Land is a hard asset. It is a good steady revenue source for the landlord. I would much prefer land over a rental house.
Lots of uncertainty. Volatile.
Farmland
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Land is a hard asset. It is a good steady revenue source for the landlord. I would much prefer land over a rental house.
Lots of uncertainty. Volatile.
then how is i overvalued?
or do people simply mean it's priced higher than they'd like and they can't afford it?
Simply put, when the farm next door comes up for sale, which happens about once a generation if you are lucky, farmers throw economics out the window and pay what it takes to buy it. Many farms in Iowa have been owned by the same family for over 100 years, so opportunities for expansion close to your home base are limited.
The economic term for this would be a limited supply of farms on the market, which has artificially held the market higher than "where it should be."
A few of the reasons, or at least the mentality that leads to the reasoning;
1. The "They're not making more land" or "This chunk will never come up for sale again in my lifetime" mentality.
2. Two or three neighbors duking it out over the neighboring farm.
3. As previously explained, land is the last ag commodity to "correct." When and how much it happens remains to be seen.
4. Investors were in large part responsible for driving the land values up based on business decisions. Farmers are the ones that are keeping it there with emotion.
5. Long term tenants that feel like they've already paid for the farm over the years they've been renting it, so they want to have the land to feel like they have something to show for it.
6. There was a lot of cash built up in the ag sector from ~2008-2012. Depending on how well healed some older operators were prior to that time frame, they may still have a good portion of it left and land is the most likely place for them to spend it. That purchase will have very little to do with the economic viability of the decision.
I'm not saying I agree or disagree with any of the above, nor is this list all inclusive, but these are all reasons I see and hear when people are discussing land purchases.
This is a pretty good summary. The only thing I would challenge, at least in my area, is that the farmers drove the market up in the first place and the investors were just along for the ride.
Agree. Farmers got carried away. Money fell from the sky in the glory years. Some farmers figured those prices were here to stay. Lots bought new equipment and financed it and expensed the depreciation.. Now they are paying off the loan and there is no depreciation since it has already been deprecated.
Some farmers are broke and just don’t know it yet. Unless they can hit the jackpot again.
In a few years he wife and I will inherit a good amount of farm land in SE Iowa and I can't wait to sell it. The inlaws would have already sold it except that their basis in it would be so low they'd have to pay a good amount of capital gains, so they are just collecting the cash rent and holding the land so that when they pass we will get the stepped up basis and can sell with no capital gains.
Fair enough. I would probably revise my statement to say that investors were more of a factor on the way up than they are now.
This is something i've thought about a fair bit. If you inherit productive soybean/corn land that is currently being leased and brings in say, $35,000/year. You could sell it for $600-700K and cash in. But it is free land with a steady income that could be passed down to your children in hopes that they would also have sustained benefits. And its a tangible thing that you own and could use if ever needed.
My brother has indicated that he would opt to cash in.
I'm curious, why can't you wait to sell it?
Investors fueled things also. Emotion and euphoria.
Know a guy who had 420 acres free and clear. He purchased 80 acres for $1 million. In essence he now owed $2,000 per acre on the 500 acres he now owns. IMO he was better off with no debt. But that is just my opinion.
Whether they ended up with the ground or not, investors were driving up bids during just about every land auction for a 3 to 4 year period. They were just a lot better at dropping out when they hit their limit.
If you own land keep it. When your children inherit it they can deduct fence and tile all over again with the new cost basis given at death. Deduct excess fertility also. Deductions will come off the new cost basis. That is if your children keep it.
With the Estate Tax exemptions so high now there are very few farms that even pay any estate tax. So the money from the sale of the land is tax free. No capital gains tax. Pocket the whole pile of money with no tax. Tempting to get all that cash upfront.
Right now it is being cash rented for $200/acre to a neighboring farmer. They aren't currently looking to make a lot from the land but just make something on it until they pass it to us.
As for your question, why can't I wait to sell it, because I don't want to deal with the land and would rather just have the cash sale.
I have a client who just inherited a bunch of land, it was appraised for $8000/acre and they sold 50 acres for $8800/acre in order to pay off the mortgage and Iowa inheritance taxes (it was a weird situation) and they are planning to keep the rest and cash rent it. If I was them I would have sold it all took the approx. $2 million and not have to deal with the hassle.
You know when people ***** about farmers "not caring about the land" and "ruining the environment?" It's a government program aimed to help that.
Then people ***** about farmers "being paid to not farm."
After doing a little research I think found out which farm you are looking at. If I am correct, that farm floods and is very sandy with a CSR of about 49 which is well below average. It looks like the current owner put it in CRP at the perfect time to get decent income on such poor ground, which has inflated the asking price on that farm. After the CRP income runs out in 2026 you have serious downside risk.
IMO that farm would be worth about $4,000 per acre if it wasn't in CRP and I wouldn't pay over that to buy it right now. You can either get a much better farm for the same money, or get a higher return on low quality CRP land (should be more like 4-6% elsewhere).
Farminclone or anyone. Anyone have an idea of what the average or median CSR would be for most crop ground?
I get into a pinch sometimes as the dividing line between residential and farm use gets really blurry. For instance, I'm staring at a parcel that they are building a new house on but the assessor lists the best part of the ground at 5.7 ac of 69 CSR. I think its likely too small to mess with even at 100 because its never been "farmed". Of course I can't do farm appraisals due to state regulations but they won't touch a definition with a 10' pole. Typical government creating problems.
I get into a pinch sometimes as the dividing line between residential and farm use gets really blurry. For instance, I'm staring at a parcel that they are building a new house on but the assessor lists the best part of the ground at 5.7 ac of 69 CSR. I think its likely too small to mess with even at 100 because its never been "farmed". Of course I can't do farm appraisals due to state regulations but they won't touch a definition with a 10' pole. Typical government creating problems.
You know when people ***** about farmers "not caring about the land" and "ruining the environment?" It's a government program aimed to help that.
Then people ***** about farmers "being paid to not farm."
Yeah, I've been one of those people who has said both, but really didn't know what I was talking about.
A few questions... if you depreciate you have to claim that back when you sell, correct?
Sheesh... Does everyone in Iowa inherit farmland? I knows dozens and dozens of people who are "getting land". I'm sure there's a lot more wealthy people out there than we think.
Sheesh... Does everyone in Iowa inherit farmland? I knows dozens and dozens of people who are "getting land". I'm sure there's a lot more wealthy people out there than we think.
https://www.extension.iastate.edu/s...CSR2 (NRCS) Weighted Means v1.1 22May2017.pdf
That should give you a good idea.
From a farming standpoint for ag value, anything under 40 acres would have some value deduction for size. Under 20 and farmers really won’t want to mess with it unless it’s right next to something they already farm.
Problem is that in our situation we have a family farm valued at 1.2 million. My dad and Aunts wont ever sell it so eventually the grandkids will get it but 1.2 divided 10 ways isnt that much.
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