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Rural Investments: Finding the Best Value Farmland

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Published on Wednesday, October 14, 2015 by Land Century

Farmland has been invested in heavily in the past decade. Why? Prices were dirt cheap for a while, and the return-on-investment was substantial. Just over a year ago, and still true today, Iowa was the best state in the country to buy land.

And, there is a lot of data that we can derive from realtors in the area.

* Premium farmland sold at $11,674 an acre.
* Midgrade land sold at $8,300 an acre.

These prices were down by over 5% compared to 2013. But, as an investor, you know that agricultural land is a long-term investment whether you plan on selling it or farming it yourself. If you bought midgrade land in the late 90s, you would have paid in the vicinity of $1,700 an acre. Within 15 years, you would have more than quadrupled your investment.

However, a true farm consists of 333 acres of land – millions worth. If you paid for the premium land, you would spend nearly $4 million on the average farm in terms of acreage. These are all great facts to know, and you don’t need a farm that massive.

If you’re looking for something more affordable, you’ll be able to find land that’s being sold by owners or through auction that is more affordable. But, premium farmland will still demand a higher price.

What to Consider Before Purchasing Farmland

You never want to buy land that is unreasonably cheap unless you know a lot about the farming process, the land and soil, and local laws. A few of the most important things to consider to find the best value farmland include:

Plan Ahead

Farmland requires dozens of acres to be truly profitable. You’ll need a lot more capital to buy the land, and you’ll also want to know what programs the farm has been associated with. A great way to do this is to call the USDA Farm Service Agency.

Local agencies do exist

These agencies will tell you what programs the farm is enrolled in. Why do you need to know this? It provides you with a starting point to determine how productive the farm has been.

Soil Type and Drainage

It’s easy to find land for sale, but you need to make sure that the soil and proper drainage is in place. If you plan on selling the land in the future, the soil type and drainage will have a major impact on the sale price.

A few questions to ask are:

* Are there any current soil tests?
* What nutrients need to be added to the land to make it tillable?
* What are the costs of the nutrients?
* What amount of land is tillable?
* What amount of land can be “reclaimed?”

These are all questions any real farmer would ask. If the soil is not in good condition, it will come with a larger investment to buy the proper nutrients to return the soil to midgrade or higher. If the land is priced cheaply, it may still be a bargain despite the future expenditures.

But, premium land shouldn’t require you to spend thousands to bring the land to a tillable state.

Drainage will also be a concern. Terraces need to be in good shape and working properly. In the event that there are no terraces, you need to examine any erosion damage that has occurred. Bottomland will need idle water removed and all of the ditches cleaned, which is an added expense.

All of these considerations will have a major impact on how much money the farm can generate and its potential resale value.

Sale Inclusions

What items will be included in the transaction? This will all need to be in the buying contract. A few of the most costly, but commonly included items, are:

* Gates
* Feeders
* Treatment
* Equipment
* Fence posts

You may also acquire sheds and livestock panels in the acquisition. This will allow you to begin the farming process sooner, or obtain assets in the purchase that will make your farmland more appealing if you plan to resell in the future.

Local Rural Lenders

Local rural lenders are an invaluable resource. These lenders will give you the names of potential lenders and will know what farming programs will benefit you and the property itself. There are a lot of subsidies granted to farmland.

And, another major benefit of these lenders is that they will be able to give you a roundabout figure that local farms in the area are making. If you use a local rural lender, you’ll be able to save thousands of dollars by using the resources that they provide.

Zoning Laws

Zoning is becoming more common in rural areas, so you need to know what zoning is present on your rural investment. The easiest way to do this is to call the county courthouse and discuss the zoning with a representative.
Real estate agents should know the land’s current zoning restrictions.

The actual purchasing of and locating the right land comes next. This can be done in a variety of ways, and you’ll need to practice the utmost caution to ensure that your investment is protected. If you’re buying a massive lot, you’ll want to work with lawyers and lenders so that you’ll be able to ensure all of the legalities are taken care of accordingly. Land Century will, almost always, have larger farmland for sale.

You’ll also be able to find outlets that sell surplus land, and you may be able to find land that is for sale by the owner. The biggest issue is the investment amount in the land. If you’re buying dozens of acres, you’ll be spending tens to hundreds of thousands of dollars. And, you want to make sure that the land doesn’t have liens against it, all the back taxes are paid, and that the seller has the right to sell the land.

In terms of what areas are offering great farmland that’s often below value, you’ll find land in the following states favorable:

* Arkansas
* Louisiana
* Texas
* Iowa

The prices in Iowa will come at a premium in some cases, but in 2014, there was over 31 million acres of farmland for sale or being utilized. There is massive potential in the farming industry, and holding onto your land for the long-term is the smartest investment option.

Another key note is that the value of farmland over the past decade has beaten the stock market.
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