Re: buying farm land as an investment

Posted by The Famous Grouse on January 14, 2019 at 08:57:10 from (97.116.27.81):

In Reply to: buying farm land as an investment posted by picassomcp on January 13, 2019 at 21:07:49:

When you say "buying land as an investment" to me that implies that you're looking for a return on that investment.

HOW exactly do you want that return? This is key to the whole decision.

A.) Is your hope that eventually the rent will rise enough to cover the payment and, of course, eventually there will be no payment so the rent less a few expenses will all be profit someday?

or...

B.) But the land, hold for the price to increase and sell. Essentially a flip, albeit with a longer holding term.

Obviously, both plans have risk and potential reward.

To me the biggest question is that of rental prices. As another poster mentioned, the BTO will almost certainly want a big cut in the rent. Do you have any other potential renters waiting in the wings AND an actual price they will pay?

If you don't already have a plan B and plan C for a renter at a price that works for you, then I see this as a huge risk. Your whole plan is contingent upon a certain rent price, beyond that you're operating at a loss that you may not be able to absorb.

BTW, for those who say land prices never come down, in Minnesota, on average, both cash rents AND land prices have gone down in the last 3 years. People tend to just look at what one local parcel went for and use that to base all prices on. Individual parcels are meaningless because motivations can be all over the map as to what 1 single buyer will pay for the 160 acres adjacent to what he's already farming.

You have to look at the big picture of both land price trends and rent prices. Both of those are down on average. If you look at the mid and long term ag forecasts, there is little to no relief in sight as far as big increases on commodity prices.

If the OP wanted to farm the ground, it would be one answer, but when I look at all the other investment opportunities out there, the ROI on farmland cannot come close to competing with the ROI on paying down other debt and then investing in tax-sheltered or tax-deferred investments.

Grouse

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