Answer these questions before buying farmland
Buying farmland is always a major decision that requires having the right information. Without knowing how to get that information, though, you could be left stuck on whether or not to go through with a farmland purchase.
However, a wise buyer knows just how to get the best information available that will help them decide if it is right to buy or move on to the next land opportunity. These savvy buyers know that they need to ask good questions when buying land. By asking questions, they can draw out more about the land’s history, its true value and whether or not it could be a good investment for the buyer.
So, with that in mind, here are some of the questions anybody looking at buying farmland should be prepared to ask before they make such an important decision.
What’s your business’s financial condition?
Put another way: Can you afford to purchase the land right now? Would spending financial resources on land at this point add too much risk that outweighs potential returns on investment. Before buying land, always consider what expenses may be required to make use of the new land.
Additionally, how does the land perform? Are crop conditions good? Research historic trends and reports on the land. Would the land make a good investment that also fits within your farm business’s plan for the future?
Finally, take a long look at your revenue projections. Does a land purchase fit within those projections, or would you be spending too much?
What is the income potential?
Look at both your short- and long-term income projections to answer this question. Buyers need to know how they intend to use the land, what type of income that could generate and how much income their other assets and operations will generate.
If you are financing the purchase with a long-term loan, then you will need to have a good grasp on how the purchase will affect your business’s revenues now and down the road.
How is the land currently zoned?
The answer to this question will determine allowable uses for the land. If how you plan to use the property is not allowed per local zoning regulations, then that could be a problem if you are set in how you want to utilize the land. Zoning regulations can be changed, but the process is neither short nor easy.
Would-be buyers should also check with local municipalities to see if there are any permitted special exemptions that affect the land. This could be one shortcut around zoning regulations that would not require a full change, although there is still a step-by-step process that usually needs to be followed to secure a special exemption.
Is the land accessible for your equipment or livestock?
Find the entrances to the land. Are those access points wide enough if you need to get equipment through to other parts of the property?
Also consider what type of access the property has - frontage road or deeded access? A frontage road, a local road that provides access to private properties, would actually add value to the property.
How about fencing? If the land is going to be used for livestock, then take a look at fencing conditions - if there is any fencing. Could fencing be installed easily enough if you would like to use the land for livestock grazing?
Would you be better off renting the land?
Purchasing land can eat up a lot of cash that could be used for many other investments. Sometimes owning the land will make the most sense for your financial situation, but other times renting could make more sense.
Renting the land could (if the lease rate is right) free up cash for those other investments. But you should research what the current land rental rates are in the property area.
Could the land be used for alternative energy solutions?
Some people searching for rural land to buy are in the market for reasons related to alternative energy. These reasons could either be for personal use or for leasing toward an energy company.
On the personal side of this factor, many people choose to live in rural settings because this provides the opportunity to install small- to medium-sized solar panels on their property. These installations can help power homes and other structures, whether they are on a farm or not.
On farms, solar panels already have found many uses as more and more farmers and landowners are looking to offset the costs and environmental impact of their daily operations.
Be sure to ask or determine for yourself whether the land in question receives sun throughout the day if you are leaning toward a solar panel installation.
As for wind energy, you will need to find out if the average wind speed in the area is suitable to meet the needs of a wind farm. One way to find the answer to this question is to ask around, maybe there are local utility companies who can provide the answer. Additionally, you can always perform an on-site measurement - or ask that one be performed.
You will also want to learn for yourself about any local laws regulating wind turbines, such as setback requirements. Vehicle access to the land also needs to be considered.
If the land is already being used, whether for wind energy production, water rights or mineral rights, then you should get a firm grasp on all the agreements in place and if you as the purchaser are conveyed these rights if buying the land.
Don’t rush into buying land
These questions are only a few that you should ask before you decide to buy any land. This is not a decision that should ever be rushed. While you are searching for these answers, make sure you have a go-to source of information that you can trust.
Reach out to our team at Midwest Land Management with any questions. We are experts in farm real estate and can help you determine whether buying or renting farmland is your best option.