AgCountry Farm Credit Services / Grow / June 2021
Should I buy Farmland?
Loan officers are often asked by farmers and nonfarmers, “How can someone afford to pay that much for land?” or “Is it possible to pay $X,XXX per acre for land?” And often our answer back to them is, “It depends.” With recent land values on the rise, these questions are on the forefront of many people’s minds. Every operation or borrower we work with is different. Yes, they have many similarities, but each are unique in some way. Financial position, off-farm income, and long-term goals are all examples of differences we see amongst our members. These differences are key factors used to evaluate the feasibility of purchasing land. Below are a few items we often discuss and review with our members during a land purchase.
Written by Ross Hebrink, VP Loan Officer
as security depends on the appraised value of the property as well as the size and length of the loan. Last, but most certainly not least, the borrower needs to show the ability to repay the loan. An analysis is completed using the borrower’s financial information. This analysis includes a realistic projection to determine if the borrower has the repayment capacity to service all debt obligations both existing plus new. A borrower needs to know and understand the impact to one’s overall land costs and break-evens.
History has shown that purchasing farmland has been a good long-term investment. Like the stock market, there will be ups and downs in values along the way. However, over a long period of time, farmland is an asset that has consistently First, we need to decide how much the borrower appreciated in value while also offering the owner is willing to spend to own a piece of property. the ability to generate income. With many land purchases in the seven figures, borrowers need to be comfortable adding this Just remember there is never a standard “right” amount of debt to their operation. A land purchase or “good” price for farmland. What’s “right” or may often limit one’s ability to make any significant “good” for you may be different for someone capital purchases in the near future, which needs to else. Of course, everyone wants to pay as little as be taken into consideration. possible for land; however, paying more per acre for farmland of similar quality than someone else Second, a loan structure needs to be established. doesn’t mean you overpaid. If one can afford the The length of a loan is determined based on purchase and it makes sense for their situation, they affordable payment amounts. The payment paid the “right” amount. There are many items to timing is then set to match when income will be consider when purchasing land and many factors received. In addition, we may explore financing that contribute to the final price. In many cases, options through partnering entities such as joint these factors carry an inherent value that cannot loans through the Farm Service Agency (FSA), be calculated on paper. Rural Finance Authority (RFA), Bank of North Dakota or the Wisconsin Housing and Economic If the opportunity arises and you’re looking at Development Authority, if applicable. buying land, be sure to contact your AgCountry loan officer to help in this important decision that Third, collateral for the loan will be required. is unique to each operation. Determining which parcel(s) of land will be pledged
$64 Million Paid out in Patronage in 2020
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