Farm Land to Buy or Not

[sivakumar_sr]

Hi

I am looking for suggestion from farm land experts to suggest whether I should consider this idea or not. I live in Vic and I already own few residential properties in NSW and VIC. Now, I am considering buying farm land within in 400K price range. First of all I don't know whether I should first consider this idea of buying farm land at all and that's the reason I jumped to this forum to take advise. I am not a farmer and have no experience in farming. I am looking for farms which are productive and can be sub leased to local farmers for may be next 10 years and consider to learn farming by that time and manage it myself. Do my full time work to buy more farm land closer to the place so in 10 years time I should have pretty good size of land where I can do farming. Also as a back up plan all my residential property should help me out in giving me a good positive cash flow in 10 years time.

For my budget of 400K for good size block I am seeing more properties in South Australia compared to VIC, NSW. I haven't looked QLD and WA yet. In South Australia mostly it is cropping/graze land with good size (100+ acres) 90 minutes drive from Adelaide. It is not just one off property there are more land available so it also aligns with my requirement of buying more lands closer to the already purchased ones. I am planning to take a trip to South Australia and see how it looks in real. I know bank are only offering max 60% of the value which makes me bring 40% deposit on any purchase. I don't know whether the settlement can be negotiated for long term (2- 3 years) so it gives enough time to come up with 40% deposit.

I would like to know if my plan will work or is there any Pitt fall I should be aware off. Or should I even bother to take this decision of buying farm land which is not a good decision. Should I consider South Australia for 400K purchase or is there other area better which I don't know. What should I consider in buying farm land. Is it hard to lease out the farm land for next 10 years or is it hard to find some who will take on lease. Is cropping/grazing farm land better compared to horticulture/other farm land. I know I had asked too many questions but it will help me to take my decision with help of experts in this forum.

Regard
Siva

 

[buster]

Normally I would have said hell ye go for it, but at the moment you would be buying at the top of the market in the middle of the soft commodity boom, and it may be difficult to get land under its capitalized value. The last time I looked at the figures it was very attractive but that was 2.5 years ago with 12% yeild for lease (and you might have a good house to live in as well) as it turned out it would have been probably much more for sharefarming. But since than values have gone up 50%, even so maybe 8% yeilds should be acheived for leasing. Of course each situation will be different depending on the supply and demand in the locality. You would need to look at consistincey of production , farm records and silo receival records and rainfall records. 400k is or at least was a good amount to buy a 640 acre block of reliable low rainfall "300mm" block, with bank finance maybe 2x 640 acre blocks, with vendor finance even more , they may take a second mortgage on the all the land, or just on the particular block. Often the vendor will finance one or more blocks just so he his not left with one block unsold or just to get the deal done. Vendor finance even interest free payments in installments is possible if you buy in gloom. There is usually no problem leasing the land as most farmers want to farm as much land as they can to average down their cost per acre with there expensive machinery. And as you said the 60% LVR limits how much they can buy. $ 45 per acre was acheivable 2 years ago I dont know now wether rents followed CG. but I would expect those rates of before had already factored in current or even higher grain prices , but the higher dollar has reduced operating expenses, but again I dont know what effect that has had on rents. Agricultural land has proved to be one of the best investments over the last 20 years far out performing RIP and ASX. Go to feild days talk to CONSULTANTS and agents . the best place to get info before you buy is the local pub, a friday night is probably best, you will also meet you potential neighbors. Go to an area and get a feel for it. All so be aware the highest price may not be the price that gets the property for variety of reasons.

 

[Gools]

Siva, Buster has given you some really good advice there. I would be looking at paying well under $1000/acre in the low rainfall areas. Where abouts have you been looking in SA? The figure I was quoted last week for share farming was $50/acre for low rainfall area.

 

[SamSiam]

I am interested in this, good topic.

What locale are you talking about Buster ??

I had a very brief look at farms in NSW and SE QLD last year, even northern Vic....but very exy.

Interested to know what the net income might be from a share farmer at the 45/50 dollar mark ? Who maintains all the infrastructure ?

 

[topcropper]

I lease 400 hectares for $200 per hectare. This land is worth $6000 per hectare so the owner is getting a 3.3% yield. Thats a low return, but it should be a low return as agricultural land is a high growth asset. The owner is a retired city businessman who now lives on the farm and also runs a beef cattle enterprise on another 800 hectares, run by a manager. He also wants his farm to look nice and neat.

The owner of this land I lease paid $320 per hectare for it in 1975, so that's 8.48% capital gain return per year for 36 years. And this is dirt, so it's not needed a new roof or renos or anything, it's still just dirt in a paddock like it was 36 years ago so it's a true and real return. So he's not too concerned he's only getting 3.3% return now from me. His return on what he paid for it is pretty good.

