10 Things You Need to Know Before Buying Agriculture Land
By CashRent |
1. The Land will Determine the Crop
There are several types of farms that you can choose from. Each type of farm has its own land, equipment, and labor requirements. A vegetable farm doesn’t need a large amount of acreage, but it does need fertile soil, a lot of water, and close proximity to farmers markets. Field crops do require a great deal of acreage, access to drying and storing facilities, access to equipment dealers and repair shops and close proximity to trucking. Finding the right piece of land to purchase can take months or years, and as a result, many new farmers often choose farm land lease agreements and rental price to begin their farming with land that already has a track
2. Find the Right Agricultural Land and Crop for your Working Style
Are you comfortable with repairing engines? You may be a good fit for field crops. Equipment maintenance is a top priority with this type of farming, and hiring help to maintain and repair your equipment will eventually cut into your bottom line. If you are a natural salesperson who isn’t afraid of hard work and long hours market farming may be ideal. Or, if your passion is animal husbandry, a farm focused on livestock farming could be a perfect fit.
3. Should You go Organic?
Many farmers are starting organic farms or switching from conventional to organic farms for many reasons, including wishing to avoid chemicals, breaking into the lucrative organic market, or supporting local economies. However, it may take up to five years to build the soil enough to match conventional farming yields and organic certification can be a long process with a great deal of paperwork. One workaround many farmers opt for is leasing agricultural land that has already been certified to produce organic food, in order to jumpstart their yields.
4. Property Taxes
If you are purchasing an established farm, you must still do your research. Get to know the county clerk! Property taxes are a major line item in every farm’s budget and it is important to know the assessments and rates for the properties you are considering. Make sure the land you are considering is taxed for use-value. The difference will make a significant impact on your budget. Property taxes will not be a consideration for farmers with a farm lease agreement.
5. Zoning and Encroaching Development
Not enough research on local zoning and future development can cause major headaches down the road. A good way to get a sense of whether or not you’ll have a subdivision surrounding your farm in several years is to check to see how many building or well drilling permits have been issued in the last decade.
6. Water: Quality, Quantity, and Access
Water will make or break your farm. Make sure to ask the current owner/tenants or farmers in the surrounding area questions about their water use. Independently test the water through a regional testing lab, and if you find contaminate values above certain limits, you should think hard about the purchase if resolving the water issues may be too costly. Make sure you receive written verification of water rights prior to purchase.
7. How Much Farmable Land are You Actually Purchasing?
Make sure that the percentage of tillable versus open land is adequate for your needs. Otherwise, you may find that a large portion of the total listed acreage could be comprised of unusable land. Check for slope and steepness of your ground. Level ground with south facing exposure is ideal. You should also test soil independently, and depending on the results, decide if fixing poor soil is worth the cost. Also, look for proper drainage. If you have to install an updated drainage system, you must factor in the cost.
8. Special Considerations when Purchasing Undeveloped Land
When buying undeveloped land, there are additional concerns. Does the property have access to a public road? Will you be able to obtain and afford any building permits required to set up your farm? Does the deed include mineral and groundwater rights? Have the property lines been surveyed by a professional surveyor? Does the land lie in a floodplain? If you plan to raise livestock, are you familiar with your state’s livestock and fencing laws?
9. Agriculture Land for Lease versus Purchasing Land: The Mortgage Dilemma
If you choose to purchase your own land, you may come up against some challenging financial roadblocks. When lending for agricultural land, traditional banks will offer mortgages with very high-interest rates, leading many farmers to local credit unions. There are also federal programs, that offer beginning-farmer loans and direct farm ownership loans, but they come with certain restrictions. A final purchasing option is a land contract, which is basically a direct mortgage agreement with the landowner. The downside is that if you fail in making payments, you will lose both the farm and all of your previous payments. All of these options require a certain amount of risk. One way to lower risk is to sign an agriculture land for lease and rent agreement instead of purchasing.
10. Agriculture Land for Lease as a Way to Mitigate Risk
Given the uncertain pricing of certain commodities, many landowners and new farmers have turned to farm lease agreements in order to lower risk and increase profits. One popular option is ‘cash rent with bonus’ leases, which are variable cash rent leases that have a base rent and a bonus if target revenue is exceeded by crop revenue. This arrangement allows for rent flexibility based on different crop prices and yields. Both the landowner and you can agree on the level of risk each is willing to take and either increase or decrease the base cash rent accordingly. This option can free you from the burden of a mortgage and decrease startup costs. One great resource for available properties for lease is cashrent.com.
Remember that farming is a tough, but incredibly rewarding challenge. If you do your homework beforehand, you can minimize risk and maximize profit for your dream career.