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Rachel Bevill-Cottrell | 2022-12-20

Commonly Asked Questions When Buying a Farm

Commonly Asked Questions When Buying a Farm

For some farmers, buying land can be a major step toward claiming autonomy over their future. Operating a farm is extensive and requires significant expertise, but many renters don’t realize that owning your own land comes with a new set of considerations. If you’re ready for the responsibility of ownership, we can help you through the hardest part: buying the right farm.

Contents

What are my farming options?

What type of farm should I buy?

Where should I buy land?

What will the internal infrastructure and maintenance cost?

How do I finance land?

What else should I look for?

What are my farming options?

First, ask yourself how you want to manage your farm. Will you be the principal operator, or will you hire an operator or a cash tenant to run the farm for you? A farm operator handles the day-to-day management of the farm and makes decisions about crop rotation, equipment upkeep, harvest season, fertilizer choice, and everything in between.

Often, if the owner of the farm is not the principal operator, they will allow a tenant to assume those responsibilities or hire a farm manager to operate the farm so they can remain hands-off from the day-to-day management.

To decide which scenario is best for you, consider the following:

  • Will you be buying this farm as a primary source of income via the yield of each harvest?
  • Or will you be utilizing the farm as an investment strategy to slowly compound wealth through appreciation and rents?

Depending on your motivation for owning a farm, the looming decision of who runs it may be answered for you. If you’re relying on your farm as your primary source of income, you will need to be the principal operator to secure the entirety of that cash flow.

Making this distinction before buying a farm will help you determine the size and location of your future farm.

For example, depending on your experience, if you are operating your own farm, you may only have the capacity to operate a small property. If you are hiring a more experienced operator or farm manager, you may have the capacity to invest in a much larger farm.

What type of farm should I buy?

Ideally, you should have an idea of what you want to grow on your farm before you buy the land. Are you an expert in row crops like soybeans, corn, and wheat? Or is your skill-set more tailored to a permanent crop farm? Likely, if you’re deciding what crop to grow, you may be relocating or moving to a region that you’re unfamiliar with. The crop type will dictate the type of soils, irrigation, and topography that your farm will need.

For example, avocados may be a lucrative crop to grow in California, but if you’re buying land in the Delta, you will have to look at the crop optionality for that specific region.

Timeline and Needs of a Row Crop Farm

Row crop farms are planted annually and harvested annually. One benefit of this crop type is the shorter timeline associated with harvesting annually (and sometimes biannually). However, depending on the soil and the type of row crop planted each year, you will spend more money on fertilizer than you might spend if you’re operating a permanent crop farm.

Timeline and Needs of a Permanent Crop Farm

While permanent crop types do not have to be replanted annually, they may take longer to mature. Take grapes as an example: If you buy an unplanted farm that has soils and water access well-suited to growing merlot grapes, your business plans should allow three to four years for the crop to mature before anticipating your first harvest and yield.

Where should I buy land?

If there were one perfect place in the world to start a farm, there would be no land left for sale in that area. Luckily, there are many, many regions, and even micro-regions, that harbor above average soils and the capacity to host robust, well-rounded farms.

Deciding what crop type you have the knowledge, time, and conditions to grow will help you decide where to buy land, but first, you should determine whether location really matters to you.

If your dream is to buy land near your hometown in Indiana, you may be more limited on the types of crops you can grow. If sentiment doesn’t play a role in your decision on location, you may have more autonomy on the type of crop you invest in, and your search will remain more open to various areas across the country that will better support the crop you choose.

What will the internal infrastructure and maintenance cost?

Once you’ve determined the type of crop that you will be growing and where you want to buy land, you should consider the type of farm you want to buy. You may want to ask yourself:

  • Do you want a fixer-upper where you can invest in property improvements to force appreciation? In this case, your farm may cost less capital up front, but require significant capital investment into improvements in order to reap an adequate harvest.
  • Do you want to start from scratch and build your operation from the ground up? Buying undeveloped, tillable land will cut down on purchase cost, but will require extensive capital investments into equipment, irrigation systems, and internal infrastructure.
  • Would you prefer to buy a farm that is already in working condition and resume operations as you see fit? While this type of farm may be more expensive on the front end, you are less likely to need as much capital for improvements, implementation, and maintenance.

Each of the aforementioned scenarios come with their own set of trials and tribulations, but you will have to decide which type of farm will best fit your individual needs.

How do I finance land?

Determining the best lender for your situation is a painstaking process. There are countless options, but what will work best for you? Here are some questions you can ask yourself:

First time farm buyers

First time buyers may be qualified for Farm Service Agency (FSA) grants, loans, and incentives that offer low interest rates and other perks unique to beginners. The FSA allocates a portion of its capital every year to helping farmers within the first ten years of their operation secure good ground, foot operation costs, and market their new business venture.

Other Lender Options

Even if you aren’t a first time farm buyer, there are countless lenders that provide farm loans with incentives. For example, Farm Credit Services System offers nationwide and state specific loans that may qualify you for patronage checks.

Instead of getting a loan through the first lender you talk with, shopping around with various lenders will help you find an interest rate and program that works best for your situation. Depending on the lender, buyers can select financing options like monthly, quarterly, bi-annual, or annual payment plans.

Finally, equity financing can be an option in certain situations, such as for growers with an established business who need land to expand.

What else should I look for?

Doing your due diligence before buying a farm will save you time, money, and heartbreak in the long run. While we have covered some first steps to choosing the right farm for you, there are countless other considerations to keep in mind. Review this list of potential points of contingency:

  • Water rights
  • Crop optionality
  • Crop insurance
  • Irrigation systems
  • Acreage
  • Soil analysis
  • Drainage systems
  • Crop history
  • Grazing history
  • Pesticide usage
  • Blight/disease history

These are crucial points to consider because many of them would require extensive capital, time, and effort to remedy or implement. For example, if you buy a seemingly perfect wheat farm in Colorado and implement a new irrigation system, but later learn that the land has compromised water rights, you may be reliant on rainfall to grow your crops and have to forgo utilizing your irrigation system.

Considering every aspect of an individual farm may prompt even more questions, but just know, when you’re investing in farmland, you can never be too thorough.

Final Thoughts

Buying a farm is not just about picking out some nice land. It is a thought-provoking endeavor that will secure your future capital, wants, needs, and goals. One of the most integral steps in buying a farm is consulting with a specialized land agent that can help you answer the never-ending questions and sift through hundreds of farms until you’ve landed on the right one for you.