$6,000 per AU too High?

[IndianCreekcowboy]

Trying to look at this from strictly economically standpoint. If you were already established in the cattle business owned land and leased some, already have paid for tractors, squeeze chutes, headgates, stock trailer, catch pens, ATVs , trucks, etc. etc.

Have a neighbor that has given me a chance to buy, and will owner finance enough land to run another 50 cows. I will not have to borrow money for the cows, just pay him a fair Interest rate of 4 1/2% on the land for 25 years.

Payment would be just under $400 annually per AU, that does not leave a lot to support the cow's expenses for the year even with the high calf prices.

Land in our area is appreciating rapidly.

 

[Anonymous]

Seperate the 2 costs. Land is 1 and cows are another. Don't confuse the
2
What's land going rate now in your area?
Is it all field? Improved, etc. Total acreage

 

[IndianCreekcowboy]

Yes all that I will be buying is open useable grazing land. Land is selling for $3,000 per acre in our area and I can run 1 cow per 2 acres.
Cows are already paid for would move them from a lease.

 

[Anonymous]

Raw land is 3/ acre? Or improved land?
What's it worth to you?

 

[Banjo]

a multi- millionaire in my area said once about land.....none of its too high if you can afford to buy it.
I would say you will have to subsidize it somehow.
If you have 50 cows at two acres to the cow, are you looking at a 100 ac.? You can do the math.

 

[TexasBred]

a multi- millionaire in my area said once about land.....none of its too high if you can afford to buy it.
I would say you will have to subsidize it somehow.
If you have 50 cows at two acres to the cow, are you looking at a 100 ac.? You can do the math.

Never forget...land rich....dirt poor. They're everywhere. :cowboy:

 

[Jogeephus]

I would look at it from the standpoint of whether or not I could make the payments without the cows and if this didn't put me in a bind and the land joined me I'd consider it but I'd also keep in mind how much money you wil have after paying for cell phones for others because you can't just base it on what you gross on the cattle but what you have after you show your generosity to others. Then there is the land tax to consider. Whose paying that? If you, how much will this add?

 

[Banjo]

a multi- millionaire in my area said once about land.....none of its too high if you can afford to buy it.
I would say you will have to subsidize it somehow.
If you have 50 cows at two acres to the cow, are you looking at a 100 ac.? You can do the math.

Never forget...land rich....dirt poor. They're everywhere. :cowboy:

That would be me...........land rich ......dirt poor.

 

[Banjo]

Not so much land rich, but a few acres.

 

[shaz]

Question is... do you want the land. It won't pencil out I can't give an economic reason to buy it unless you want to use it as a family heirloom.

If you REALLY want it I can't disuade you but ...no it won't work in the short term.

 

[cross_7]

I would look at it from the standpoint of whether or not I could make the payments without the cows and if this didn't put me in a bind and the land joined me I'd consider it but I'd also keep in mind how much money you wil have after paying for cell phones for others because you can't just base it on what you gross on the cattle but what you have after you show your generosity to others. Then there is the land tax to consider. Whose paying that? If you, how much will this add?

thats better advice that what i was going to say, but i'd be on it like a duck on a junebug.
land here due to the hunters with deep pockets is 12000.00 to 16000.00 an au.

 

[Jogeephus]

It sounds like a good deal to me too but it really boils down to whether you can pay for it without putting yourself in a bind. Nothing worse than doing this cause it causes a host of other problems. I try not to base any long term decisions on income derived from the price of a single commodity. I doubt the price of cattle will drop anytime soon but I think the inputs are steadily going to rise and suck away the profit margins and coming up with around $20,000 a year after tax would mean I'd have to clear around $28,000 from something just to get the 20 in the boat. Then there is the land taxes. Here you would be looking at an additional $3960/year and I'm not so sure I wouldn't figure in a life insurance policy too. God forbid you pay on it for 20 years and up and die and leaving your family stuck with the bill and they lose the whole shooting match because they can't make the payments. Lots of things to consider. But if you can afford it and if the economy turns around in the least bit I could see you possibly making a 25% gain on the valuation of the land in short order and if you can comfortable afford it I think open land will only continue to increase in value but I can't see myself clearing $640/calf for the next 25 years to make it work.

 

[IndianCreekcowboy]

I really appreciate the advice from all.

Jogeephus; because of the proximity of land to our current homestead it would qualify for Homestead Exemption Tax Credits and Taxes would be only around $1,000 a year.

cross 7; Hunters are what is driving our land prices up as well.

I know it is my decision; but I really wanted to hear some different reasoning.

I guess I just wonder if our land prices are already too high to try and run cattle and have them carry the costs.

 

[TexasBred]

a multi- millionaire in my area said once about land.....none of its too high if you can afford to buy it.
I would say you will have to subsidize it somehow.
If you have 50 cows at two acres to the cow, are you looking at a 100 ac.? You can do the math.

Never forget...land rich....dirt poor. They're everywhere. :cowboy:

That would be me...........land rich ......dirt poor.

:lol2: We can get drunk together. :drink:

 

[Dave]

I see ranches all over the west advertised in the $6,000-$7,000 per AU price range. Some even higher and a very few lower. That is based on their advertised carrying capacity. And that is with housing and improvements.

 

[Jogeephus]

That's good you can get the tax break. Point I was making is to be sure to figure this on after tax money and not just whether you can make the payments based on gross as I've seen lots of people go belly up doing this.

When I'm smoking something like this over I often find it useful to figure things on a per acre basis since everthing else is figured this way. Using this approach I'll divide the annual per acre income by the interest rate to calculate what the land is truly worth from a production standpoint.

With a yearly net income of $100/acre/year the land is worth $2,222
" " $125/acre/year " " $2,777
" " $135/acre/year " " $3,000
" " $150/acre/year " " $3,333
If you play with the interest and go back to say a 9% rate this will show how appealling this low interest rate is on this investment as it increases your cost figure 2 fold to $270/acre and at this amount that also doubles the value of the land.

What I guess I'm trying to say is that if it were me and it was right beside my property and I could clear at least $135/acre/year on it I would consider it a good investment and the land would pay for itself otherwise I'd look at how my diversification could enable me to swing the deal cause I'd be very tempted to pick it up as long as it didn't put me in a bind more on the lines of a long term investment. Not that I'm land greedy or anything like that cause I'm not. I'd just like to own every acre that joins me.

The good things I see with this deal is the low interest rate, location and what I suspect will be an increase in the value of the land in a short time. Its a tough call but I think you are doing right by looking at every side of the issue to come to a decision. It also helps to pray on it and listen to that quiet voice. Wish you the best in your decision.

 

[IndianCreekcowboy]

Great Advice Jogeephus.

Where did you come up with Potential Income per acre divided by Interest rate? Very interesting.

That would mean I would have to net $270 per AU, are if I figured 80% of 50 cows weaning a calf 40 calves to sell would have to net $337.50 each.

 

[Jogeephus]

ICC, this is one of three methods I use to appraise the value of raw land. Its sortof a shortcut for a more complicated method but the results are very close. Its useful in that it removes the subjectivity out of your figures and it doesn't have the bias that the tax appraisals have. Just another angle to look at things when your trying to make a decision.