Investing in and owning farmland is not as complex as some other forms of real property such as apartment buildings, commercial buildings, or retail space. With more first time individual and institutional investors entering the market to purchase farmland, it is important for them to have a thorough understanding of agricultural land and the land market. This entails a number of factors and information sources that an investor needs to be aware of.
Soil productivity is the basis underlying how productive a farm should be and therefore the expected income. Variable factors like fertility levels, erosion control, weed control, and production practices used on a farm contribute to productivity and land value. Investors need to have a good grasp on all the mentioned factors in order to assess a farm. Understanding these factors comes from studying university and private resources or looking to a trusted adviser for evaluation and guidance.
In addition to understand the physical and production factors that determine the productivity of a farm, an investor also needs to know the local land market. This will include searching for comparable sales in the same area and time frame and also knowing if the area is a seller’s or buyer’s market.
Research of sales can be done through the county courthouse or online records and today, there are several web services that post land sales. But, the sale information may not be accurate, so please do not rely on these sources for final information. Engaging a land broker and farm manager to assist in evaluating and recommending purchases is a good path for many investors as they rely on the expertise of their trust advisor.
Knowing the rental market in the area is the final piece to having the necessary information to make a farmland purchase. Understanding the types of leases common to the area and cash rental ranges will help the investor project the income that can be generated by the farm and the return on their investment. Again, available data from surveys and universities may not be as accurate as necessary for a local area or farm. Having a trusted advisor who knows the local rental market can make a big difference in the amount of income a farm can generate for the owner.