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Indydirtfarmer

08-14-2003 04:42:55




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Yesterday, I was approached by an attorney, representing an elderly woman that owns 40 acres near our farm. She is trying to keep her ag status intact. The ground was in crops for as long as I can remember. What he is proposing, is for me to turn the acrage into a hayfield. The expence of getting it established would be split. They pay for seed, I furnish the labor and machinery. At that point, it is mine to bale. BUT. they want $1000 a year for the "rights" to the hay. The woman is 88 years old, and the whole thing is "out the window" when she passes away. The land will be sold by her heirs. They want to fertilize, plow, disk, and seed. Based on the rates I charge for custom work, I would be in to the project for around $1200. Add $1000 for the "yearly rights" and it gets expensive. Then, factor in the possibility that this could be a one or two year deal. (Who knows, she might live forever) Has anyone ever got into a "deal" like this. It sounds risky, but I have a good market for good hay. It is up to me as to what kind we plant. This is all being done so that she can maintain her ag status. With a phone call, I found out that this would save her about $4000 a year in property taxes alone. I think they should absorb more of the cost. (Maybe the fuel cost for prep, and planting?) They have also made the offer to let me grow soybeans/corn on the ground for $100 an acre per year. The going rate in this area is as high as $115 per acre. I,m leaning toward this. They prefer the hay arraingment. I'm undecided as to what I would like. Let's hear some thoughts.

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Indydirtfarmer

08-15-2003 04:29:37




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 Re: How about free? in reply to Indydirtfarmer, 08-14-2003 04:42:55  
Well, it's a done deal. I now have the 40 acres untill (at the very least) the end of 2005. In our part of the country, 40 acres is a "good sized field". We live in the extreme southern part of Indiana, and farm land in Kentucky also. My largest field is about 120 acres. The smallest is less than 5 acres. The 40 acres in question is extremely fertile land. I have been eying it for years. Right now, in my "grand scheme" the hay business is paying the bills. That is why the decision to plant a hay field. Last night, we met, and finalized the deal. After the lawyers left, my wife and I set down and had a long talk with the woman that owns the land. Her father bought the land in 1921. He was in the milk proccessing business. He decided to buy a farm, in an area that no one wanted. Now the land is in the middle of one of the fastest growing area's in the state. What was once worthless, is now worth millions. Her "children", (ages 68, down to the youngest, 59) didn't want to have ANYTHING to do with the farm or the dairy business. They were up and gone, as soon as they could get out. Now that the land is "valuable", they act like they never wanted to go away. Her greatest wish, is for the land to be farmed forever. That is a bit far fetched. BUT... She wants to put the ground in a "trust" that would allow me to continue farming it for another 10 or 15 years, even if she dies today. Then when I decide to scale back my operation, she want's it donated to Purdue University. (Both hers and my Alma Mater) Oh the kids are going to SCREAM. I was reminded of the last convesation that I had with my father before he passed away. He wanted me to keep farming his land untill the day I passed it on to my son. If I chose not to, let someone else farm it, but don't let it turn into a subdivision. My wifes father told us the same thing before he died. It comes down to the fact that they don't want to see their lifes work turned into a parking lot. We are going to be involved with her setting up the "trust", and try to make her, and her fathers wishes come true. (And maybe make a buck or two along the way.)

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Robert

08-15-2003 12:35:42




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 Re: Re: How about free? in reply to Indydirtfarmer, 08-15-2003 04:29:37  
The best of luck to you in your endeavors! In my part of the world (Central Texas), every old farm is being turned into another subdivision, filled up with people who want to "move into the country", only to find out later that "the country" isn't any different (with all the cars, noise, etc. that they bring with them) than the city life they left behind.
That (the crowding) is one of the reasons I enjoy my "other place"---65 acres in the "boondocks", 6 1/2 miles off the highway on a dirt road, with the nearest neighbor 2 miles away.

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Will

08-15-2003 05:24:40




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 Re: Re: How about free? in reply to Indydirtfarmer, 08-15-2003 04:29:37  
Good luck, I wish we were blessed with more like you and the elderly lady you are dealing with. I believe the easiest way for her to accomplish her desire to protect the land would be to place an agriculture or conservation easement on it, she could limit the easement to a number of years or make it forever. She could also grant you, for an agreed upon rent or other consideration, a life or long term tenancy. In her will she could leave the land to Purdue. If the land were placed in a trust who would be the trustees? Is she talking about selling the development rights to one of the farmland preservation trusts? Or establishing her own trust? I hope it works out for her and you.