By leasing this 400 hectares I get to help to justify owning over a millon dollars worth of machinery that I farm my own land with and also make more profit in good seasons.

I would think a 400k piece of dirt is not a viable farm on it's own, but to another farmer who will lease it, and add to his land he already owns and uses machinery he already runs, it might work out for both of you.

I reckon you might find it hard to get a good buy. All the local farmers will know every minor and major detail about soil type and rainfall patterns and the plus's and minus's about the dirt. You will be behind the eightball in that regard, but good luck anyway.

I reckon farmland will continue to be a good investment into the future. Farmland is still booming in the US and Britain and elsewhere despite all the global problems.

http://www.taipanpublishinggroup.com/tpg/taipan-daily/taipan-daily-082411.html


See ya's.

 

[pursefattener]

Siva , it is good to see you with some ambition to own farmland . From little things big things grow and all that...

I own and run a dairyfarm in Victoria and I agree with TC that farmland will continue to be a good investment into the future .

Somehow I think you need to find a way to raise more funds to be serious . There are many ways to do this , which is similar to resi investing .

Good luck .

 

[topcropper]

Interested to know what the net income might be from a share farmer at the 45/50 dollar mark ? Who maintains all the infrastructure ?

Share farming arrangements are very complicated. They involve divying up production and inputs in all sorts of different ratios. There's a bit of trust needed from both parties too, as the farmer could always say he harvested 1,000 tonnes rather than 1,200 tonnes and rip off the landowner.

That's why I like a straight out lease. We pay for the hectares we farm, then get all the production that we produce. We can cart grain between the leased land and our own land without having to empty trucks, store grain in silos from either places. So simple compared to sharefarming.

Sharefarming could also mean the landowner makes a loss in a bad year along with the farmer. But in a bumber year there is obviously more potential upside for the landowner too. Leasing means that in a bad year I take all the loss, but the upside is all mine in a bumper year.


See ya's.

 

[sivakumar_sr]

Thanks Buster, Gools, SamSiam, Topcropper,Pursefattener for your replies. It is really useful information for my decision.

Buster sorry for being ignorant when you say it may be difficult to get land under its capitalized value is it like getting a land under government valuation which normally I see in rates notice for residential properties once a year. Vendor finance is a good idea this is something will work in my situation to gain more deposit over a period of time. I don't know whether the seller will consider Vendor Finance I will put this as my first option on any purchase. On Vendor Finance who will be getting the yearly leased amount is it the buyer or seller?

Gools I am looking at the area Lameroo, Karoonda, Loxton and close to Murray bridge. There are plenty of properties available some are even in 1000 acres but it is not cultivable. The rainfall is some what close to 300MM in these areas. It will be good to know whether these area are good for cropping/grazing and out of these three which one is best. Talking to different agent they all give different figures in terms of yield they say start from 3% to 10% depends on land you pick. I am looking for something which is higher than 5% for my budget. As soon I look for yield close to 10% then the price increases and knocks my budget.

Topcropper good point to look for big block lands compared to smaller one. I also hope in future the machinery cost might come down in value and could be more affordable than in the past. May be in 10 years time with advanced technology the cost might even drop. Interesting point which came to mind how about renting the machinery is that possible and is to too much cost to rent the machinery instead of owning with million dollar investment. I also asked the agent whether they can manage the lease after purchase and they are bit hesitant to do that which was surprise to me. Is there a reason for it? May be not worth their time in these sort of transaction or is is hard to get the leases amount once it is leased. Is there anything which can be done to avoid these circumstance where we need to chase them for the lease amount after leased. I don't agree that it is hard to find a good buy but I might be wrong here. What I am hearing from agents are that most of the farmers are close to their retirement and their kids all moved to big cities and not interested in farming. I visited a farm in Victoria two weeks back and I saw the issue that the farmer is trying to sell his land for last 1 year but not able to sell it for the price listed and even after reducing the price there is no one willing to buy. This is one of the main reason which also says that there is opportunity and less competition now and going to be in future. Is this a serious problem for Australia agriculture and farmlands? What will happen if a farmland is not used for years together can it be used again in future? I am in my low 30 and still believe I can do this even if I start at this age to learn farming and support our farmlands. I also see a point that we need to encourage youth to take on farming to avoid any disaster in future.

I am more interested to see what other says to this.

Regards
Siva

 

[buster]

Share farming arrangements are very complicated. They involve divying up production and inputs in all sorts of different ratios. There's a bit of trust needed from both parties too, as the farmer could always say he harvested 1,000 tonnes rather than 1,200 tonnes and rip of the landowner.

