W2R
Moderator Emeritus
I don't own a farm, and at my age I know I never will. But it's fascinating to read about!
I don’t own a farm, but I’d like to. 10-30 acres. No livestock, just garden vegetables.
I keep looking but haven’t found the ideal property yet.
I don't own a farm, and at my age I know I never will. But it's fascinating to read about!
Yes. Reading about it satisfies my curiosity 100%!
Well, one acquaintance bought a 50+ acre farm about 5 miles outside the city limits around 20 years ago.
IIRC, in my state if the farm generates $1,000/year in agricultural income everything except the farmhouse is exempt from property tax...one can control a lot of land for little money that way.
AFAIK his estate still gets the "step-up" when he dies so if developers have come out that way by then his widow can sell the place for full market value with no capital gains taxes owed.
OTOH, had a co-worker back around the same time bemoaning the fact that his family homestead in the midwest was falling into ruin...couldn't compete with corporate farms so his family had essentially abandoned the property.
OP here. I don't know why I posted this thread in the first place.
Land is something special. Not everybody gets it, even family members.
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Farming is much different that other family owned businesses. Much, much different. It owns you from the time you can pull a weed or pick a rock or work in the garden.
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Great thread everyone. Thank you.
Stormy.
My 3 siblings and I inherited a 41 acre farm when Dad passed in 2017. It took us a couple years to realize that 2 wanted to keep it, and 2 wanted nothing to do with it.
I don't speak for Stormy..he and I both in our 60's and in the small world category our farms are separated by one county. Our era would have included smaller farms often many within one township. Small dairies or hog farms and the like. Very often everyone goes to church in the same small town. We live where we work so the farm is "home". There is ever vigilant watchfulness it is 24/7 not working of course but on alert for issues. It's inevitable that you want to look like a good successful steward of what you have. A lot of things that make farming different are the internal standards and pressure we apply to ourselves. In fact these issues make a lot of farmers have tunnel vision. Any business that deals with the public is going to be more open to change then your average family farm.There are many family businesses where the family members are totally involved, and identify themselves with the business. Some are passed down through generations, and they have generations of customers, that consider themselves as 'family'. And when those businesses close for whatever reason, the customers seem to get as emotional as the family.
I don't know how you can say it's so different.
But whatever, just different viewpoints I guess.
-ERD50
This has been a better than your average thread on farmland. “Farmland” is such a broad term that it is not surprising to hear so many varied angles & anything said in general might not fit a specific angle someone has in mind. That being said, I have several points in general & a specific near the end.
I agree with Stormy that farming is not just another family business. Granted, there are a few family businesses that bear some resemblance to a few farms…but I’m not here to sway the minds of those who, in Stormy’s words, “don’t get it”. Not sure there are words to convey it. But, it does highlight the emotion that the term packs at times & that can really affect investing mindsets.
Seems to me that most comments have not delved into farmland as a financial investment. I would like to own farmland even if not a sound investment. If your exposure to farmland is from the past, you need to do some research before investing. The demographics of US farmers is staggering; less than 1.5% of labor force is in farming. Average age of farmers is over 57; meaning great turnover in upcoming years. About 2000 acres of farmland a day are converted to other uses than farming. List goes on. Skill set needed to thrive now bears little resemblance to that of grandpa’s era. Technology is amazing & will be even more so if US ever gets broadband where it can be used more. Those entering farming as a profession will need much training, but also ample capital.
So, what of farmland as an investment? I’m too lazy to dig for some of the studies showing how farmland stacks up as an asset class (be careful to understand how a study scopes that term). Over longer periods of time, farmland has some unique characteristics. Total return is ‘near’ that of equities, but the correlation is lower that between equities and other asset classes. It does correlate strongly with CPI. Standard deviation for farmland is lower. Where else will you get that combination? (Trivial to find a time period where farmland underperforms one on one with another asset. Point is a long term view & looking at overall portfolio performance). Farmland is illiquid & many investors are not familiar with the differences (good & bad) that brings.
