Posted by MarkB_MI on March 24, 2014 at 17:41:00 from (75.219.1.148):
In Reply to: Re: More on Cash Rents posted by Nathan (SD) on March 24, 2014 at 11:25:18:
Nathan, how are you calculating that 18-20 percent ROI? The ROI should be calculated against the PRESENT value of his investment. Let's say you had put $1000 into an account many years ago and it grew to to $2000. If that account is earning 2 percent interest annually, you wouldn't say you're getting a 4 percent ROI, would you? No, two percent is two percent.
With today's crazy farmland prices, Eldon's dryland is likely worth around $2000/acre. Let's say after paying real estate commissions and capital gains taxes, he would end up with $1500/acre. With a cash rent of $55/acre, the return on his investment is 55/1500 = 3.7 percent. That's better than bank interest (barely), but it sure ain't 18 percent.
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