FINDING FARMLAND COURSE
Lesson 7: Leasing Farmland
Understand the best practices for land leasing, and a framework for considering whether leasing or buying land is right for you.
READ | Leasing Farmland: The Basics
Tim Biello , a New York farmer and project manager for American Farmland Trust , shares the basic best practices for farmers leasing land in this lesson’s first guest post.
There are more than a few things to know about best practices for farmers seeking to lease farmland—regional dynamics and land values, soil quality, infrastructure, personal as well as business financial circumstances and goals, interpersonal relationships, current plans and long-term planning, and more. But let’s focus on the basics. Look past the complexities, at least at first, and hone in on the foundational components and processes—the fundamental aspects of a good farm lease, the background work you can do to prepare yourself, and the resources you can use to develop and implement your farming plans.
First, try to get a written lease . Include, at minimum, the basic terms needed (i.e. parties involved, acreage, rent, start and end dates) but aspire to also include the terms and other elements that make it even better (i.e. a description of the property, maybe even a map and details about your access to the property, maintenance and improvement projects and who’s responsible for them, how the lease can be terminated and how you’ll handle disagreements, scheduled dates and times for communication). Focus on getting the lease right. It isn’t busy work. It’s the process you go through to ensure you’re on common ground with the farmland owner, to raise any red flags before you’re financially and legally committed, and to establish a solid relationship.
Second, to clearly see the difference between a good versus a bad opportunity, you need clarity about your personal finances and those of your business . You should have, again at minimum, a basic business plan and a one-year income statement detailing your farm’s current and expected revenues and costs. How else can you know if you can afford rent? Even better, develop an income statement that covers multiple years and allows you to see how, over time, the lease terms align with your projected income and how that aligns with your personal income needs and plans. For example, do you hope to lease this property indefinitely or is it a stepping stone, and how do you need to financially prepare for your next step? Or do you want to start saving for that new implement, or a personal vehicle, or family expenses that might be coming up, or maybe even a vacation! Whatever your personal and business goals may be, you’ll be much more likely to achieve them if you make time, in advance, for detailed business and financial planning.
Finally, make use of the resources available to you , both online and in-person. Here are a few:
Farmland Information Center – Access to Land – Find leasing and other farm access information
Land For Good – Build a Lease Tool – Understand and develop a customized farm lease
USDA Cooperative Extension System – Find your Local Office – Locate your local extension office and ask them if they can assist you in evaluating properties, developing a lease, business and financial planning and/or connecting to the other organizations in your area who can work with you.
READ | Should I Lease or Buy?
This lesson’s second guest post comes courtesy of Kevin Egolf , manager and co-founder of Local Farms Fund .
When a farmer looking to start a farm does not come from a farm family, the first and biggest question she faces is whether to buy or lease land. Oftentimes the decision is made for the farmer before any serious analysis. Without capital or credit it is very difficult to buy farmland. For those lucky enough to be in a position in which buying farmland is an option, this post serves to provide basic advice that will help with the decision process.
The first thing to remember is that farming is a business. Yes, it is a lifestyle and, yes, it is an occupation, but the reality is that the buy/lease decision is an economic decision and should be approached with such a lens. How do you make an economic decision? Assess the options. For each option analyze the costs, benefits, and risks. Some of these items are going to be quantitative and some are going to be qualitative. The analysis will not yield a straightforward answer, but it will provide the information for a sound and grounded decision.
The following table provides some of the elements to consider. It should be noted that this list is not exhaustive and there are many other potential costs, benefits, and risks. Each situation is unique and should be evaluated on an individual basis.
travel & time costs (residence on the farm and market locations?)
(can exit the lease)
limited time frame commitment
property fit / desirability
ownership may not be possible / feasible
landowner / heirs change mind
mortgage down payment
taxes and insurance
travel & time costs (residence on the farm and market locations?)
no usage restrictions
farm co-location with residence
clear ownership of improvements
opportunity to build equity in land
no easy exit
significant sunk capital
frequently higher costs
potential equity loss
After reviewing the table, you might notice that some elements appear for both the lease and the mortgage. For example, travel costs can be a problem whether you lease or own a farm. Additionally, many landowners are willing to create unique leases that can alleviate some of the risks and/or create some of the benefits commonly associated with mortgages. As noted earlier, each opportunity should be evaluated based on its own facts and circumstances.
A lot of lease or buy decisions come down to assessing costs versus security, alongside the property desirability. Generally mortgages have higher costs and longer term commitments associated with those costs. At the same time, a mortgage provides definitive security and the fewest usage restrictions if those costs can be met. Furthermore the farm that you can lease may not be the same as the one you can buy. This final layer of desirability might be based on location, size, topography or soil. While understanding these elements is fairly straightforward, the analysis needed to make a decision is quite complex and subjective—especially the desirability part.
Assuming you can cover the higher costs of the mortgage, it is important to assess how stable your income is. Many farmers maintain off-farm jobs to keep income security. Is off-farm income a fallback option based on farm location? How easy would it be to resell the farm? How much savings are in place to mitigate temporary income shortages? Understanding the risks associated with mortgage payments may reduce the complexity of the decision and allow you to focus on other elements that are subjective.
On the security part of the decision, the difference between a lease and ownership can vary widely. A ground lease with a land trust is as close to ownership as you can get without officially having your name on the deed. A lease can and may change over time despite a landowner’s initial intentions. People change and inevitably people also die. This is a risk that should be assessed in your lease arrangement. Just because the landowner says you can have chickens now does not mean she is going to allow it next year. A landowner might be forced to sell a property due to economic changes or other needs. The heirs may not have the same opinions as the original landowner. The best protection against the risk that a landowner may change or that a landowner may change her mind is a good lease that outlines all those verbal and implicit arrangements.
Finally, despite the emphasis on an economic analysis, there are many personal preferences that go into a buy or lease decision. Those preferences should not be dismissed. Overall desirability needs to be factored into the decision. Oftentimes people lease farms in more desirable locations because the cost is too high to buy in those areas. Therefore owning land may mean being further away from markets, having a smaller land base, or working on lower quality land. These tradeoffs, if they exist, are important to factor against the positives of owning land, including building equity and full control. The buy/lease decision process is never going to be easy, but taking a thoughtful and thorough approach will allow you to make an appropriate decision.
WATCH | Calculator Walkthrough: Land Lease Features
Looking for more help? This video explains just one aspect of using the Finding Farmland Calculator. Find all of the instructional videos at youngfarmers.org/calculator.
The first step towards finding farmland is knowing what you’re looking for.
Make your own farm assessment checklist. First, list the traits your farm MUST HAVE, then list the traits that would be NICE TO HAVE. Think about acreage, infrastructure, distance to markets, the landowner’s background and knowledge, local zoning and regulations, and anything else that could be useful or present hardship in the future. Use this checklist any time you consider a new property.
Use the sample farm assessment checklist here to come up with ideas.
Also remember to use SoilWeb or the NRCS Web Soil Survey to learn about a property’s soils once you start comparing.