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Ray

08-14-2003 11:49:03




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 Re: How about free? in reply to Indydirtfarmer, 08-14-2003 04:42:55  
Sounds awfully complicated for only 40 acres,
I've thousand acre deals with less problems.
In the first place this is not necessary to
retain her farm status,even pasture is considered
farm.Sounds like their trying to lock you into
a no-win deal,why not just rent it and put your own hay out.I guarantee she or the kids will think
you are ripping her off with her hay deal.So I
guess my advice would be get a multi year cash
rent agreement then put you own hay out or whatever you choose without the old woman or a
lawer looking over your shoulder.

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Magnamus

08-14-2003 18:55:09




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 Re: Re: How about free? in reply to Ray, 08-14-2003 11:49:03  
I'm with Ray. We generally don't rent anything less than a section, and then its stickly a cash arrangement. I wouldn't even mess with 40 acres.



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markct

08-14-2003 19:44:25




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 Re: Re: Re: How about free? in reply to Magnamus, 08-14-2003 18:55:09  
well i guess its different in different areas, but around here in connecticut if i could get 40 acres that would be incredible, i think the biggest field i do is about 4 acres at the most. a friend of mine has one of the fields that is considered like the local "prized hayfield" a whopping 30 acres, considered huge around here



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woodtick

08-14-2003 10:19:23




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 Re: How about free? in reply to Indydirtfarmer, 08-14-2003 04:42:55  
you sure this gal dosent raise sheep



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Indydirtfarmer

08-14-2003 10:19:20




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 Re: How about free? in reply to Indydirtfarmer, 08-14-2003 04:42:55  
And now for something completely different. I just got off the phone with the woman's attorney. They have a different proposal for me to "ponder". Along with the 40 acres, she owns a big barn. It is in great shape. She has offered to pay one half of my custom rate, to have the field planted. Then we split the cost of the seed and fertilizer. The first years hay will be mine. Second year, we put the hay in her barn, sell it as we can, and split the take 60/40 in my favor. We have a two year deal, that keeps her children at bay, untill the second crop season is over, and at the end of each year, we'll extend the arraingment for another year, provided we are both happy with the terms, giving me at least two years at any time. She told me that her father lived to be 107 years old, and she plans on out-living him. (If she does that, she may outlast me! My attorney is going to meet me at her house this afternoon, to sign the agreement.

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sod

08-14-2003 18:28:46




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 Re: Re: How about free? in reply to Indydirtfarmer, 08-14-2003 10:19:20  
Is there no way you could marry this wonderful gal? good luck
sod
( it sounds to me like she is crying out for protection from her brats)



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Shane

08-14-2003 14:32:14




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 Re: Re: How about free? in reply to Indydirtfarmer, 08-14-2003 10:19:20  
Now it sounds like ya got a deal! Good luck.



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CP

08-14-2003 12:10:24




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 Re: Re: How about free? in reply to Indydirtfarmer, 08-14-2003 10:19:20  
I like the way it sounds. Both you and the elderly neighbor seem very comfortable with it and I hope everytihng works out for you.

Who knows, you might need an extra tractor to work all the extra land "wink, wink". Wouldn't hurt, would it?

Good luck in all you do.



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Trevor

08-14-2003 10:00:07




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 Re: How about free? in reply to Indydirtfarmer, 08-14-2003 04:42:55  
OK, I have 2 things to add.

1. You can't really figure out your costs for the first year using your custom charge rates. Hopefully your custom rates have some room for profit in them. You should only consider your true costs to do the work as this would be you actual "investment".

2. You should definately push for a multi year locked in agreement. But keep it short enough that they will accept it. If she is currently in good health they wuold likely agree to 2,3 or even 4 years. This would help to garaunty that you will make a profit off of your investment.

