I agreed to the price had it surveyed and a contract written up before I ever went to the bank. I got the loan and had to work a part time job for 10 years until we could handle both notes. Now the land has been paid for a few years and the house in the city will be next month. We were planning on finally moving out there next year and now my wife's job will be gone next month to. I've worked on the land for those years it was rough when I bought it. Now I have it pretty much cleared a shop and pole barn built and a nice 1 acre pond to fish in. It's been a long road but it's worth the wait. If you want it and it's meant to be it will work out just maybe not as quick as you'd like. I have 4 tractors out there and in the afternoon when I get off work or on the weekends I go out there and mow and play with my toys.
 
An old fella told me " they don't make any more land" It has got me in more trouble than all my ex wives put together!!!
 
My wife and I bought our place 25 years ago. We basically paid what a new townhouse would have cost us, in the more developed areas.
Raised 4 kids. The part time farming paid for many small expenses along the way, and the kids learned some very good life lessons. Of course
we spent more time driving the farther distances. Also, the Clean and Green property tax discount was a serious bonus. Overall, it was a very
good move and a good financial move for a young family.
 

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