So my dad came to me a week or so ago and told me that he wants to look into buying land. I have a 2 acre yard that butts up to a 104 acre property that has been on and off the market for several years. The landowner called me last spring and offered it to me for $3,500/acre, but at the time it just wasn't a possibility. So we've been talking it over, and I just want to know if you folks can offer any advice, suggestions, or tell me if I'm being completely unrealistic. The land breaks down to approximately 104 acres at 70 acres POTENTIALLY tillable, and 34 acres of scrubby timber. It's extremely thick woods with a small creek that runs through the middle of it. Now the reason I say POTENTIALLY tillable is that the 70 acres is currently in CRP grasses, but I believe the CRP contract expired this year. My hope is that the farm could potentially pay for itself, considering the ratio of tillable to timber. The AVERAGE cash rent per acre in my county in Illinois is $252/acre. There's a farm down the road that's 50 acres of straight timber, selling for $2,500/acre. Being that this has some tillable, I'm hoping to snag it for no more than $3,000/acre. Here's my math and calculations below, if I can grab it for $3,000/acre. ENTIRE FARM: 70 Tillable 34 Timber 104 acres X $3,000 = $312,000 20% Down Payment = $62,400 $312,000 - $62,400 = $249,600 $249,600 @ 3.92% interest @ 30yrs = $1,180 month $1,180 X 12 = $14,160 total mortgage yearly AVG. Cash rent per acre for My County = $254/acre. $254/acre X 70 acres = $17,780 $17,780 CR - $14,160 Loan = +$3,620 profit at the end of the year, utilized for taxes, insurance, etc. What's your thoughts, suggestions, advice? 2016 Hoyt Defiant 30 Ridge Reaper Easton FMJ 400 125 Gr. Muzzy Trocars Sure-Loc Lethal Weapon Max Trophy Taker Nock Down Pro
No one knows the area and prices better than the guy that actually lives there. I work in real estate daily as a broker and appraiser. The only thing that sticks out to me is your cash rent per acre is higher than average and your price per acre is lower than average. I always work off a worst case scenario. The price per acre is fixed an offered, so no worries. If it was me I would research the cash rent further and work off a lower cash rent per acre due to average and the overall climate of the farming industry. Also, contact farm credit services and see if you or the land might qualify for other benefits or plans. Good luck.
Like FB - only you know the market and prices for your area. (For where I live, I can get one acre for $1500-2000). Only thing that stood out to me is you said it was offered to you last year at $3500/acre. But, your calculations show $3000/acre. Are you planning on getting it cheaper? For me - I'm a believer of "if it sounds too good to be true, it probably is". I was looking at a horse farm and figured that if I boarded horses it'd pay for the farm itself and leave a little profit for other life necessities. But, then I got to thinking. If you cannot board out all the stalls - will you be able to make the payment on your own? I'd obviously have a little different take - as I'd not work at my M-F job because I'd be taking care of horses. So I'd have no income besides the farm. So, would you be able to pay for the land if you didn't get it rented out? Would you be able to pay for it if a farmer offered you something less? If you lost your job (always look at worst case) - would a new (lower paying) job pay the bills?
Man land prices are awesome near you but everything is relative so like others say you know your market. Your rent rate to a farmer does seem higher than anything I'd get in this area but again you know better. Pony hit the nail on the head with the last couple questions....worst case scenarios need thought about for sure! I just bought 22 acres in March and while it "sounded to good to be true" I've truly so far been amazed at how it truly is as good as I thought. Granted not a prime spot or large like you are discussing but I did what you did laying out the money...what it would be and deciding worst case if like blew up A - how long could I continue to afford it & B - Could I sell it quickly at or above what I have in it? My specific case I know for a fact once I get a drive cut form my road access could sell very quick for the cheap rate I bought it at. Weigh your options, if a praying man pray for sure, discuss with your wife, pray if a praying man and decide clearly and without regret. (Also, is it an all or nothing type thing for the entire acreage?)
So a few responses to some of the questions mentioned above... 1) I found a chart that shows average cash rent per acre by county in Illinois. My county's average cash rent is $252 per acre, which is where I figured that number from. The $254 was a typo. 2) There's 50 acres for sale 1/2 mile from this that is all timber currently listed at $2,500/acre. 3) He called me last spring and offered it to me at $3,500/acre. I would probably not offer the asking price, but rather try to get it for less than the asking price. I figure that pretty much goes with any major purchase or sale, always list it for more than you will really take and always offer less than what the list price is. 4) No, I could not pay the mortgage without having the farm cash rented. I would need to have something contracted and on paper with a farmer to arrange that prior to the sale. There are a couple big time farmers right across the road that I would approach first about potentially renting , before attempting to purchase. 5) I'm in the extreme early stages of this so yes, there are a lot of "potentials" and "what ifs" to iron out as I learn more details about this whole situation. 6) I would be perfectly content with 50 acres, but I believe this guy is going to be an all or nothing type. However, 50 acres gives me a smaller ratio of tillable to timber so I may not make as much off of the total cash rent. 2016 Hoyt Defiant 30 Ridge Reaper Easton FMJ 400 125 Gr. Muzzy Trocars Sure-Loc Lethal Weapon Max Trophy Taker Nock Down Pro
IF I could for sure ag lease a property to make the payments I wouldn't hesitate on a swing for the deal honestly. First year might be tough converting CRP to ag fields though and a farmer may desire a slightly lower lease rate if so.