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Indydirtfarmer

08-14-2003 09:32:09




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 Re: How about free? in reply to Indydirtfarmer, 08-14-2003 04:42:55  
The long and short of it is, I think the arraingment is a good one, EXCEPT for the fact that I can do all of the work, realize very little in return the first year, and not be sure of a second year. The cash lease on the land will be a sure thing. Starting up the hay operation will be a little less than sure. She had the lawyer contact me becouse he knows me, and she is 88 years old, and doesn't get out much. When the lawyer called, we met at the woman's house, where she did most of the talking. Her father farmed the ground for 60 years. I knew him. I have no worries about dealing with her. My concern is what happens IF she dies in the next year or two. The land is worth quite a bit. It is next to a large shopping mall. The family wants to get ahold of the cash. She wants to keep farming it to save the tax status, and becouse her family has been on the land for so long. My attorney seems to think the ground is worth nearly a million dollars. I don't reasonably expect the family to let me keep giving them $1000 a year, when they can cash in on it. If the arraingment was for at least 3 years, I know that I can come out on top. If it ends up being just one year, I'll make a few bucks, but not enough to warrent all the work involved. This is good farm ground, but it is prime development property. I just don't want to do all of this for little or nothing. My attorney is drafting a letter, that will spell out a short term/ long term lease, and a "buyout option", that will reimburse me for my expences, should this be a one year thing. I don't know if she'll go for it or not. I have all the crop land that I want. The hay business is where I'm making my profit's at this time. I don't know if I'll even want to do corn/soybeans on it. I realize that she own's the property, and has the right to make a few bucks too. I just want to see this become a mutually benificial arraingment. What I'm going to propose to her is no rent the first year. I'll do the work. She furnish's the seed and the fertilizer, and we'll go to "her" terms on the second year. If the land sells between now and the first years end, she or the estate will owe me for my efforts, based on my current custom rates.

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KURT (mi)

08-14-2003 09:22:44




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 Re: How about free? in reply to Indydirtfarmer, 08-14-2003 04:42:55  
I am not a farmer, never have been but I think I have a solution for you. First get the old lady and her heirs together and say, hey look, here is the deal, (hay or corn or soybeans) what ever you want to farm...Then say I will give you a percentage of my sales of what I farm. Then ask them to sign a lease deal with you with the option to buy the land when the old lady kicks the bucket. That way the kids already have a buyer lined up ahead of time. One more point I dont understand--the leasing of the land. If I was the one doing the planting and harvesting I would want say If I get $5000 in total sales for corn or beans or whatever then I will pay you a percentage of what I get for the product. because if you agree to pay say $100/acre and there is a terrible drought or flood and you dont harvest anything then you would still owe the 100/acre. Am I thinking along the right line.

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paul

08-15-2003 12:05:47




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 Re: Re: How about free? in reply to KURT (mi), 08-14-2003 09:22:44  
Well that would make sense, but landlords want their money, so everything almost is cash rent these days. And farmers want their land base, so they agree to it whatever the cost. It becomes a very difficult situation, but that is farming these days. The govt prefers it, as it boosts property tax values & rates....

--->Paul



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Indydirtfarmer

08-14-2003 09:40:55




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 Re: Re: How about free? in reply to KURT (mi), 08-14-2003 09:22:44  
Welome to farming! If we have a bad year, we go broke. If we have a great year, the prices fall and we go broke. If I could buy this land, I wouldn't need to work. It will be a shopping center some day. It is next to a HUGE mall now. My attorney says the land is worth nearly a million bucks. Not in my price range!!!! The children don't want ANYTHING that would complicate them selling it. The only chance I have, is to deal directly with the woman that owns it.

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frdmnn

08-14-2003 09:17:20




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 Re: How about free? in reply to Indydirtfarmer, 08-14-2003 04:42:55  
and what happens if she doesn't make it till you get that first cutting of hay ????



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markct

08-14-2003 09:00:26




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 Re: How about free? in reply to Indydirtfarmer, 08-14-2003 04:42:55  
well the way i see this is that yea your are doing her a favor by helping her keep her ag status, but on the other hand she owns the land so thus she has the right to expect something in return for you using it, and isnt 25 bucks and acre pretty cheap land rent? seems that you could make that with hay, i mean heck she still has to pay some taxes on the land even as ag and she has to cover that.



