Buying a farm

[1982vett]

I'm a little late reading your post. So, here's my advice for what it's worth.

First, there is no way that I would attempt to finance ANY loan for 40 years. The max I would go would be 15. If I couldn't afford a 15 year loan, then I wouldn't purchase this farm. Also, another thing to consider is what the payment would be. I wouldn't want a payment that would be 25% more than my take home pay.

Second, the idea of borrowing equipment is OK for a short period of time. I have a couple of farm friends that we help each other out periodically. However, when it comes to tractors and other equipment, I strongly suggest you have something that YOU can depend on. When it's hay season and you're having to depend on your neighbor to get finished with his equipment or even worse if his were to break down during his cutting, then it could be a bad hay season for you.

Lastly, whatever decision you make, have a budget prior to starting all this and STICK TO IT!! Know what your cost will be for insurance, fuel, repairs, taxes, fertilizer, chemicals, mortgage, etc., etc., and follow it as best you can. $400K for 40 years is a lot of worry for a young couple.

Good Luck.

Certainly sound thinking.

However...

With today's interest rates, if I could make a 15 year mortgage work I'd still look at a 30 year. Simply because the likelihood you won't be able to use someone else's money cheaper than you can now. Just because it's a 30 year mortgage doesn't mean you have to take 30 years to pay it. Double up your payment each month and the excess of interest payment applies to principal which will cut your 30 year loan to roughly 18 years. Should life throw some excessive amount of financial difficulties for a short time it allowed you an option to ease the loan obligation simply by paying the original loan payment.

I've had several term loans that I paid off early. Both were back in the day when a 14.5% loan was a good rate but still more than could be safely earned investing elsewhere.

I've actually have a 3.08% auto loan and a short term 3.18% credit card balance because drawing the funds out of our iras would trigger tax consequences substantially greater than the measly few dollars paid in interest. Another perspective of that is the net arbitrage if the $ last year was about 15%.

Just sayin.

 

[Brute 23]

There is only one way I would do this deal.

1) you and your wife are completely debt free

2) both off yall are currectly maxing out your retirement funds (401ks, IRS, etc) and will continue to so after the purchase.

3) yall have at least 1 year worth of cash in savings that will not be used for this deal in any way shape or form as back up.

4) yall have a proper partnership agreement with who ever involved that addresses the "three Ds". It also needs to include insuance on the partners.

OR only yalls name is in the deed.

Some great advice was given about getting a 30 yr note and you can always pay it off faster, no more than 25% of income, borrowing equipment, etc.

I will add, dont let this property dictate your whole life. It can be a blessing or a curse. Dont skip on thing like retirement for it or let it become a financial burden. Property can be bought and sold and bought and sold at any time.

Finiacially what you do from age 20-30 years old can dictate your whole financial future. There is no replacing time.

 

[NonTypicalCPA]

What have you got to lose? Seriously. Look at the worst case scenario that could rear it's ugly head. Can you survive it? If so, do it. Big decisions get harder and more risky the older you get, and the more you have to lose. I went in debt almost $500k when I bought my CPA practice and office at the ripe old age of 26. I literally had almost nothing to lose, so the decision was pretty easy.

 

[Cress27]

What have you got to lose? Seriously. Look at the worst case scenario that could rear it's ugly head. Can you survive it? If so, do it. Big decisions get harder and more risky the older you get, and the more you have to lose. I went in debt almost $500k when I bought my CPA practice and office at the ripe old age of 26. I literally had almost nothing to lose, so the decision was pretty easy.

Well that's kinda what I'm thinking I'm not officially married yet we have a house that we just bought and we make a combined 75k a year and the farm was priced to me at 225k and that's 70 acres and about 65 of it is all flat ground or rolling ground. I've done the numbers and from what I can tell the farm would about pay for itself theoretically I shouldn't have to dip into my funds from my day job and make enough on the 15 head of cows I have on my dads and sell enough hay off the place I'm buying to pay for everything. Small square alfalfa is selling for 10 bucks a bale right now in our area and rolls of barn kept grass hay is selling for 50 to 60 bucks a bale.

 

[Cress27]

And just face the facts I'm 24 years old and I'm not getting any younger and they don't make anymore land. The farm right next to this one just sold for 4000 an acre granted it had a nice feed pad and a nice work shop and a small house on it but it was only 63 acres and was about 15 acres of woods. And I've got about 1/2 mile of road frontage. I feel I could flip the farm if worse came to worse.

 

[kenny thomas]

Good luck with whatever you decide. But he prepared for weeks like this when it seems the bottom is dropping out of calf prices. Futures down 7 cents in 2 days. That's over $50 a head cheaper than Monday morning open. Some years $50 a head could be the profit.
Sounds like the hay business is the way to go

 

[spartacus]

What about just leasing the land you need and buying as you grow and can afford it?

