Friday, November 23, 2012

What Is Your Motivation To Buy Land?

"ie what is your reasoning on a purchase or what details do you consider on a potential purchase?


I ask out of curosity. Have been contemplating another farm, unfortuantly, I as of yet have not figured out a way to make one pay. Need the land but snowballs chance in hell of actually renting land around here, only alternative is purchasing, which is more attractive and equally unfeasable at the moment. I just wonder what the rest of you consider in a land purchace, what motivates you?"

My response-"My reason was I had none. I owned very little in fact and one needs land to farm. Land has always been difficult to rent here so owning is about the only way to get in. Now making it pay as you said, is a whole different ballgame.


Wanting is one thing, necessity another but it must cash flow. You must figure out a way to cash flow it to finance it since most of us can't buy it outright.

The best thing we have going for us is high grain prices, fairly stable inputs this year and the lowest interest rates I've seen in my lifetime. That also is true for all of my competition so someway I must figure out an edge on them and make it work.

Another motivation is I trust my ability to produce income from land more than I do the bank, stocks, machinery or any other investment out there.

Producing a profit is what Ag Talk is all about to me, with some good friends on here, too."

Let's look at land from strictly a payback proposition for farmers.  How do you figure what it takes for land to cash flow?

This was one of my jobs as an Extension Agent in the 80's and 90's.  I was able to write a grant for a laptop computer that I took to the University where it was loaded with software, mostly written by Extension professionals.  One of those programs was one where you entered your data and came up with the maximum amount you could afford to bid on a piece of land, rental or ownership.  Of course, the output was only as good as the input and this could be done on legal pad.

Most programs only figure your payment.  They are basically a mortgage calculator.  The important part is how much income you can produce from a piece of land and how accurate is your forecast.

We will discuss this tomorrow.

Ed



4 comments:

  1. I'd say at today's prices for farm land there is more incentive to sell than buy. Land prices have gone sky high here in Sask. lately.

    ReplyDelete
  2. Yes, Ralph, it has been a motivation for many to sell here the last 10 years. Lots of farms have traded hands over that time. It has slowed down greatly here and parcels are more difficult to find today.

    Any market takes a willing seller and a willing buyer to operate.

    Ed

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