I can’t tell you how many times I’ve seen an owner of farmland who’s ready to sell his land but can’t — simply because he’s saddled with a long-term lease that makes it impossible to get what would otherwise be a fair market price.
It happens to all of us for perfectly good reasons. We want to lock in what seems like a good deal for the long term. Or we want to do a favor for a friend or relative. Maybe we just take the easy way out and take a bird in the hand rather than investigating a wider range of operators.
But when it’s time to sell, they all amount to the same thing: Land that you’re stuck with unless you want to get hammered on the price. We’ve seen a good bit of this lately.
It’s easy to forget that a farm is, above all, a business asset, and a business asset is priced on the anticipated rate of return. So if you wrote a 10-year lease for $180 a couple of years ago when your land was selling at $6,000 an acre — a nice 3 percent return — it may have seemed like a smart move. But now you might be looking around and seeing comparable land selling at $10,000 an acre, with investors still looking for that 3 percent return. So guess what your land is worth to them? You got it right — you may be still stuck at $6,000.
That’s worth thinking about when you write your next lease.