It’s Farmland Sale Season. Are You In the Market?
If you’re in the mood to buy farmland, you’re likely to see more of it available this winter. Calendars are filling up with farmland auctions across the Midwest. “There sure seems to be more offered for sale this year than last year,” says Dave Luckey, real estate broker with Buss Realty and Auction, Columbus, Nebraska.
Prices paid for average farmland are trending downward from the highs of 2012-13, but high-quality farmland continues to fetch top dollar.
“The market is pretty doggone strong right now,” says Jeffrey Obrecht, broker and auctioneer in Iowa Falls, Iowa.
Dan Pike, owner of Dan Pike Auction of Jackson Minnesota, agrees.
“There is a good buyer pool of area farmers and investors,” he says.
Ahh, the investors. They’re coming back into the land market after a four- or five-year hiatus. And while no prospective land buyer wants competition, investors who buy land often need someone to farm it. That gives neighboring farmers an opportunity to take on more acres, Obrecht points out.
Still, most farmland continues to be purchased by neighboring farmers, many of whom have cash and aren’t interested in investing off the farm.
“Many buyers would rather own land than any other type of investment. It’s an asset they want to have in their portfolios,” Pike says.
Obrecht agrees. “These guys know land. They tell themselves that’s what they’re going to buy.”
And now that farmland sale season is in full swing, be prepared to buy, the auctioneers advise.
- Make arrangements with your bank. Your loan officer should not be the last one to know you were high bidder on a piece of ground. Well in advance of the auction, meet with your loan officer so you are prepared to buy. You’ll need a balance sheet, three years of tax returns, and a cash flow statement that shows how you plan to pay for that piece of land. Keep in mind, it will take three to four weeks for most lending institutions to process loan applications.
- Can you afford low-quality land? Top-quality property is still fetching good prices. Some farmers believe they can buy a lower quality piece of land and “build it up.” But be prepared to pour in a lot of sweat equity such as fixing ditches, building terraces and waterways, planting cover crops to jump-start the soil biology – or all of the above. Factor these potential expenses into the bidding.
- Is it worth it? It’s human nature to want to expand your farm holdings, but more than once a farmer paid too much or bought land that didn’t quite fit his or her operation. It’s OK to pass on an opportunity, if taking on more debt takes you out of your comfort zone.
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