Homestead purchase?

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jmphelps's picture
jmphelps
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Homestead purchase?

I live in the Midwest where farmland has doubled and tripled in the last 10 years ($2,500/acre to $5,000-$8,000/acre).  Recently a nice farm (tillable, woods, creek with older home and barn) has come up for sale close to my work, school, and family.  The asking price is outrageous, but I have the cash sitting in the bank to own it free and clear.  I currently live on a 1/4 acre lot in a suburban neighborhood with my wife and 10 year old daughter.  We have no debt.  My vision would be to set up a homestead, sell our suburban house, and move to the country to become more resilient.  I'm curious to know if anyone recommends the purchase of farmland now despite it obviously still being inflated?

locksmithuk's picture
locksmithuk
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Joined: Dec 19 2011
Posts: 114
Farmland

jmphelps:

I live in Australia. I used to think Melbourne prices were inflated, so I held back. That was before they doubled. Now they're out of financial reach for me.

 

Now I have 8 acres of riverfront property in Tasmania, with a lovely house and a stupendous view across the river to the valley yonder. There's enough space for a Feeding Of The 5,000, and my partner and I mostly need not rely on the outside world. I'm extremely lucky and I'm as happy as a pig in muck. I also believe that we may have made a shrewd purchase - farmland may just perform well in future as an asset class.

 

Price vs value. Consider the value contribution of your prospective purchase to your and your family's lives. If you believe you'll also be a little piggy as a result of the purchase then it's an easy decision. I'll take happiness over money 10 times out of 10... but that's just me.

 

kaimu's picture
kaimu
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Posts: 154
FARMY

Aloha! Farming in Hawaii is where I am.

I understand the frustration of not buying at the "lows"! To put that into perspective you lament the lows of $2500/acre and I was just in a Houston, TX Wells Fargo bank office where they had a poster of the Houston Courthouse in 1920 with a sign advertising land for sale at $10 per acre! Back then that was the price and it was probably not the "low"!

Doing any sort of farming is not easy! Everyone used to talk about how teachers were low paid, but throughout history on average no industry has been low paid more than farmers. Only when government intervenes does the average vary ... up or down! I would seriously consider the added burden of farming or large acreage ownership while you still have a 9-5 job. There is a difficult transition. Your timing has to be impeccable or else what savings you have will drain into care and maintenance and not revenues. Consider your market and what sort of cash flow that portends. Unless your taking over an established farm it will be hard going because you face a learning curve while you're moving to production and marketing. Not easy tasks! 

Then consider the resilience of your family. How would your wife and daughter transition? Always consider the worst case scenario and try to leave the Green Acres fantasy out of it. 

I notice this website tends to push the whole "sustainable lifestyle" and they make it seem an easy and wonderful life, but I can tell you I have seen the "sustainable types" in Hawaii come and go. They show up very inflated with their preconceived bliss. It is hard work. Don't be fooled.

I think the types that survive the transition best are the ones who are the "jack of all trades" who have never been seeking the city comforts and maybe in the past they have had exposure to hard manual labor and agriculture. Add in a business mind where you jump into marketing and accounting easily. You should be able to toggle between those skill sets at any given moment.

You are ahead of the pack if you have enough cash to buy out right and no debt. But the key is do you have enough cash  after you buy the farm to cover expenses for one year? You have to have a decent reserve to start up.

Sustainability gets expensive!

I think farming is a noble pursuit. 

Good luck!

locksmithuk's picture
locksmithuk
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Posts: 114
Farming toughness
kaimu wrote:

It is hard work. Don't be fooled.

 

+1

robie robinson's picture
robie robinson
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Joined: Aug 25 2009
Posts: 1129
Farming?

Its a calling and a lifestyle. It is not like new clothes you can just "put on". We are the happiest people I know.

I officiated a wedding this past week end in downtown Richmond VA., the Museum district and Bottom. Celebrants were of course bubbly and "happy". The others, those passed on sidewalks and walking 'round Chimarazzo park looked and behaved like lonely, solitary, zoo kept critters. Now I've never before spent time in a high density pop. setting, nor seen such pervasive sullenness.

Green Acres is the place to be (you know the tune)

 

kaimu's picture
kaimu
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Posts: 154
THE HAPPIEST

Aloha! The happiest if you don't count suicide!

robie robinson's picture
robie robinson
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Joined: Aug 25 2009
Posts: 1129
"N" is too large

In our sample size of 1, we're quite content. 

Look further into high suicide rates of fisherfolk, timber people and farmers. Esp. Employees?

people of urbantopia often have the idea that a bucolic existence is a pack of seed away, the Green Acres sitcom made entertainment from the extension of that misunderstanding.

Wendy S. Delmater's picture
Wendy S. Delmater
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Posts: 1975
Cautionary tale

The Last Centurion by John Ringo, contains in part a cautionary tale about people trying to be farmers when they know nothing about it. If you're a Tom Clancy fan you'll love the book. 

It's also a tale of when a plague sweeps the world and the US government and electorate...overreact and make things worse. A doomsday prepper book for sure. 