Can you get a 30 year term? It seems like the longest term for uninhabited land in my area is 10 years. I could be wrong though.
This is a good question. I truly don't know. I assumed so, but could be wrong. There also could be a work-around because the land is adjacent to my yard... so at that point... it would be "inhabited".
I'm interested to hear your financing sources. Only to give me ideas because in this area of the country you cannot touch vacant land financing for anywhere near the rates quoted.
So again, I haven't got sources yet. This is virgin stage of this. I'm trying to gain some insight from folks who have done this. If you know more information about realistic interest and term expectations, then by all means, place share... 2016 Hoyt Defiant 30 Ridge Reaper Easton FMJ 400 125 Gr. Muzzy Trocars Sure-Loc Lethal Weapon Max Trophy Taker Nock Down Pro
Honestly, could be a L/C with seller type set up. Best way I've found to grab vacant land. We used our house as we didn't have a mortgage on it thankfully. Is seller willing to L/C?
Where are you located? Is that property truly a top end property for your area? I know in IL, within a few hours travel you can buy a killer piece of property in the $350k range. Like the kind of property that is top 5% in the country. There are several pieces available right now that fit that description for prices even lower than $350k. Is the piece you are looking at really a top end property? Will you be disappointed with the hunting in 5-10 years? Speaking from experience, I owned a piece of property in PA that I poured a lot of money, blood, sweat, and tears into. It ultimately never produced the deer I wanted. I bought it because it was close to my Dad's place, but I would have been much better off (hunting wise) putting the money into leases or on a property that was simply better hunting. I made an emotional decision based on it being close to family and ultimately never was happy or satisfied with it. I'm probably 1-2 years out on buying something in the 30-50 acre size range and I've gotten pretty familiar with a lot of the info you are crunching on this. The counties I'm looking at are Fulton, Schuyler, Knox, Brown, Jo Daviess, and Carroll County. I don't know what county you are looking at but the per acre purchase price seems REALLY low, and the cash rent price seems high. I'm seeing 50/50 tillable/timber more consistently in the $3,750-$4,500 range based on county, and the cash rent prices are usually more like $200 an acre in the counties I mentioned above.
I'm speaking of just land without any agricultural income tied to it as that may Open up other potential financing sources that I am not aware of. Mostly land notes are fixed eight or 10 year terms or a short term balloon mortgage. Rates generally run at approximately double the rate Of a conventional 15 year note with down payments needed anywhere from 25 to 50% to qualify. Now there are other financing options depending on what you can offer for security and collateral. However I'm speaking of just your run-of-the-mill walk in the bank and sign A vacant land note.
If you do buy it, can you extend the crp contract? I've heard that sometimes those per acre prices are higher than what you can get for crop lease. Sent from my SM-G930V using Tapatalk
Oh another thing to consider is property taxes. Depending on your states assessment codes this could be a minimal thing or be as large as a grand or two.
To be honest with you I didn't realize that the loan terms would be so "harsh" for land. I listened to a podcast with Dan Perez from Whitetail Properties about purchasing land, and several times he mentioned 20% down loans, so I was under the assumption that this was a common rate. 2016 Hoyt Defiant 30 Ridge Reaper Easton FMJ 400 125 Gr. Muzzy Trocars Sure-Loc Lethal Weapon Max Trophy Taker Nock Down Pro
This is definitely something I would consider if the option is there. 2016 Hoyt Defiant 30 Ridge Reaper Easton FMJ 400 125 Gr. Muzzy Trocars Sure-Loc Lethal Weapon Max Trophy Taker Nock Down Pro
First off I have no expertise in financing agricultural ventures. There very well may be venues that cater to those type of loans and offer much more palatable terms . There are also other creative ways to finance vacant land however they are more in depth and specific to your own personal situation in regards to available collateral . Nothing I said I would regard as the end-all answer. I also listened to that same podcast and I have to tell you that guy really talked out his ***. I cringed at most of the numbers he threw around and the overly simplistic generalizations he made on financing.
2016 Hoyt Defiant 30 Ridge Reaper Easton FMJ 400 125 Gr. Muzzy Trocars Sure-Loc Lethal Weapon Max Trophy Taker Nock Down Pro
Keep in mind you have to pay taxes on the money you get for the lease so take 25% of the total away before you do the math.
