I’m getting the itchy trigger again to purchase some farm land.
I won’t be able to farm it, so I’m looking at land that is currently rented by someone who knows what they are doing farming wise.
Could someone give me some advice on things I should consider when I’m looking at a piece of property with respect to the rental of it?
I suppose I will happily take any advice you might have to offer, but I’m looking more specifically about what I have to look out for with respect to renting it, or keeping the current renter.
For example: A piece I’m looking at is being cash rented for $175/acre for the next 3 years.
I’m sure I want to see a contract; I’m sure I want to talk to the tenant about their plans BEFORE I buy…but thats all I’ve got. How do the contracts normally work? Is it common that ‘improvements’ need to be picked up by the owner? If so, whats a common improvement? Fencing? terracing and tiling? Liming a field? fertilizing? Who pays for what? and what things should I consider, when I go to the real estate agent with an intent to make an offer?
Having been at various times both a tenant (operator) and landlord (owner) of farm properties, I can address the questions in a general way, but be aware that farm rental deals are highly individualistic and can vary widely with location and nature of the parties involved.
In the first place, if you buy the farm in question you are purchasing the rental contract and all its conditions. You are probably locked into the agreement for the next 3 years. On the plus side, this provides you with a guaranteed income from the property for that time.
Generally, in a cash rent situation the landlord is responsible for infrastructure improvements (fixed buildings, irrigation structures, land leveling, permanent fencing etc.) as well as fixed costs (mortgage payments, taxes, water/drainage charges etc.). The tenant is responsible for operating costs (seed, fertilizer, labor, equipment, weed control etc.).
A popular alternative to cash renting is a sharecropping agreement in which the landlord & tenant form a partnership and share both costs & returns. This sort of arrangement can have widely varying conditions, but in its simplest form the landlord pays water, taxes and fees, the tenant provides implements and labor, they split the seed, fertilizer and other direct annual costs and also split the income. A sharecrop agreement has some advantages to both parties. The tenant only has to come up with 1/2 the up-front money…an important consideration for younger operators or others that have difficulty obtaining credit. The landlord has an increased stake in the operation, and should a bumper crop or upswing in market prices occur, stands to make much more return than the simple $175(or whatever) per acre. On the other hand, the parties also share risks and if either one gets into financial trouble or a bankruptcy the other is invariably drawn in…and such things can get very messy indeed.
SS
Sigene, geographically where is the land that rents for $175/acre? Is that like $175 per tillable acre or is that an average derived from a total rental rate for all the land, and some of that acreage includes farm buildings or other improvement?