March 11, 2019
A landowner recently asked me where was the best place to buy
farmland right now. For such an easy sounding question, it is actually a much
harder one to answer. First, the land buyer must be clear in their goals. Do
they want to buy and hold long term or buy and sell after holding for a shorter
period of years? Are they looking for the
best quality farmland that normally has the higher price tag, but better
performance in downtrending markets with a better
upside appreciation potential? Is the land to be for income purposes or also
for recreational use? Does it matter to the buyer to have close proximity in
order to visit the farm or can the land be almost anywhere and the owner use
professional management services to oversee the operations? Of course these
questions come in conjunction with the overriding one question that has to be answered.
How much do they want to spend?
After these questions, there comes the one that all land investors should have
in mind from the start. What return on investment (ROI) do they want? As we
know, the ROI on commodity crop farmland has declined over the past number of
years with the lower grain prices. Permanent crop farmland will usually
generate a higher ROI than grain crops, but the land costs more, fixed and
variable input costs are much higher, and management is much more intense.
Investment in permanent crop type farms is more expensive and specialized, so
the average land investor probably will not go that route, but concentrate on
grain producing cropland.
To give a good answer of where to buy farmland, one has to understand all of
the above and more. Then there are the inherent differences in regions for
productivity, values, and market activity. Once you add in the characteristics
of the individual farm property and the local land market dynamics, you find
more items to take into account when investing in farmland. All of this points
to the necessity of having either a good knowledge about land investing or the
need for a trusted land advisor or broker working on the behalf of the buyer.
President - Real Estate Operations
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