Ownership - About
Purchasing a farm or farmland is a big step. For many farm seekers it is their ultimate dream—a goal that may be achieved by various strategies, and often requiring patience and perseverance. By evaluating the ownership option and your readiness for farm ownership, you will be prepared to meet with realtors, landowners and lenders.
Being informed about ownership models, the sales process and terms will assist you in assessing your options, avoiding common pitfalls, and making the best decision for this important long-term investment. The road to farmland ownership can be an emotional, and a financial roller coaster. Considerations of location, price, value, debt, availability, and appropriateness all come into play.
The decision to buy land is a deeply personal one, reflecting your and your family’s values about property, ownership, assets, investment and the placement of capital. With farm ownership as your goal, it may be that you start renting and move into ownership down the road. It may be that you buy some of your land—say, your primary farmstead—and lease additional land. The formula and timing are unique to each farmer’s circumstance. There is no one best way.
Land ownership has been a way of building equity (meaning the value of an ownership interest in property) in the United States since colonial times when written descriptions of land became the norm making it possible to buy and sell real estate. The most common form of land tenure in our culture as well as others, is ownership. Private land ownership inherently gives the owner a bundle of rights, such as tilling the soil, harvesting trees, hunting and fishing. The limitations of ownership are defined in regulations (zoning) and eminent domain.
The Jeffersonian ideal of ownership argued that ownership and the economic security it provided offered owners the freedom to speak their minds―the key to a strong democracy. Many consider ownership the most “secure” form of farmland tenure, with the rights of ownership assuring that the farmer will not be “kicked off”, and that the terms of land use will be altered. Security, equity and legacy—core considerations in land tenure—may be subject to additional factors such as changes in the community that affect value. A new park or a parking lot may increase or decrease the value of all three aspects.
Farm ownership can take different forms and evolve over time. One might purchase a farm with home, barn, land and all the fittings suitable for immediate and future needs. Or, one might purchase (or lease) a base of operations—home, barn, some land—and look toward leasing additional land as needed. A third option might be to buy a home near a farm on which one would lease the operation, then sell in the future having built equity and a down payment on another farm. And there are other possibilities. Whichever of these suits your plan and your fortune, understanding the issues addressed below will enable you to do all you can to pursue some form of farm ownership.
Pros and cons of farm ownership. As with leasing, there are pros and cons to farm ownership. The advantages of ownership include:
- Security: protection loss insecure rental, and landlords’ change of plans; your plans not subject to landlord
- Equity: the value of an ownership interest in property
- Collateral: security pledged for the payment of a loan
- Ownership of improvements: no issue about who owns what you build or improve on your property
- Legacy: the legal as well as personal aspects of passing your land to others, typically as a bequest
- Emotional connection: the value and feelings associated with owning and caring for your own land
The disadvantages of ownership include:
- Ties up capital: cash, assets, net worth
- “Too permanent;” less flexibility to divest of the property
- Farm ownership strategies
- The costs of farm ownership
- Readiness: Understanding real estate terms
- Readiness: Legal issues
Links to further resources
Top Ten Things I Learned Buying a Small Farm - Great advice from someone who just went through the process of buying a farm.
First Farm Loan - Good information on applying for your first farm loan.
Direct Farm - The USDA helps farmers finance the development of farms.
Homebuyer's Guide - A guide to the process of buying a home. Many of the ideas are similar with a farm.
Equity Trust - The Equity trust is an organization that seeks to promote equity in the world by changing the way people think about and hold property.
1031 - Overview of the tax codes concerning farm sales.