Preparation Helps Farmers When Buying Land
May 01, 2015
First-time landowners or farmers seeking to expand both know the same thing: land is a large, long-term investment.
Several years of low interest rates made buying an easier decision, but agricultural lenders agree the days of low interest rates are fading.
“Before the 2007 bust in the economy, land prices and interest rates were substantially higher,” said First South Farm Credit Vice President Keith McCurdy. “The Federal Reserve held its Fed Funds Rates at essentially 0 percent for more than six years. There is talk of those rates increasing this summer or fall, and an increase will cause land financing rates to rise.”
Alabama Farm Credit Vice President Jim Tollison Jr. agreed, adding agriculture fared well during the recession compared to other industries.
“Your dollars are going to buy more now than several years ago,” he said. “Older generations bought land for $400 an acre. We’re not going to be able to say that, but now there’s a chance to look back and say we bought our land for $2,000 an acre.”
Tollison said borrowers should be prepared when they seek a loan.
“If someone is organized, has a down payment, a history of income and tell us their expectations for the farm, then those are the people we want to do business with,” he said.
McCurdy said pre-qualification is a good first step toward buying land.
Alfa Realty Rural Property Specialist Monty Gordon said the second step should be an appraisal of the land. He said price depends on the land’s use.
Hunting and recreational land sells faster than farmland, said Gordon, a Montgomery County Farmers Federation board member. But 80-100 acre plots for small cattle and horse farms are most popular.
Gordon said land is usually the largest investment a farmer makes. He advises beginner farmers to develop a farm plan, start small and grow over time.
“For a young farmer, there are a lot of factors that determine if they are successful,” he said. “Those should be put in a farm plan: where to borrow money; farm location; cash flow and possible off-farm income. It’s like any business plan; you have got to have a goal and a plan on how to reach that goal.”