THE
Hitching Post
PRESORTED STANDARD U.S. POSTAGE
PAID
300 Winding Creek Blvd. Mechanicsburg, PA 17050
COLUMBIA SC PERMIT 1160
REAL ESTATE INVESTING
and Closing Costs Gosha Auseichyk, Farm Credit Executive Ag Relationship Manager
FALL 2022
WELCOME TO
Horizon Farm Credit
Thank you for reading the inaugural Hitching Post newsletter of your new Association, Horizon Farm Credit! Local agriculture lenders AgChoice Farm Credit and MidAtlantic Farm Credit merged on July 1 of this year to form Horizon Farm Credit, a cooperative now serving 100 counties in Delaware, Pennsylvania, and parts of Maryland, Virginia, and West Virginia. We are happy to continue offering this publication to readers in our footprint who want to support and learn from like-minded farmers and rural land enthusiasts. I encourage you to check out the educational resources included in this issue, highlighting year-end farm financial planning and real estate closing costs. Horizon Farm Credit is committed to our mission of supporting the future of agriculture by expanding our Farmers on the Rise award program across the new Association’s footprint. Learn more about how to apply for this young, beginning, and small farmer program on page 6. A bright future lies ahead for Farm Credit. If you have any questions about the new Association, or would
Apply to our Farmers on the Rise Award Program for a chance to win $10,000. Selection of winners is based on their efforts in agriculture, financial character, leadership, community involvement, and environmental stewardship.
like to learn more about what we offer, call our team at 888.339.3334.
Applications are accepted now until September 30 at farmersontherise.com or via paper application.
Happy Harvest! Tom Truitt
DO YOU WANT A CHANCE TO WIN
$10,000?
For more information or to request a paper application, call Johanna Rohrer at 888.339.3334 ext. 5277 with your name, address, and phone number to reach you.
Real estate investment is a proven way of diversifying your existing income and creating some additional income. However, if you are an aspiring firsttime investor, there are two things to be aware of ahead of time. First and most important is a down payment, which is typically 20 percent of the purchase price of the real estate. A down payment in cash is ideal, but for strong borrowers, equity in an existing property can be used in place of cash. The second consideration is closing costs. Every time you buy real estate, there are substantial costs involved. Let’s look at the seven most common closing costs.
HOW TO PREPARE YOUR YEAR-END FARM
Financials
Paige Hargett, Farm Credit Ag Relationship Manager
1. Transfer tax A one-time tax imposed by your state
ff EK Y STEPS Before we turn the page on the 2022 growing season, we must first evaluate our business and production performance for the year. Completing a year-end financial check-up will help you analyze your successes and failures, in addition to revealing your opportunities for growth into the next season. Here’s how to prepare for year-end in five easy steps.
1. Update Your Balance Sheet and Profit & Loss Statement A balance sheet is a financial snapshot of your business at a specific point in time. Preparing an end of year balance sheet provides you and your lender with a baseline, and allows for the preparation of accrual adjustments. Accrual financial statements deliver a more accurate picture of your farm’s actual income and expenses, and gives you the ability to recognize relevant expense or income trends. They also allow for the calculation of accurate cost of production, the ability to measure competitiveness, and can help improve planning.
2. Schedule a Year-end Tax Planning Appointment with Your Accountant Working together with an experienced agricultural accountant can help you identify proper year-end planning to help position your farm business prior to filing your taxes. Are you ready to upgrade equipment? Should you prepay next year’s operating costs? Are you planning to purchase a new farm entity or transition part of the farm business to the next generation? It is never too early to begin gathering your financials to prepare for filing your farm business taxes or to set-up a meeting with your accountant to review your financial progress.
3. Review Your Annual Budget and Examine Cash Reserves Once you have completed your year-end financial projections, it is important to compare those figures to your annual budget. Did this year progress the way you anticipated? Did you find yourself with higher input costs or lower projected income than expected? A financial
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awareness of your budget will help you to make better business decisions, prepare for the coming year, and review your cash reserves on hand. It is always a good management decision to set aside three to six months’ worth of living expenses for an emergency fund.
4. Reach Out to Your Farm Advisor Team Every farm has a unique resource team supporting their farm business. Your team may include a financial advisor, farm insurance agent, crop insurance representative, and/ or an attorney. Remember to check in with them as needed – you do not want to overlook an opportunity. Consulting with reliable advisors and completing the current year-end updates will certainly help to support your future success.
5. Schedule a Check-in with Your Lender The fourth quarter of the year is a great time to check in with your lender to discuss your successes and any challenges you faced during the year. We look forward to discussing your future plans or any changes you may have made to your business plan or marketing plan. During your
meeting with your lender, think about two specific areas of conversation: evaluating the best use of debt dollars and reviewing your revolving line of credit. Detailed recordkeeping is imperative for your lender to understand how the year went. Even the bad is welcomed as we want to better position your business for the upcoming year. Our main goal is for you and your farm to be successful. We hope this list gives you an idea of what you should be thinking about during your year-end farm financial checkup. If you’re looking for more information or want to discuss future growth opportunities, give us a call at 888.339.3334.
when property ownership is transferred (unless property is being transferred between family members that are exempt by the state). In Pennsylvania, transfer tax is two percent of the purchase price, and usually the seller and buyer split it 50/50 if the property is being bought through a listing. However, if it is bought at an auction, usually, the buyer is responsible for the full two percent. In Maryland, there is a combination of state and potentially county transfer taxes (ranges from a half to two percent), and recordation tax (ranges from 5/1000 to 14/1000). Recordation tax varies by the county and is calculated as specific dollar amount per each thousand of the mortgage amount filed against real estate. Also in Maryland, there is a first time homebuyer credit if all buyers meet the specified qualifications.
2. Title insurance Usually required by your bank or
credit union that is financing the purchase. It protects you from any potential disputes about the property caused by mistakes in paperwork, fraud, a family member claiming to have ownership in the property, or erroneous surveying. Title insurance cost is set by your state, and it increases with purchase price and additional endorsements. For example, in Pennsylvania, title insurance on the purchase of a $500,000 loan would be around $3,650.
3. Appraisal
If your financial institution places a lien on the property being purchased, typically an appraisal will need to be ordered. Appraisal costs will depend on the type of property. Usually, appraisal of a single detached house or townhome is least expensive. Farmette and farm appraisals fall in the middle, and commercial property appraisals are the most expensive.
4. Real estate tax reimbursement
When you purchase property, most likely the seller already paid some municipal and school taxes, and now you will have to reimburse the seller for those taxes.
5. Attorney or settlement company fees
Attorneys need to pull searches, prepare the deed, and coordinate the flow of paperwork, so the office will charge you for its services.
6. Financing fees
The majority of bank and credit unions will have some costs associated with taking out a loan, due to the process and resources involved.
7. Fire insurance premium If your financial
institution will place a lien on the property, you will need to purchase a fire insurance policy to protect you and your lender from potential losses. However, Horizon Farm Credit accepts non-traditional fire insurance (Amish Aid, Mennonite Aid, and etc.). Moreover, we also accept an Amish Aid policy as a flood insurance, unlike most lenders in the market. As you can see, total closing costs will vary based on your specific transaction. However, here is an example to give a ballpark for closing costs: If you bought a real estate property at an auction in Pennsylvania for $775,000 with real estate taxes of $4,000, you can expect to have closing costs around $30,000. That’s why the best preparation for investing in real estate is to save money or pay off existing debt so you can save money faster. If you have any questions about investing in real estate or want to speak to a lender at Farm Credit to get started, contact our team at 888.339.3334 today.
888.339.3334 | HorizonFC.com
FALL 2022