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Getting into Farming, Land to Rent Ratios ???

D

dmiller

Member
Today I read this article
http://brownfieldagnews.com/2011/11/14/economist-slower-farmland-rise-in-2012/
Thought of the discussion a few days ago related to getting into farming. What is the significance of the "lowest ratio of farm rent to land vaues"???
 
> What is the significance of the "lowest ratio of farm rent to land vaues"???

The significance is that land prices are skyrocketing at unprecedented levels. The low ratio means that these sky-high rents that are being complained about here are CHEAP compared to the land price.

In the past year, cropland prices have increased about 25% on average and over 40% in some states. To me, it looks like the housing bubble all over again. The only difference is the mantra "home prices only go up" is replaced with "commodity prices only go up".

Some people are gambling their life's work away paying these high land prices. Maybe they'll win, but maybe it all comes crashing back down and we get to re-live the 1980s.
 
I saw in the paper tonight that our real estate taxes are going up 140% beause of this.
 
The standard around here is that rent is 5% of purchase price. So, when land was $5000 per acre the rent worked out to be $200 per acre, right now that is more than doable. Raise the price to the $10,000 that the better ground is bringing now and the cash rent is $500 per acre. Still doable IF input cost were to stabilize and commodity prices stay where they are. NO GUARANTEE on any of that happening.

If you are the investor you are getting a good deal if you have the money. If you have to borrow the money it will take a leap of faith and some good luck to make it cash flow over the long haul.
 
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