That's why I like a straight out lease. We pay for the hectares we farm, then get all the production that we produce. We can cart grain between the leased land and our own land without having to empty trucks, store grain in silos from either places. So simple compared to sharefarming.

Sharefarming could also mean the landowner makes a loss in a bad year along with the farmer. But in a bumber year there is obviously more potential upside for the landowner too. Leasing means that in a bad year I take all the loss, but the upside is all mine in a bumper year. There is nothing at all complicated about sharefarming, it is no different than leasing. It is often just done on a handshake. An offer is made a rate is negotiated, fertilizer rates, types of chemicals, crop type and farming system ( No-till , min til etc)that can or cant be used are agreed, just the same as it is with a lease. Traditionaly the owner got 33% of what ever was produced either in kind or in cash, The only expense the owner paid was the the rates, as input got more expensive relative to grain prices owner share now is more commonly 25% now. The reason you chose light sandy country is that you still get a crop even in a bad year, you just need enough rain to get germination and with notil technics you can get germination with no, or very minimal rainfall. In a bad year you get extremely high grain prices and quality off setting any yeild loss from being dry. Expenses are less too

 

[sivakumar_sr]

Buster

If the property has bore does this help out on a bad year where there is less rainfall. Why not many properties has bore in it. Is it expensive or need permit to put one. If it not expensive will it help to put few bores and be prepared for a bad year. Just a thought without any real experience.

Regards
Siva

 

[topcropper]

I also hope in future the machinery cost might come down in value and could be more affordable than in the past. May be in 10 years time with advanced technology the cost might even drop.

Not likely.

Interesting point which came to mind how about renting the machinery is that possible and is to too much cost to rent the machinery instead of owning with million dollar investment.

Best thing to do would be to hire a contractor and his gear.

What I am hearing from agents are that most of the farmers are close to their retirement and their kids all moved to big cities and not interested in farming.

That's not good, but maybe the kids don't see a future for themselves if the farms not big enough or there's not enough profit. If that's the case then they are doing the right thing.

Statistics would show farmers are old. Thats just because farms are owned by old farmers, but are being run by the old farmers siblings. My dad is 71, I'm 44. The stats would show my farm is run by a 71 year old. My neighbours farm is owned by a 76 year old, but the farm is run by his 47 year old son. Other neighbour, owned and run by a 60 year old, who's son is a mining engineer who will come home in a few years to take over. It's the same in every direction. The stats show farms are owned and run by very old people.

I visited a farm in Victoria two weeks back and I saw the issue that the farmer is trying to sell his land for last 1 year but not able to sell it for the price listed and even after reducing the price there is no one willing to buy. This is one of the main reason which also says that there is opportunity and less competition now and going to be in future. Is this a serious problem for Australia agriculture and farmlands?

If a farmer can't sell his farm for over a year then he wants too much for it. It's overpriced, same as anything else. If someone can't sell his house for a year, it's overpriced.


See ya's.

 

[topcropper]

If the property has bore does this help out on a bad year where there is less rainfall. Why not many properties has bore in it. Is it expensive or need permit to put one. If it not expensive will it help to put few bores and be prepared for a bad year. Just a thought without any real experience.

Regards
Siva

Bore water is a magnificent asset to own on a farm. If there is plentifull water, then I'd imagine all the farms would have bores. All farms in this area have bore water if it's there. If an area has no bores or bore water then you would have to assume there isn't any. It's very common for some areas to not have bore water, so they have to put in dams and hope they fill in a wet time.


See ya's.

 

[topcropper]

The reason you chose light sandy country is that you still get a crop even in a bad year, you just need enough rain to get germination and with notil technics you can get germination with no, or very minimal rainfall.

Thats a generalisation. Every area is different. In my area, the sandy soil is rubbish and is worth a quarter of what the black soil plains are worth. Here, sandy soil wont hold water, so after a month with no rain the crop is dead. The black soil earth on the plains are metres deep and hold lots of water and grow crops with hardly any rain once they get filled up.


See ya's.

 

[pursefattener]

Siva , I know it costs the best part of 10k these days to put a bore down and equip it with a pump etc . Maybe more if you decide to run power out to it , go solar or what ever . In my area there is a $500 fee to pay the local water authority before the drilling contractor would even turn up .

In regard to sharefarming/leaseing they are very common in the dairy industry . I sharefarmed myself when I was younger and this can be a good proposition .

I have a mate who owns over 1200 dairy cows plus a heap of plant (machinery) and operates on a 50/50 basis with the landowner . This business would turnover 3-4M per annum .

