Posted by picassomcp on January 13, 2019 at 21:07:49 from (172.58.87.111):
I have the opportunity to purchase an 80 acre parcel real close to me. It has been farmed by a BTO for at least 10 years and probably longer. This is a decent 80, 75 acres of it are tillable, this BTO has been paying very high (too high I think) rent on this piece. I talked with the land owner about buying the property as I heard it was for sale. Landowner confirmed that the piece was for sale, he said he wants $3,000 per acre. I thought his price was a bit high for our area, but not by much. Landowner said the BTO made him an offer of $2700, but he just would not sell for that price. Just for the heck of it, I decided to run some numbers on ownership. It turns out that it brings in almost enough to cover the cost of a mortgage on the property! Annual principal and interest payments on a 30 year schedule + annual property taxes equals only $4,000 per year more than the annual rent income! I would have to put $25,000 down to reach those numbers, which I could do, however, I could pay down other debt with that money which is what my original plans are/were. Running these numbers kind of makes me want to buy the land, but I'm just a bit hesitant.
I have wound down my farming practices, its just not profitable enough to continue being that I am such a small farmer. It also takes me away from my other business that does pay the bills. I still love agriculture and would like to have some connection with it while the kids are still in the house. I just turned 40, so hopefully have many years ahead of me yet. Also, I believe that this could be a great investment that could payoff great in years ahead.
While excited, I do have some concerns. First is, the land rent currently being paid is on the high side of what area land rents for. With grain prices the way they are, could land rents drop? It seems that never happens, but it sure would change my numbers if it did. Also, I just need to sit down and see if that is really the best use of the down payment funds that I would be using. Those funds were supposed to be used to pay down another investment property (house) but if it makes sense, I could use it for a down payment on the land.
Just looking for others thoughts here, it seemed crazy to me that I could buy bare land that nearly pays for itself each year right from the get go. It really gets my attention, but I continue to think on it. I feel I need to either go for it, or let it go real soon. I am thinking that this is one of those opportunities I will regret later in life if I don't go for it now, however, will buying the land drag me down too much in the next few years and in turn cost me more than its worth? Looking for others thoughts on this.
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