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slim

08-14-2003 08:47:54




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 Re: How about free? in reply to Indydirtfarmer, 08-14-2003 04:42:55  
You've gotten some pretty good advice below. Here's our situation. My mother rents out about 40 acres of pasture. Her previous renters have only wanted year to year leases. Multi year locks them in also not just my mother and they don't want to be locked in longer than a year.

She only changes renters when one retires or no longer needs her land. So usually the prior renter neglects fences and such during his last year and the new renter has a lot of work to do. Her solution is to give a cut in the rent for the first year while the new renter fixes fences. The following years she gets full price.

So maybe you could work out a similar arrangement. You could get a cut in price the first year while you establish the hayfield. You probably won't get as much hay off of it to sell the first year anyway. Then the following years you will pay full price. Instead of multi year, I would lean toward an option to rent for following years. She gives you first option at meeting the next best bid. This gives you flexibility to get out after a short time if the arrangement is not working out for you whatever the reason; i.e. health, finding more land to purchase, whatever.

Just my opinion.

slim

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paul

08-14-2003 07:49:56




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 Re: How about free? in reply to Indydirtfarmer, 08-14-2003 04:42:55  
Ok, what am I missing? You can rent it for corn/soybeans for $4000 a year, or you can rent it for hay for $1000 a year. Why is the hay deal a bad one? Sounds like a bargin to get the land for $25 a year, vs $100 a year.

Yes, there are more start-up costs with hay, but that is pretty cheap rent. You say your startup would be $1200, so even the first year you are getting the land for 1/2 of a corn/bean rate..... Around here renting an alfalfa field costs more than a corn field, not less, so conditions must be different where you are?

I guess I would want a 3 year lease with the buyouts as mentioned, that should be pretty easy to implement under your senerio.

--->Paul

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Polish Mike

08-14-2003 07:38:52




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 Re: How about free? in reply to Indydirtfarmer, 08-14-2003 04:42:55  
Wait a second...She wants you to pay $1000 a year for the priveledge of busting your butt and saving her $4000 a year on her taxes ?!?!?! She wants you to pay her $1000 so SHE can keep her Ag status ?!?!?! And she has her attorney contact you about it, instead of inviting you over to discuss it ?!?!! Am I the only one here that sees a bunch of flares going up ? I'm not saying she should let you farm her place for free, but talk to her (without the attorney) and see if she'll make a better offer. This one is definitely no bargain...

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Lary

08-16-2003 16:21:32




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 Re: Re: How about free? in reply to Polish Mike, 08-14-2003 07:38:52  
Polish Mike has it right, stay away from that deal, I got burned by a little old lady, and she didn't even have a lawer.



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VADAVE

08-14-2003 05:21:35




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 Re: How about free? in reply to Indydirtfarmer, 08-14-2003 04:42:55  
I've never been in thios type of arrangement. However when I do rent and pay for the fertilzer and lime I insist on a multiyear contract--in writing. Without a multiyear there is no way you will get out the long term inputs you have to pay for; like building up the fertility and appling the lime. Course if the owner pays for the lime youy could just put on the fertlizer needs for each crop and draw down the land. Why don't you try for strat cash rent at the county average. The extension agent will have the averages. Her in Virginia(Northern Neck) the average is about $55 with some running as high as $100-110. Course those guys usually go out of buisness pretty quick.

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VaTom

08-14-2003 04:58:10




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 Re: How about free? in reply to Indydirtfarmer, 08-14-2003 04:42:55  
Knowing almost nothing about farming, I'll stay away from the hay vs. soybeans/corn.

I'd suggest that there's no reason to not get a lease that would extend beyond her demise, if that occurred in the next few years. Would cover your initial investment and make you comfortable with the deal. As you point out, she has a lot to gain.

Her heirs might inherit a lease that was a problem for a future sale, but the lease could also have a buy-out clause built in. That's a main point of a contract, protecting against eventualities. Get the right one and you (and she) are good to go.

Good luck.

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dhermesc

08-14-2003 06:32:49




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 Re: Re: How about free? in reply to VaTom, 08-14-2003 04:58:10  
I agree with VATom, if you go with hay, figure your break even point and establish buyout clauses for the first three or four years. It's no cost to her (she probably thinks she will live forever too) and if the kids sell the land in event of her death, the buyout amount will be minimal compared to the sales price.



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