Family Farm

[PaulNZ]

Hi, I have enjoyed reading these forums and have found many issues relevant to me being discussed.

Their seems to be many Mega-Corp employees here and not many farmers and I wonder if anyone is in a simular situation to myself.

Background, in the mid/late 1980's sudden and complete removal of farming support coupled with 20% + interest rates caused many farmers in my country (New Zealand) to go bankrupt, land values tumbled, profits non existent.
In the early 1990's having come from a farming background, I decided to leave my 'town' bank job of 5 years and become a farmer (workmates at the time told me I was making a big mistake), their was still a lot of blood on the floor & land was not selling well. I had always been a bit of a saver with cash and managed to have a deposit for a neighbours 100 acres of land adjoining my parents farm. Over the next 10 years I increased my land area by buying land at market rates from my parents.

Cashflow has been tight, the interest paid on my mortgage insured I have never had a tax problem, however my family have never missed out on anything (however for the first 10 years it was hard, people unemployed had a higher disposable income then we did).

Capital gain has been good, in the 1990's when I was buying land it increased at an average 5% per year, since 2000 it has increased to 20% per year (there is no capital gains tax in New Zealand).

Even though I have farmed for 17 years I have never considered myself a 'real' farmer, and now I am considering options.

My farm is in two blocks- the home block has been the family farm for four generations, the away block has not got the same family connection.

I am thinking about selling the away block, this will-
-leave me a mortage free home block. This block will provide me with a enjoyable,healthy part time job with about a $60K profit ( a 2% return on land value before my salary!!! - that's farming for you),
-give me a large amount to invest in the bank - will return over $300K per year (New Zealand has the highest interest rates in the OECD, our dollar is so high because many overseas investors invest their money here to take advantage of our 8.8% government owned bank deposit rates),
-time to assist my wife in our small town business.

We currently spend $36K per year, NZ/US exchange rate US$100= NZ$130, I am 37 years old and have 3 young children.

For the first time in my life this will give me disposable income (the interest bill on farmland has always eaten away the profits) and a chance to pursue other interests and activities. While I will still be working part-time, I consider this new lifestyle compared to my current to be early retirement.

However I have issues with the whole family farm thing - the build it up in 'quality and size' for the next generation type ingrained mentality. My family and farming colleagues perceptions of me, and the fact that farm values may keep increasing leaving me, in comparison behind them. The 'you can only sell it once' syndrome, and my main concern, the fact that by doing this, most likely means that no future member of my family will ever have the chance to have a large scale farm again.

Has any one any thoughts/experience on this family farm/family business issue.

Regards.

 

[sailor]

Welcome

Welcome to the board Paul.
Where in NZ are you?

If you think you might regret the sale in the future - would leasing the land to other farmers (provided they are any interested parties) pay enough for mortgage and taxes? This is what I do with my "vacant" land I don't want to get rid off - I rent it to local farmers who get the hay from it.

Probably your kids are too young to decide if they want to continue the family farm, from my experience (totally different part of the world though) if the kids are given option to do something else than farming they choose it instead.

300k per year comparing to 36k expenses is great, so if I were in your shoes I would definitely sell If my kids wanted to be big landowners in the future why would I want to give it to them on a silver spoon?

Also - Do you plan to keep your expenses low as compared to income?
If yes - I would keep your plan with investing in NZ govt bonds, but if you plan to significantly increase your expenses you might want to rethink your investment strategy - while now 8.8% is an excellent rate (and NZ dollar is strengthening) , it might not be enough in long term to prevent from inflation eroding your purchasing power.

sailor

 

[Sarah in SC]

Paul, I worked on our family farm and I have no regrets that my father sold it when it became unprofitable to operate. Sure, I would have loved to work there the rest of my life (I thought at the time), but I see now that it made it possible for me to experience so much more in life than I would have by staying on the farm, so to speak.

Go with your gut, I think you've answered your own question. If my father had "held on", I wouldn't be contemplating FIRE nor created my own dreams--I would have been following his dreams instead.

On another note, the nicest two weeks I've ever spent were evenly divided between the North and South Islands several years ago. I particularly enjoyed the sheep farms and getting to see Border Collies doing their jobs.

Good luck in your decision, I know it was tough on my dad, but he returned to his second love, teaching, and now has a comfortable life with a retirement, etc. that wouldn't have happened if he'd stayed farming.

 

[twaddle]

So, you can work your land hard for a 2% yield. Or you can sell it, stick the money in the bank, and get an 8.8% yield?

That's a tough one. (Kidding -- I'd sell in a nanosecond.)

 

[FinanceDude]

So, you can work your land hard for a 2% yield. Or you can sell it, stick the money in the bank, and get an 8.8% yield?

That's a tough one. (Kidding -- I'd sell in a nanosecond.)

 

[Hamlet]

Yeah, I'd sell the excess land. I would suspect that if your children want to farm on a large scale, there will be a time in the future that you can buy more land at favorable rates.

If the economics of farming don't support the current high land prices, I would guess that those prices may be lower in the future.

Either way, being a small farmer with a massive amount of money in the bank seems better than being a big farmer to me.

 

[bssc]

Welcome.

Tough one. My wife's family finally sold off their shares of the farm a couple years ago. It too had been in the family for 4 generations but they were not planting anything on it, just collecting crop subsidies which were about 12% compared to your 2%.

If I were you, I would sell off the land but, as others have mentioned, keep the family block