Buying Land-Advice?

Tree-Farmer · Sep 2, 2019

I would like to buy 30 acres that was part of my grandparents farm years ago, then a cousin inherited it, now is for sale again.

I own 80 acres from my parents farm next to it that I?ve inherited and farm about 30 of it.

I haven?t bought land before and would like to ask for thoughts. How can I leverage 80 acres that I now own, to buy another small piece of land? Does that help me if/when buying more farmland?

Can I get better terms/lower interest? Can I use it to get a low down payment? Other benefits? It?s in Missouri, I don?t live on the farm, I have another job for income.

Any thoughts or advice on how this would work? Is it helpful to already own land, in wanting to buy additional land? (Yes, I know, don?t depend on legal advice on this forum, get additional opinions/legal advice, when needed, but many people on here have lots of good experience)

Thank you!

David G · Sep 2, 2019

Figure you need to put up half the cash for the 80, do not assume the crops will pay the mortgage, you will be fine.

David G · Sep 2, 2019

Sorry, got my 80 and 30 backwards.

I would buy the land, but not plan on being able to cash flow off it.

NY 986 · Sep 2, 2019

I guess for the moment I have more questions than answers. What kind of farming enterprise are you in and what would the plan be for the new acquisition? Any idea as to productivity versus surrounding land? Can your non-farm income cover a payment and taxes in a poor business year? Do you need to buy more equipment or put up buildings to make this new ground work? Generally, owning ground is a good idea but make sure it is right for you.

Steve in VA · Sep 2, 2019

Ok, I'll kick a hornet's nest because I know folks come down passionately on both sides of this, but it worked for me: evaluate conservation easement. They differ from state to state but in Virginia, almost everything was negotiable including size and number of future homes. Anyway, I did it and still own and farm the land and the tax savings and credits on the whole farm paid for the new acquisition. Just a thought.

BarnyardEngineering · Sep 2, 2019

It's not going to be like, "Oh you own 80 acres, we're going to sell you this other land at a cheaper price, give you a lower interest rate, etc. etc.." Land ownership doesn't gain you entry into some sort of secret club.

The 80 acres will be counted among your assets when the bank is analyzing your suitability for a loan on the 30 acres. If you are making payments on the 80 acres, or if the taxes are putting too much of a burden on your income, it may actually HURT your chances of getting good terms on the load for the 30 acres, or any sort of loan at all. At least when I went to borrow money for my house, they made sure that the payments would not exceed a certain percentage of my income. If they were too high, no loan.

ohiojim · Sep 2, 2019

lots of stuff we need to know before making suggestions,..how much the property you have is worth, how much you owe, do you have a house on it, do you live there...you're best asset will be the equity you have in your own property you'll use as collaterial..

aFORDable · Sep 2, 2019

Simple answer: the 80 acres will be good collateral on your + side to get a loan to buy the 30. Past that, no it will not lower the price or interest rate, at least not here it wouldn't. Some people ask for you to share too much personal information on a public forum. I'd be hesitant to do that. That info is not needed to give you an answer. If you want the best answer, go to your financial institution and talk to the loan officer.

Northvale PA · Sep 2, 2019

So, a few things I am thinking of in your shoes: it will be rare to have land available for sale adjacent to yours. Do everything you can to buy it. I am land locked by a BTO, who buys up everything in sight. Maybe go so far as another part time job, etc. your earning power should increase with time. If you manage to do it, you will be very glad.

BarnyardEngineering · Sep 2, 2019

(quoted from post at 13:42:02 09/02/19) lots of stuff we need to know before making suggestions,..how much the property you have is worth, how much you owe, do you have a house on it, do you live there...you're best asset will be the equity you have in your own property you'll use as collaterial..

No, we don't need to know.

The land being purchased would act as its own collateral. It's land. It's value is not going to decrease with time. It's the one thing they are not making any more of.

pcsaw · Sep 2, 2019

The only thing that will get you a better interest rate is a great credit rating before you buy get a good realtor or an attorney to check things out for you

old · Sep 2, 2019

One good thing I can say about Missouri the taxes are lower then most other states. So where in Mo are you?? I'm close to the lake of the Ozarks

pinball · Sep 2, 2019

is it for sale by owner or real estate broker.

pinball · Sep 2, 2019

if you go through a broker then you want title insurance. that unsures you are the legal owner and there is no leans against it. doesn't cost much but if in the future someone says is there then the title company has to fix it.

buickanddeere · Sep 2, 2019

Purchase available land if you can swing the payments .

flying belgian · Sep 2, 2019

I don't know your age or your financial situation and I don't want to know but let me tell you what I did. I'm 66 yrs. old. Full time farmer. Four times in the last 3 yrs. land very close to mine came available. Not touching mine, but almost. Owners came to me. I said thanks but more land makes more work and I'm at the age where I'm wanting to work less, not more. I'm doing just fine financially and I want for nothing. I have no heirs wanting to take over the farm. My two daughters have successful careers of their own.
So before you try and figure out the financial end of it, first figure out if you and your wife want or need more work. That's the way I did it but mileage may vary.

