Whether you are trying to buy a large piece of farmland, or a small patch of land for one crop, you have to decide if you will buy or rent the land.
Beginning farmers often make the mistake of assuming they have no choice but to rent it. While renting does have its advantages, there are also advantages of buying land as well.
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Keep reading to learn which option may be right for you.
The Advantages of Renting Land
Renting often gives you immediate access to the land you want to use and often for a lower price. Other benefits include:
- You don’t need to raise capital to put money down on the farmland
- You don’t have to go through as tough of an approval process as you do for a loan
- You can quickly make changes to your farm operations, either scaling up or down
- You may have more resources available to helps you build up working capital
- You can take a lease for as few or as many years as you see plausible
The Disadvantages of Renting Land
Renting doesn’t provide you with the
same tax benefits as buying the land offers. Your lease rates may be higher than the cost of borrowing the money if you use government-backed financing. Other disadvantages include:
- You’ll likely pay lease rates based on the value of the land rather than on the chance of profitability on the desired land
- You don’t gain any equity in the land; if you have a bad season, you stand to lose everything
- You may not want to build onto the loan or invest a lot of capital for it if you have a short-term lease
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Advantages of Buying Farmland
Buying farmland gives you the chance to do what you want with the land; it also gives you a long-term investment, allowing you to wait out the bad years, and even them out with the good years. Other advantages include:
- You’ll likely receive several tax benefits, including tax exemption from the wealth tax
- You can plant any crops you want on the land or do what you want with the land
- You can rent out part of the land or participate in crop sharing to help cut the cost of owning the land while still reaping the benefits
Disadvantages of Buying Farmland
- You are solely responsible for the payments on the land, if you can’t pay them, you could lose your business
- Securing financing as a beginning farmer could be rather difficult unless you qualify for a
guaranteed loan from the FSA
- You’ll have to have a thorough understanding of the laws before building on your farmland to avoid legal issues
Starting farmers do have the option to lease or buy farmland. Your resources and ability to secure financing will be the determining factor. There’s nothing wrong with starting out leasing land, allowing you to build up capital in the meantime. Make your decision a well researched and thought out one so that you know which one suits you the most.
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