Why investing in property can have long-term benefits.
The term “land” might be best described by the National Association of Realtors Code of Ethics Preamble. It clearly states, “Under all is the land. Upon its wise utilization and widely allocated ownership depend on the survival and growth of free institutions and of our civilization.” Land has been fought for, died for, and even killed for throughout history. So, what’s the big buzz about owning land? Mark Twain once said, “Buy land, they’re not making it anymore.” The inherited wealth accumulated by some of the richest people in the world resulted from the purchase, ownership, and control of land tells us one thing. It is arguably one of the most valuable investments a person, or corporation, can make.
Land is the basis of the whole world. Homes, businesses, and empires are all built on land. But, the largest percentage of land in America is used for some sort of agricultural purpose. Land is used to grow produce and feed livestock as well as harbor some of the more natural protein selections, like wild turkey, deer, and fish. Land values have historically shown great long-term appreciation, which has been the major contributing factor in the returns yielded by so many investors over time. Throughout the duration of ownership, a great secondary option for earning passive income is renting land out to local farmers or ranchers for them to operate — especially in a scenario where there may be a remote landowner, utilizing the benefits of a farm renter not only provides a nice income but typically the renter’s activities also maintain the owner’s property. In one instance, grazing is providing the farmer with additional livestock nutrition while also keeping the owner’s pastures from becoming overgrown with briers or locust trees.
“Rent farms can come in all shapes and sizes, from small summertime grazing farms to hundreds or thousands of acres of row crop ground,” says Kyle Kusche, who is doctor of veterinary medicine and a fourth-generation farmer, operating on both family-owned land as well as land he rents from local landowners to expand their farming practices.
Farm renting not only benefits the landowner, but also works well for many local farmers.“
Renting farmland provides a more cost-effective means of farming land that may otherwise be difficult to acquire.” Kyle says.
“Many landowners that grew up on their historic family farms may not be interested in selling the land for sentimental reasons, even if they have lived out of state for many years.”
Kyle Kusche, fourth generation farmer
With the recent surge in land sales and sales prices, buying land with a profitable margin for farming practices has become increasingly more difficult. Many land-owners have purchased the land for recreational value but don’t have neither the time nor desire to farm the land themselves.“
With land being a historically good investment and seemingly increasingly harder to acquire, good farms are often hard to buy as farming owners are not wanting to sell and there is usually no shortage of potential buyers,” Kyle says.
This is not only true in recent years, but many land-owners (some remote owners) are simply holding onto the generational family farms, which is a great scenario for farm renting.
“Many landowners that grew up on their historic family farms may not be interested in selling the land for sentimental reasons, even if they have lived out of state for many years,” Kyle explains. “These farms can be rented out to local farmers that may have a better chance of profiting through agriculture on those lands than they would going into debt to procure similar opportunities owning the land.”
As with any type of transaction, transparency, honesty, and good communication are the fundamentals needed to make a successful win-win rental agreement.
“If good relationships can be forged between tenants and landowners, some farm renting agreements can lead to long-term, successful situations for both parties,” Kyle says. “Several of the farms that my family run cattle on have been rented from landowners by my dad for 30-plus years. Those farms were family farms before a generation moved out of town and often out of state.”
Farm rent has always been the primary type of lease focused on, simply because it has proven the most profitable. But, another lease option often overlooked is a hunting lease. Although usually paying less per acre than farming rent, a hunting lease can be utilized on nearly any property type that holds game animals, and they can often overlap with farming rent to maximize the rent potential of that property. This provides a rent payment for those acres that would normally not be part of a farmer’s productive calculation — like a patch of timber that doesn’t provide agriculture production or livestock grazing. Hunting leases can be annual to include any and all game or can be for specific time periods, like hunting season, and can even be limited to certain game species.
As with any income and real estate practices, it is best to consult with accountants and insurance agents to discuss any risks or liabilities associated with leasing land.