If I would step away from my own farm I would definately not go with a lease for various reasons . Sharefarming is much more hands on and generally means taking a share of the business risk but you can retain more control over what goes on .

You get the good the bad and the ugly !

I just read your latest post and realise my comments are not very relevant.......

 

[buster]

I am interested in this, good topic.

What locale are you talking about Buster ??

I had a very brief look at farms in NSW and SE QLD last year, even northern Vic....but very exy.

Interested to know what the net income might be from a share farmer at the 45/50 dollar mark ? Who maintains all the infrastructure ?

Central Vic Mallee A normal wheat crop with low imputs is about 1.9 t/ha, often more, might cost 0.6 to grow so might net 1.3 t/ha @ $230 as freight is about $ 35.00 son about $300 Ha, $120.00 acre. If share farming 2.0 t/ha crop , 25%= .05 @$230 = $115, $46 per acre. with upside that could double that but little downside. Drought 1.2 t/ha , 25%, .3@ $400=$120 t/ha=$ 48 per acre. Remeber if you take the commodity you can also add value by feedlotting, storing ,using swaps, income deferal, reduce tax using FMD s. Also share farming you can run stock, although you may be able to incorporate this into a lease agreement. which may give you another $20.00 per acre

 

[buster]

The owner maintains the infrastructure.

 

[buster]

Buster

If the property has bore does this help out on a bad year where there is less rainfall. Why not many properties has bore in it. Is it expensive or need permit to put one. If it not expensive will it help to put few bores and be prepared for a bad year. Just a thought without any real experience.

Regards
Siva

The ground water here is more salty than sea water. Itis piped from wemen on the murray river it is only used for spraying and stock and domestic use. the pipe has been extended to the Grampians and water can be sent from there. You just need to spend about 3k for a tank , metre and trough but most farms would already be set up with this.

 

[Graingrower]

If you really have ambitions of being a full time farmer the you need to do your apprenticeship first. Ask yourself what your motivations are, where do you want to live, do you like animals or machinery, what skills do you have, etc. When you decide what type of farming you want to do (dairy, grain, beef, sheep, fruit, veges, chooks, pigs) and where you want to do it then start looking for a job. Better to keep your money invested elsewhere until you gain a understanding of rural investment. While working you will learn if farming is for you and what opportunities exist. You can live cheap in the country, no toll roads or parking fees, wake up and you're already at work. Rent is cheap or sometimes a house is provided, you might even buy a caravan and park it on a farm for free.

There is a young bloke near us who is employed as the herd manager for over 1000 dairy cows. He has recently bought his first block of land and also leases another block. His enterprise is not big enough, but it is viable as he uses machinery off his employers farm. I reckon that one day this bloke will be his own boss - it can be done.

Have a look at my commets on this thread: http://www.somersoft.com/forums/showthread.php?t=72785

Also try this one: http://www.somersoft.com/forums/showthread.php?p=761018#post761018

 

[sivakumar_sr]

Pursefattener

When you say I need to raise more funds to be serious. Could you quantify please. You also mentioned that there are many ways to do this. I would like to know what the ways?


Graingrower

As mentioned earlier my intention is to accumulate few farm properties for next 10 years and lease it out to local farmers there. Meanwhile learn farming as part time to understand how it all works. I would like to know how can I learn farming as part time along with my 9 to 5 job. Any information will definitely help here. There might be others like me willing to take farming but stuck with their 9-5 job and don't know how to enter into farming.


If I own few farms then it also gives me options to spread my risk for first few years till I become confident to do by myself. Correct me if I am wrong with any of these listed options. Options could be
1. Leasing few of them for guaranteed return
2. Share farm to work with another farmer to gain experience
3. Hire a contractor to come and work for the farm

Have more of option 1 (70%) less of option 2 (10%) and medium of option 3 (20%) in the initial years and them slowly move the percentage up from option 2 and 3 to option 1. As long as I have all these three options( I am sure someone will come up with more options which I don't know) it should be OK. By doing this I would have at least made my first step of thinking "Becoming Future Farmer".In worst case treat this as an investment property which should have growth in long term and could become positive in 10 years time. I had invested in land for many years and it never let me down in long term.

Regards
Siva

 

[pursefattener]

What I mean Siva , is that 400k does not really buy much if you are looking to secure title to land etc . Sometimes I have seen farms for whatever reason sit on the market for years and years and the vendors will look at any proposal that can free them out of it . Not often .

Vendor finance and lease to purchase arrangements have been a foot in the door for many people .

I like Graingrowers post above . Maybe you should work in the industry you want to invest in for a period of time to see if it is for you .

A commercial farm is not simply a realestate investment on its own but a business. If you don't run it well you will do your dough ....