Often, when someone who doesn’t actively farm inherits land, their first thought is, “What will I do with this?” One idea is to sell it, and Murray Wise Associates has a suite of options and ideas for ways to get top dollar at your land sale.
But another potential plan can be to look at your farmland as a long-term investment. The actual value in owning land often comes from its appreciation in value – so it isn’t something you’d acquire today and sell tomorrow. Farmland ownership can be a great way to diversify your retirement portfolio.
How farmland works as an investment
When leased to a good farmer at the right price, farmland can provide a steady income to its owner. While many investors will tout commercial property’s value in a portfolio, commercial property experiences vacancies – a downside not often seen in agricultural land investments. We seldom see farms not making some income, as it isn’t hard to find a farmer to take advantage of the opportunity.
The biggest argument against farmland as part of a retirement portfolio is that it has a lower cap rate than the stock market. The flip side of that is the rate at which it can appreciate. Some areas have seen farmland values increase by 20% since 2020. Farmland also doesn’t depreciate as a stock or commercial building can. Land is a low-risk way to diversify.
Sale expectations can be tricky
Expectations make selling inherited farmland a risky business. Everyone hears about record farm sales and assumes that is where the value of their own land sits. But the reality of a farmland sale is that the value depends on various factors we sometimes cannot control. Location, yield history and proximity to other farms a prospective buyer may own can all play a role in the price. Murray Wise Associates can put the farm in front of the best buyers around, but the truth is, there’s no way to know who will be there that day and what exactly it will be that pushes a farm to sell at those highest levels.
We can bring the market to the room that day, but we can’t create it. The buyers in the room will decide what the market is for that farm on auction day. Knowing that helps some landowners who are on the fence decide to keep their land as an investment and make the decision about selling at a later date.
So how can you make your decision-making process more manageable if you may be inheriting farmland? Here are a few ideas.
● Ask the hard questions now.
Especially for owners who may not be physically close to the land they’ll be inheriting, it is essential to understand what all property will be involved and how it is currently managed. The loss of a family member and the management of an estate can already be a sudden and overwhelming event. Not knowing where the land or farming business sits just compounds an already difficult time.
● Educate yourself on the process.
Find out how the farm you are inheriting actually works. Knowing if there are written leases and understanding crop arrangements and ownership can help you be prepared when the time comes.
MWA can take the lead
Farmland doesn’t have to be another full-time job to take advantage of its benefits. MWA offers farm management services that allow landowners to keep the farms they’ve inherited while caring for them properly and bringing in that consistent income.
MWA does all the legwork for you. With access to the farm records, we can consider all the current arrangements and ensure your farm is cared for in a way that carries on the legacy for the next generation. MWA has a broad network of the best farmers in the area to lease the property, and we send updated farm reports to answer any questions for owners who want to understand the operation better. Owners who take advantage of this service often see higher returns on their inherited land simply because of MWA’s connections in the industry.
While it can be a difficult conversation to have, the best time to start working with a farm manager through MWA is before the farm is inherited; the success rate of families keeping the farm is significantly higher in these scenarios because it cuts out many of the overwhelming aspects that move families to sell.
If owners still decide to sell instead of keeping their property, MWA can also help them there. In the same way that we have deep connections with farmers looking to lease ground, we also have extensive relationships with farmers, investors and others looking to purchase farmland across the country. Whatever the goal is, we have the tools landowners need to get the highest return on their farmland investments.