So, now for the specific. I agree with what Stormy said about estate planning, but I’ll add a twist. Consider the situation in which it seems clear that there is no interest on the part of the heirs to own the land. Sure, at death there will be a step-up in basis. But, there is an emotional aspect of being the one who sells (Yes, I know some have no problem being the one & that may even be the majority of heirs) & the passing of time it can take to get a fair price.
Consider the possibility of perhaps using a conservation easement/trust approach. This can ensure land stays as farmland while giving tax breaks before death. Haven’t explored enough to know real $ impact. Added wrinkle: recently there was a commercial development announced that, if it comes to fruition as expected, would greatly increase value of land several years from now. Might tilt scales toward retaining land & selling post-death…Anyone else look into something similar?
You have a personal but interesting take on owning land. I don't agree with some of you views and question some of your other thoughts and experiences. Not sure if all your holds are in CA but that may be why some of your views are what they are.My observations on farmland investments based on 15 years of experience:
Investing in farmland strictly for returns based on farming activities alone is not really a financially rewarding exercise for most people. It really only makes sense for those who are farmers by trade, have farming experience or have some sort of emotional/sentimental attachment due to family legacy that override pure financial considerations.
The big payoff from farmland investment is almost always due to converting farmland to some other use (i.e. development). Obviously, this is very location dependent, and really only applies to farmland in the path of urban or suburban growth. Yes, farmland value can and does appreciate over time, but the big payoff is always due to the land being converted to other, more lucrative use.
There are other ways to monetize farmland such as minerals, wind/solar energy, granting easements, etc., but these are hit and miss and can't really be counted on or planned ahead.
For DW and me, our farmland investment philosophy is this:
-We always pay cash and never finance.
-We maintain a core financial (i.e. non-real estate) portfolio that provides us with a FATFIRE lifestyle. All money that we use to investment in farmland is money that we won't need for our retirement. This ensures that if our investment goes sideways for whatever reason, we can still comfortably FATFIRE.
-We only buy farmland that (we think) are in the path of suburban growth with future development potential.
-We have a long investment horizon (20+ years) and are looking to pass our farmland investment down as legacy to our kids. However, we will opportunistically sell/subdivide our farmland investment if returns are good.
-We generally stick to one geographical area in our farmland investment; this is to leverage the local infrastructure (e.g. contractors, community and government contacts, knowledge of local RE market, etc.) that we've built up over the years.
I'll admit that our investment approach is hardly scientific and not based on any real-life data or stats. But our approach is based on years of investment experience and it has really worked well for us. Also, we've had some really lucky breaks along way (e.g. outsized compensation for easements).
In general, I would say that farmland investment doesn't sense for the vast majority of people. One has to have a lot of capital, a long investment time horizon, a willingness to build up what we call an investment infrastructure, and the time/patience to deal with the mundane and often times tedious management stuff (e.g. filing/renewing ag exemptions, dealing with wildlife management requirements, negotiating easement compensation, handling contracts with tenant farmers, dealing with illegal dumping or hunting, dealing with stock intrusion, fixing broken fences and fixing pond damages because of beavers---the list goes on and on). Otherwise, give it a hard pass.
There are many family businesses where the family members are totally involved, and identify themselves with the business. Some are passed down through generations, and they have generations of customers, that consider themselves as 'family'. And when those businesses close for whatever reason, the customers seem to get as emotional as the family.
I don't know how you can say it's so different.
But whatever, just different viewpoints I guess.
-ERD50
How many of them woke up there 10 year old children and pulled a calf at 2 am...
Who else stood on a state highway as the cattle were on the road dodging semis?
Who picked his dad off the road when he got hit by a drunk driver ?
I did it all before I was 10. Then it got serious.
Stormy these examples you posted aren't the best I don't think any of those you listed are the purview of a kid that isn't even double digits. It's my opinion that even a farm kid needs to be a kid until they hit 13. Yes you can have a pet horse or a 4H animal but it's not a kids job to farm. Farming is a dangerous profession and its for adults...hope we are still friends!