Are you prepared to buy farmland?
May 29, 2020

Are you prepared to buy farmland?

Buying farmland is a significant step for any producer or investor to take. It doesn’t matter whether you are a farmer or a land owner with tenant farmers, increasing the amount of land under your stewardship is a big decision that shouldn’t be rushed into.

There’s a lot of research and weighing of pros and cons that must occur before any type of land purchase can be completed. Plus, there are a ton of questions that need to be asked and answered.

But because high-quality land is not selling terribly often, at least according to Iowa State University Extension and Outreach, you have to be ready to pull the trigger when you do cross paths with good land. All the more reason to consider these tips and suggestions for how to determine if you’re prepared to buy farmland.

Who is buying and selling farmland?

It’s always a good idea to know who is currently in the market for either buying or selling land. According to the most recent Farmland Value Survey, there aren’t many transactions occurring compared to previous highs in the market. Still, high prices are leading to buyers acting quickly when sweeping up what is put on the market.

The survey showed that most of those buyers are existing farmers (72%). Only 21% of investors were buyers. On the other hand, most sales came from estate sales (52%), which were followed by retired farmers (24%) and active farmers (16%).

Research the farmland market

That data is just one survey, though. It is important to put in the work and research the farmland market in your area. This will help you determine if land that is available is priced fairly or if the seller is asking too much.

Contact a trusted farm realtor who can help inform you on what farmland is actually going for rather than what it’s being listed as. You may be surprised at how these two figures can vary.

Know how listed farmland has been used

So you have your eye on some farm property that is for sale. One of your first goals needs to be learning about how the land has been used in the past. This is important because a land’s past use will determine what it can and can’t be used for now.

For example, if a land has sat unused for years and years, then you may struggle with soil that has been drained of any nutrients useful for growing crops. Even worse, you could discover old industrial land with hazardous or environmental waste that’s been left forgotten for those decades the land has sat empty.

Always be on the lookout for farmland that has a good track record of production if you are looking to grow crops on it.

Locate resources near the land

Valuable farmland is well-connected to resources but also to roads themselves. Great land not only produces high yields, it’s also accessible.

When deciding whether you want to put in a bid or make an offer on available land, consider whether it has good access to resources, such as water, electricity and natural gas. These can often be critical in running an efficient farm operation.

You will also need to consider how accessible the property is. Is the land easy to get to from your other land? Or is it out in the middle of nowhere?

How is the land zoned?

Here’s a key question to ask: How is the farmland that you are looking at zoned?

Make sure there aren’t any restrictions on the property that conflict with your plans for the land. Identify any conservation easements that could add more restrictions to land use. These will affect the valuation of the land.

You may also need to check county subdivision laws for rural property if you are buying with the intent to subdivide in the future.

Ask about amenities

It never hurts to find out what else is located on the land you want to buy, including ponds for fishing or wooded areas for hunting.

If it turns out the land does have these areas, though, then you’ll want to learn about who uses those amenities and who has access to the property. Is any of that ground leased and do those leases carry through with the sale?

What makes the most financial sense?

Of course, now it’s time to talk money. Buying the land may not be your best option if renting would actually free up cash for other uses. If leases are looking like the better option, then there is a whole boatload of other farm leasing questions to ask.

It’s also important to bring your banker into the discussion. They will help you decide how much cash to use in the transaction and how to structure a loan if necessary.

Can you afford to buy land?

Here’s the tough question. Can you afford to buy the land you have your eyes on? What does the math say when you get it written down on paper?

The first step to getting these answers is to assess your farm operation’s financial condition. Will you be able to afford any investments or improvements to the land once it is yours? Does the potential return from the land cover the expenses?

These are a lot of questions, but they are absolutely critical to get answered. Rush into a purchase without these answers and you run the risk of encountering trouble later down the road if things don’t pan out.

Get a complimentary consultation

Here at Cotton Grave Farm Management, we know plenty about farm real estate. We’ve been a leader in the industry since 1960 with sales in Iowa, Minnesota and South Dakota.

Our team knows the ins and outs of farming, including knowledge of soil productivity and production potential. You’ll find these characteristics of our service give us an ability to effectively market a farm and analyze all potential purchases.

So, whether you are buying or selling farmland, let Cotton Grave help. We have extensive experience helping both investors and farmers on either side of the transaction. Request a complimentary consultation today.

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