Rent vs. Buy Farm Land: Which Is Right for You?
If you’re a farmer who rents the land you operate on, the decision of whether to continue renting or purchase farm land is likely never too far from your mind.
How do you know when the time is right to make the change?
When to Turn a Land Rental Agreement into a Land Purchase
While every operation is unique, there are several factors to consider when deciding whether to rent or buy land for your operation.
Long-term Operational Decision: If you know you and future generations of your family will be farming the land it may make sense to purchase the property.
Familiarity with the Land: After farming the same land for several years, you will develop an understanding of what that land is capable of producing. If the land fulfills your production expectations, it may be smart to purchase that property for future production. This understanding and familiarity with the land will also help you determine if the proposed sale price is fair.
Operational Fit: Land closer to home is worth more than an outlier farm. If you have the option, purchasing land that fits within your existing operation geographically is often worth exploring.
Financial Position: Take stock of your current financial position. If your liquidity, equity, and cash flow positions are strong, a purchase may make sense. Keep in mind that purchasing farmland requires significant capital.
Control and Stability: Owning land eliminates the risk of land availability surprises that can arise with year-to-year land leases. Additionally, owning land allows for investment in property and soil improvements that will continue to benefit your operation in future seasons. If these dynamics appeal to you, exploring a purchase makes sense.
Opportunity: Not all people get the opportunity to buy the ground they rent. Being able to purchase the land is about timing and opportunity. It is important to have a good relationship with your landlord to get the opportunity to continue renting the ground until you get a chance to purchase it.
If you are a farmer in the market working through this decision process, the loan advisor team at FBN® Finance is here to help.
With an average of 15+ years each in Ag finance experience, FBN loan advisors are available to talk you through all facets of the real estate loan process and are well equipped to make sure you get the solution that best fits your needs.
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Terms and conditions apply. Land financing offered by FBN Finance, LLC, provided in connection with Farmer Mac and our underwriting partners, and is available only where FBN Finance, LLC is licensed. To qualify, a borrower must be a member of Farmer’s Business Network, Inc., and meet the underwriting requirements of FBN Finance, LLC and its lending partners. All credit is subject to approval and underwriting. Interest rates and fees will vary depending on your individual situation. Not all applicants will qualify.