K Effective · Sep 2, 2019

We were taught in college that immediately adjacent land was typically worth 10% more to you than to others, due to road travel, etc. Former/current family ownership has sentimental value, and maybe a good working relationship with current owner, maybe the opposite.

Owning your 80 free and clear is good on the balance sheet, but if it puts your cash flow numbers close on expenses (ie:income off of only a small portion of the acreage) , it may not help. Without a previous mortgage and payment history, your credit rating might be zero, which requires a more sympathetic loan officer. We had good experience with Farm Credit Services for our purchase/construction loan.

My middle son, fresh off his Masters degree has a zero credit rating, with a bunch of cash in the bank, but mouth-breathing loan officers only worship at the altar of FICO. You need an expert.

Indiana Ken · Sep 2, 2019

For me I bought the house while I was still working - the land was not for sale at that time. I moved into the house planning on retiring there. After I retired the land became available in 2007 and I purchased it. Now the credit union I used understood 100 year old houses in the country and they also have a Ag lending program. The lending institution and your credit rating are the two important components in my book.

It is not every day one can find land near by .... good luck.

Ted in NE-OH · Sep 2, 2019

Maybe your cousin will finance it for you, or maybe he will sell it land contract. It never hurts to ask.

farmallmaniac · Sep 2, 2019

I live south of Mankato now. Grew up in north Mankato. We have talked a little bit. Looking to adopt a son?? LOL kidding.

John in Mich · Sep 2, 2019

Each situation is different. I spent several years trying to buy the 6 acres of land adjacent to me. The owner was holding out to offer it as an option to a buyer of the next property, 10 acres, that contained his house. Finally he came to me and asked if I was still interested. He named a price and we agreed to a land contract at 5%, amortized for 30 years but a balloon payment at 5 years. I split the property into 4 pieces with provision for a private road. Half of the road would be on my land and half on the new land.
When he could not sell the house with the 10 acres, I offered to buy the rear 5 acres on another land contract of the same terms, though much lower price. Being landlocked, I was the only one who could provide the necessary access by having filed recorded legals for 4 parcels of the first land contract. The 5 was then attached to the rear 3 acres of the first land contract.
3 years later I developed the private road and sold 3 one acre lots for cash and paid off the land contracts. I still had the rear 8 acres as a "play" area. State law prohibited me from selling the 8 acres for 10 years AFTER the last sale without also selling my house and 6 acres with it. HA! I can wait.
After the limitation statute expired, I sold the 8 acres to one person. It was NOT splitable. 3 years later that buyer bought 3 more acres from me.
I now only own 3 acres. At 76, that is enough land and the money in my savings looks nice.
Look at all of your options.

paul · Sep 2, 2019

Banks do like to secure $2 of assets for every dollar they loan out. Land prices go up and down, they don?t want to get caught holding the deed when it?s down.....

So in general, yes to all your questions. Of course each situation is different and not all banks or credit unions are the same.

Paul

coshoo · Sep 3, 2019

Your best bet for financing bare land is probably the Farm Credit system. Many banks are only interested in financing homes, not land.

rustyfarmall · Sep 3, 2019

The only advice I can offer is to buy it now! Before someone else does and puts wind turbines on it.

Traditional Farmer · Sep 3, 2019

Just keep in mind if you put your present place up for security on the loan you risk loosing it if for whatever reason you can't make the payments.

Vicinalvictor · Sep 3, 2019

Vague information to give a rational reply. Land values are determined by the marketplace, so it depends what you are paying for the land to begin with. If there is instant equity in the purchase price, you may not have to use the other land as collateral to finance it.

cuby · Sep 3, 2019

Back in 07 I bought out my bros. share of the family farm as he wanted out. About two weeks later he wanted to return the payment and be partner again. I said sorry, cash that check. Don't know his thinking other than he was a banker at that time. Much easier owning it myself other than yearly payments.

MarkB_MI · Sep 3, 2019

If the seller is motivated to sell, and there isn't much interest in the property, they might be willing to go with a land contract, where they finance the purchase and you make payments directly to them until it's paid off. If you fail to make your payments they can go to court to take back the property.

You may not be able to use your home as collateral to purchase the land, but if you have enough equity in your home you could refinance it or take out a home equity loan to pay for the 30 acres. (I'm assuming your 80 acres is also your homestead, or that you at least own a home.)

Since you intend to farm the property, you should definitely look into the <a href="https://www.fsa.usda.gov/programs-and-services/farm-loan-programs/">USDA Farm Service Agency's farm loan programs</a>. Ain't socialism great?

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