Understanding Farmland as an Investment
Today, I want to dive into a topic that comes up frequently, Farmland as an investment. You hear it mentioned often, but what does it really mean? Let’s break it down.
Why Farmland?
Farmland as an investment is often seen as a stable, long-term option. Unlike stocks or other investments, farmland doesn’t fluctuate wildly in value. It’s a tangible asset, with a history of consistent appreciation over time. Whether it’s corn, soybeans, or other crops, farmland produces something essential—food.
Investing in Farmland
Let’s say you purchase 80 acres of farmland in Iowa for $10,000 per acre, totaling $800,000. You might not farm it yourself—instead, you could rent it out to a local farmer. For example, if you rent it at $400 per acre, that’s $31,200 in annual income. After deducting expenses like property taxes and insurance, you’re left with a net income of around $29,960. This gives you an approximate 3.74% annual return on your investment.
Farm Management
If you want to be hands-off, hiring a farm manager could be a great option. Farm management fees typically range from 5% to 7% of the income. A good farm manager can maintain the land, handle leases, and ensure everything runs smoothly, potentially increasing the land’s value over time.
The Appeal of Farmland
Farmland is simple compared to other investments like commercial properties or apartments. It has lower maintenance costs, fewer headaches, and it’s easier to manage, especially if you have a reliable tenant. Plus, the demand for high-quality farmland in places like Iowa remains strong, with many tenants competing to rent land.
Depreciation and Appreciation
Contrary to popular belief, you can depreciate certain aspects of farmland, like drainage systems or terraces, offering potential tax benefits. Additionally, farmland tends to appreciate over time, making it a sound long-term investment.
Conclusion
Farmland investment offers stability, tangible value, and the potential for steady income. It’s not for everyone, but for those looking for a simpler, more reliable investment, it’s worth considering.
Disclaimer
I’m not a financial advisor, accountant, CPA, or attorney—I’m a real estate broker in about five states currently. My advice is based on our experience in the real estate market, and it’s essential to consult with your financial and legal professionals before making any decisions.
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