Often overlooked by real estate investors, farm land can be a smart type of property to put your money into.
- Up-Front Investment: Purchasing the farm land.
- On-Going Investment: Annual property taxes and potentially farming expenses.
- Return on investment: Depends on the avenue you choose.
- Best for: Rural areas.
How It Works
Are you looking to make some money in an often overlooked industry? While farming is certainly a complex business to get into, as a real estate investor, there are a couple different ways you can get things going.
First, purchasing farmable land and then leasing it to a farmer would be the easiest way forward. Your only expense will be the property taxes while the farmer handles all the machinery, equipment, and actual farming.
You can setup your contract with a flat fee, similar to other types of leases, or you can ask for a percentage of their farming profit if you anticipate them to do good business.
Secondly, you could purchase an older farm for fixing up and selling/renting to a farmer. This will take more work on your end as you have to get the land ready for use again, but it can be worth while if you anticipate a lot of interest in the land.
In most cases, real estate investors will find that buying farmable land and selling farming rights to another party will be the best way forward. This is a good way to get in some passive income with property you own.
The number one pro with buying farming land is the potential for on-going income. Farmable land is also often overlooked by other real estate investors as they tend to focus on commercial or residential space. Lowered competition means the chance to purchase for at or below fair market value, giving you the potential for larger returns.
Farm land is very niche and it takes an experienced and interested third party for you to be able to turn farm land into a passive income stream. You have to do your research and know the market before investing in such land.
Farming is a complex industry and you need to know what type of farming could be done on the land and how much money you, as the property owner, could potentially profit from that type of farming.
As with any real estate investment, you need to know the marketplace. If you are in a rural area, you have the potential for making good returns by giving farming rights to a third-party in search of farm land in the area. Worst case scenario, it ends up becoming a raw land investment that can be sold to a developer at a later date.
Always run the numbers before diving into an investment, especially farm land. Know how much you will be paying and how much a leasee would need to pay you in order for you to make worthwhile returns.