As for the farm? What I'd consider is buying the land and having a vacation home there as a bug out location or a place to basically continue the life you have now if it's not too far from your job(s).  For the rest of the acres? Consider putting some passive farming on it. That's what our relatives do with land they have no time to farm. Passive farming includes hay, which only needs to be cut 1-3 times a year and requires no plowing. It includes renting the land out as grazing pasture. You can rent it out to farmers to grow various crops, too. You could plant fruit trees or a nut grove, too. It also includes growing lumber--you pay a forester to check on it and trim things. 

kaimu's picture
kaimu
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Posts: 154
ITS THE DEBT

Aloha!  “In the U.S., farming and mental health experts trace the issue back to the 1980s American farm crisis, when an economic downturn put many farmers into debt ... those experts named several reasons why farmers are killing themselves at such high rates: Many are reluctant to seek help; farmers tend to own guns; farms are often far from mental health care centers and professionals; the cost of land, equipment and livestock feed has gone up; and pesticide exposure can cause depression, according to studies.”-Newsweek

 

pinecarr's picture
pinecarr
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Posts: 2212
Taxes?

Hi jmphelps-

   Another thing to take into consideration are the annual taxes you would have to pay on this piece of property.  You said the asking cost for the property is outrageous.  Have you checked what the annual taxes are to see if they are similarly outrageous?  This will be an expense you will have to deal with as long as you own the property.  While it is true that any piece of property is gong to have taxes associated with it, there can be a huge difference in tax burden depending on the location where you are buying the property (just being in a different city/school district in my area can make a huge difference in the tax rate) and on the cost (assessed value) of the property.

   I recently sold a 2nd piece of property we'd owned just to get out from under the tax burden and to lower annual expenses.  I didn't "make" any money, but it is a huge relief just to reduce annual expenses. 

   Good luck on your decision!

Hotrod's picture
Hotrod
Status: Silver Member (Offline)
Joined: Apr 20 2009
Posts: 169
Buying a farm

As one of the few actual farmers here I'd like to add my "2 cents" worth of advice.

Farming is a rewarding lifestyle in many respects, but financial is not one of them.  In these years of commodity oversupply it is nearly impossible to turn a profit, no matter how thrifty an operator you are, the numbers just don't work.

The most profitable use of farmland in my location is to rent it to a very large operator, who is losing money like crazy, but is willing to increase his debtload to continue on the production and technological treadmill.  These operators will never stop expanding production unless they lose access to additional capital.  So, you are competing against many farm operators who are technically insolvent, and that is a nearly impossible challenge.

If you can purchase the farmstead and rent it out for cash flow it may make sense.  Even if you were a good farmer, trying to work the land yourself and make money is extremely difficult right now.

Also, keep in mind that an old farmstead will require serious investment in repairs and upkeep on the buildings and grounds (roofs, well, septic, etc.)

Good Luck with whatever direction you decide to go.

kaimu's picture
kaimu
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Posts: 154
FARM TAXES

Aloha! Tax burden on farming is relatively low from my experience so long as your property is zoned "ag"! You usually get tax breaks.

In Hawaii, not known for low taxes, I pay $465 a year property tax. The excise taxes are 0.05% for wholesale. Then of course you have to pay direct sales taxes on inputs, but in Hawaii the sales tax is 4.66%, State tax on income would be around 6%. Variables apply like net income minus write offs etc.

Certain countries we ship to are insanely expensive to export to like Canada because of duty and sales tax. It is so expensive we don't even market there any more. Canadian government's way of rigging the NAFTA con job.

Be prepared though because there is almost no support for small family farmers. Not from SBA or insurance companies or state and federal income tax breaks. If you are not subsidized or have some sort of government intervention on your behalf like corn/wheat farmers then you fall through the cracks.

To give you an idea I have been farming in Hawaii on the Big Island since 1998 and during those 19 years we only had one hurricane hit the island near our farm that did damage and that was in 2014, Hurricane Iselle. About three years prior some of the general liability farm insurance companies pulled out of Hawaii all together citing an impending major hurricane is overdue. The truth is they could not jack up rates fast enough to make up for their other losses from other industries/states. After Hurricane Iselle hit many farms were damaged and filed claims and some went out of business. Our farm sustained damage but we never filed a claim. Fast forward to this year and we are the only farm in our district that has any general liability insurance. Why? The other farms that filed claims cost the insurance too many losses so they now only insure farms with no claims filed. In 19 years we never filed a claim. Mainly because out of 18 years there was only one year where there was a hurricane and damage. One of the reasons we chose Hawaii over Florida!

Now compare that to the $1mil+ per home in Napa that were destroyed and the heavy losses insurance companies will suffer from Texas, Louisiana, Florida, California, Washington, Oregon, Puerto Rico, etc and insuring property in Hawaii looks like easy money right now!

Generally speaking structure damage at farms is uncommon, but more common is bodily injuries. In 19 years I had only one injury loss claim filed.

Where farmers do get help is from other farmers and universities and their ag departments. On the Big Island we have the University of Hawaii Hilo which has been awesome. I highly recommend developing a relationship with a university facility.

In terms of one of the worst states to farm in or even export to I have to put California at the top of that list! There are enough red tape and regulations to choke all the horses on the Parker Ranch and all the cows too! I had a non-ag business in California for 20 years and it was non-stop lawyers and inspectors piling regulations on top of regulations. Pretty much no small business anywhere in the USA has an advantage. One of the biggest failures of the Obama administration and the Bush era. Hoping Trump will break the trend.

All the best!

 

jennifersam07's picture
jennifersam07
Status: Silver Member (Offline)
Joined: Oct 14 2012
Posts: 110
Follow up?

So this was posted a few years ago.... curious to know what happened. Did you pull the trigger? Where are you exactly? I have some property in McHenry County Illinois from when I lived there a few years ago with husband and teens. Husband wanted to move to Texas because Illinois politics. So that's what we did. But now, he's passed away, teens are grown, and I want to move back. In Texas, property taxes are high so for a retired person with lower income, the fact that that are no income taxes in Texas really isn't a factor. 

 

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