Or buying the small one and look at diversification of land (as you grow look at land in different areas to circumvent drought/storm issues hitting you 100%

 

[Dave]

If it is what you want to do in life and you can make it pencil, go for it. You only live once. There were people who thought I was crazy when at the age of 66 I bought a 1,200 acre ranch. I wish I had done it 40 years ago. The one down side is using an FSA loan can take a lot of time. I know that my closest neighbor used FSA when he bought his place. To keep from loosing it while in the process of getting the loan his parents bought it and he bought it from them when the loan came through. Stay on top of it with FSA and keep the seller informed.

 

[Kingfisher]

I'd buy the 70 acres and pay it/make it pay it self off as quick as possible. By that time you will know more and you'll have some leverage.

 

[Chevy]

Regardless I don't see land as a bad investment. They aren't making anymore and keep building more. I just see the value of land going up. I'd buy as much as you can and sit on it until your old has to be worth more than some stock market. I could be wrong but I could be right.
To me land is worth more than money but hey to each there own.
Listen to these older generation farmer they know. They can tell you what they would have could have should have done. I don't know much and don't claim to.

 

[Brute 23]

This reminds me of some thing I debated early on and still do right now.

In my early 20s I could have dove off in to a couple hundred thousand dollar loan for some land to feed my want. I would have run tight and worked my butt in the dirt, but I could have made it work.

Many of my close friends/ mentors encouraged me to invest that money in the stock market, live comfortably, debt free, enjoy other things like hunting, fishing, golf and to start leasing land, acquiring equipment, and cattle as I go and to save for a rainy day. One always said to have a healthy "take this job and shove it" account. Then one day I could comfortably buy the property I have always wanted. They said you never know what life will throw at you and you will never regret that security of cash in the bank and no debt.

I'm 33 now and the company I worked for since I was 20 got in financial trouble and started making bad decisions, including burning long time employees. Luckily I listed to the wisdom of my council. Rather than being saddled with a huge loan and having stay a slave in that toxic environment to make a land payment or chase another miserable job for the money I'm able to sit back and enjoy this time with my family and work with some good friends doing what I enjoy while I figure out what the next chapter will be.

I'm not trying to talk you out of the purchase, just sharing some of my experience like my friends shared theirs with me.

 

[littletom]

Buy the farm, if you can make it work. Will make a nice nest egg when if you sell it some day if you choose. I have a biased opinion I have bought a couple farms through fsa. No prepay off penalty i did one in 3 years. Its a great deal. If everything was about money. I sure would not have wasted a day in college. In my early 20's i did not have the nerve to bite off 200 acres. I wish I would have. It will cause you alot of stress, been there. I think your on the right track with 70 acres.

 

[Cress27]

Well the deal fell through. We went to write up the contract and he try to pull on over on me he wasn't going to allow me to take possession of the farm until January of 2021 and I was going to be left holding the bag. Oh well there will be more for sale soon just got to wait on the right one

 

[Beefeater]

Well the deal fell through. We went to write up the contract and he try to pull on over on me he wasn't going to allow me to take possession of the farm until January of 2021 and I was going to be left holding the bag. Oh well there will be more for sale soon just got to wait on the right one

Did you get pre-approved up to the amount you needed already? I wouldn't let several months kill a good deal. Might give some leverage to negotiate a bit - lower price, rent back, etc.. guessing there might be some tax reasons involved on sellers end that could be negotiated out.

 

[Cress27]

Well the deal fell through. We went to write up the contract and he try to pull on over on me he wasn't going to allow me to take possession of the farm until January of 2021 and I was going to be left holding the bag. Oh well there will be more for sale soon just got to wait on the right one

Well it wouldn't have been to bad if the farm was set up the way I'd like it he has cropped the land and was wanting to crop it agin this year and I was going to have to wait until he got his crops off for me to do anything with it and I with what I'm wanting to do with having to sow alfalfa seed and grass seed back where he had cropped I would be set back a year or actually a little longer because it's to early to put alfalfa out now. So I'd been left holding the bag for atleast a year. Just didn't feel right so I decided to look else where.
Did you get pre-approved up to the amount you needed already? I wouldn't let several months kill a good deal. Might give some leverage to negotiate a bit - lower price, rent back, etc.. guessing there might be some tax reasons involved on sellers end that could be negotiated out.

 

[kilroy60]

Well the deal fell through. We went to write up the contract and he try to pull on over on me he wasn't going to allow me to take possession of the farm until January of 2021 and I was going to be left holding the bag. Oh well there will be more for sale soon just got to wait on the right one

Consider yourself lucky. Going over your numbers and all your facts, I think you'd have a hard time making this work. Start a little smaller and make sure with all that's going on that you can make those payments and still live comfortably.