FAQ About Farmland
According to the AG Web Farm Journal, the USDA indicates that farm real estate values in the US are up 7% overall in 2021. But even with inflation, farmland is still a safe investment and will continue to grow in value. But investing in farmland comes with lots of questions. We’ll tackle the most common FAQ about farmland and answer why you should invest now.
#1: Should I Rent My Farmland or Own It?
If you are looking to expand your tillable acres, you have two options as a farmer: rent or buy the farmland. To determine if you should rent or buy, you first need to calculate the farmland’s cash rent equivalent (CRE). The CRE helps you to compare the cost of owning the land vs. renting.
To calculate the CRE, you need to add all your real estate principal and interest payments with the real estate taxes for that year (This includes any farmland you already own or are financing and the new parcel of land you want to buy). Then divide that number by the total number of acres you would own if purchasing the land.
This gives you a per acre cost of your farmland investment. The CRE doesn’t include operational, improvement, or labor costs because you would incur those costs if you owned or rented the land.
If your CRE is higher than your cash rental rates per acre, you should rent the land until you have more working capital. If the CRE is lower than rental rates, it will make more sense to purchase the farmland.
Related Link: Farmland Valuation: How to Appropriately Value It
Benefits Of Renting
Some of the main benefits of renting farmland include:
- It’s often much cheaper than purchasing the land.
- You now have more capital to buy equipment, crops, or livestock.
- You can generally negotiate the best lease terms for the land, such as cash rent, crop share, or flex rent.
- If you’re just starting in farming, renting is more affordable, and the landlord may have helpful knowledge and management skills that can help you.
- You can negotiate a better lease on renewal based on the financial profitability and obligation for the land.
Benefits Of Owning
There are several benefits of buying farmland:
- You’re in charge of the management decisions and determining the farm practices and improvements for the land.
- You don’t have to worry about terminations or renewals of the land-rent contracts.
- Buying allows you to build equity, making financing easier for other purchases.
- Build long-term wealth from land ownership.
Want to diversify your investment portfolio? Contact Land Income to learn more about their farmland investment opportunities.
Related Link: Farmland Investing for Portfolio Diversification
#2: What Kind of Farmland Should I Acquire?
Deciding what type of farmland you should acquire largely depends on what kinds of crops you want to grow, if you’re going to raise livestock, and the soil that’s available. You’ll want to have the soil tested because soil content is a significant factor in determining what crops you can plant.
There are seven types of soil you should be mindful of when deciding what kind of farmland to acquire:
- Loam: Light, airy soil that can grow various vegetables.
- Sand: Sandy soil drains sharply, so it’s good for root vegetables, herbs, figs, and pomegranates.
- Loamy Sand: A combination soil that has good drainage and nutrients, making it ideal for vegetables like tomatoes, beets, leafy greens, and carrots.
- Clay: A dense and nutrient deficient soil that is difficult to grow most fruits and vegetables. A few things grow well in clay, such as broccoli, cabbage, walnut, maple, pear, and cherries.
- Silt: A nutrient-rich soil that is good for vegetables, fruit trees, and berries.
- Chalky: Chalky soil has high alkaline levels and can harm crops if it isn’t corrected. Some vegetables like cabbage, corn, spinach, and beets can grow in this soil.
- Peaty: Peaty soil needs some correction where compost and lime need to be added to make it good growing soil. Once corrected, it is suitable for growing spinach, cabbage, root vegetables, and legumes.
Related Link: What You Need to Know Before Investing in Row Crops and Permanent Crops
#3: How Do I Obtain Property Rights For My Farmland?
The Farmland Information Center offers valuable advice on how to obtain and protect the property rights for your farmland. There are several things you can do to protect your farmland through agricultural conservation easements and land trusts.
Your state and local governments also offer protections toward preserving farmland property rights. You’ll want to contact your local government to find out their processes, policies, and procedures for obtaining property rights.
#4: What Are Environmental Concerns I Should Know About?
There are several environmental concerns that affect your farmland and vary from state to state. Some of the more common hazards are:
- Pesticides
- Soil Erosion
- Wildfires
- Flooding
- Drought
These natural hazards can significantly affect your farm’s profitability and ability to grow crops. You’ll want to research what environmental factors are common in your area before purchasing.
#5: What Kinds of Income Can I Make From My Farmland?
Aside from farming your land, there are lots of ways to monetize your farmland without working the land:
- Rent or crop share your land.
- Host billboards on your farmland.
- Host cell towers, solar panel fields, or wind towers.
- Harvest Timber for lumber companies.
- Store heavy machinery or vehicles for other people.
- Open a campground on your farmland.
- Lease your land to hunters.
- Rent plots to community gardeners.
- Host holiday festivals.
Are you interested in generating passive income from your farmland investment? Learn more about Land Income’s profitable farmland investment opportunities in California.
Related Link: 10 Farm Income Ideas for 2021
Conclusion
US Farmland has shrunk 7% in the last eight years, while farmland value has significantly increased. As the farmland supply diminishes, farmland will only become more valuable, making now the best time to invest. But before buying or renting farmland, you’ll want to:
- Calculate the CRE.
- Test the soil to know what you can grow.
- Research what environmental hazards are typical for the area.
- Secure property rights.
- Find other ways to monetize the land to offset tough growing seasons.
By doing your homework, you’ll be in an excellent position to farm your land successfully. If purchasing the farmland seems too risky, there are other ways of investing in farmland without having to work the land.
Land Income maintains efficient, low-cost operations utilizing the latest technologies to increase profitability and reduce annual farming operating costs. Check out Land Income’s latest farmland investment opportunities.
Related Link: The Beginners Guide on How to Buy and Sell Land
