Bootstrap @ Hartwood Farm: How We Bought the Farm
By Maryellen Sheehan
Not owning farmland should not keep anyone from farming. There are amazing land matching opportunities that make farmland accessible to potential new operators, and we have been lucky enough to participate in some of them. As long as we’ve been working on other farm operations or leasing land, we’ve had an urge for permanence that we couldn’t shake. We wanted to own the land we farmed. And we don’t think it’s that crazy to try to buy land as a farmer in most of the country, though housing prices did lock us out of our home region.
Midway through this first season we realized two things. First, the economic costs of owning a farm are less than anticipated. Our rural mortgage is half our semi-suburban rent. A small house entails minimal future maintenance costs. In the worst case scenario and the farm fails, we can afford to live here working off-farm jobs. Second, the economic costs of operating a start-up farm are more expensive than even two experienced farming pessimists could have anticipated! We will blog this month on how we made it through the ownership costs and next month on the challenging operating costs and their various dilemmas.
Between us, we worked eleven seasons on various farms, learning a lot while receiving reliable paychecks. We also leased land for six years. Leasing land was also a great learning experience with the additional advantage of forcing us to accrue infrastructure like greenhouses. However, leasing lacked financial stability.
All those years, we worked second jobs off-farm (typically carpentry or service work), socking away anything we could, and semi-looking at farms for sale across the northeast. We are not quick decision makers, started off broke, and are extremely risk averse, so it took a long time to work through the spectrum of trying to buy a farm, including five years of focused saving, research on land, business planning, and a fair amount of rejection.
The main economic rationale for us to buy was the cost of rent versus cost of a mortgage. As interest rates dropped, mortgage payments compared favorably to rents. We also discovered that the longer you live without financial distress, things like age, work history, and credit scores keep accruing until lenders actually want to loan to you!
In retrospect, it would be most logical to decide where you want to farm and then go rent land there for a few years building markets and getting financially established. We didn’t do this because after a decade of thinking about where to go and saving up, we were in a rush to get established. We chose a region based on how we liked it, good soils, cost of housing, and the availability of local (or at least regional) markets.
Site specific financial considerations included maximizing our limited purchasing power. Our research showed a tight market on land leases, so the small dairies (under fifteen tillable acres) we could afford likely lacked the land base for financial viability. We started looking for fewer barns and more land so we wouldn’t have to lease extra land. We also needed a house that wouldn’t be a money pit since the point was to avoid rent and high housing costs.
We learned a LOT about the finance process, starting with one key point: don’t quit your day job before applying for a loan! Banks want you to have a job in the region you move to. Banks also do not like properties over five acres, so you need to find a rural bank used to dealing with farmland purchases. Lacking local jobs, we got rejected. A lot. However, several banks said we would be good loan candidates if we leased a property in the area for three years and built a successful operation (this was our plan B and what we would recommend to others).
After the first round of rejection, we turned to the FSA… but then we learned something key. We never registered as a farm operation when we started in 2002. Thus to the FSA, we had no experience as farmers and were not eligible for a loan. Moral of the story… the second you start farming, however small-scale, go register your operation!
The FSA pointed us toward Farm Credit East’s Country Living rural home loans, aimed at customers buying five plus acre properties. You don’t have to be farming to get one of these loans, but you do need a job, so… another rejection. However, the folks at Farm Credit were nice enough to boot us over to their farm lending branch.
At this point we were about to give up. Lenders wanted to give us money, we had good credit, and were looking for a monthly mortgage half of our current rent. BUT, there was Catch-22: since we didn’t have a job locally, we could only be considered for farm loans, and since we didn’t have a farm, we could only be considered for traditional loans. What we did have, thanks to years of managing and leasing operations, was a down payment (this impressed rural lenders), good credit, tons of experience, and (pivotal in the end) a workable business plan. Based on these factors, Farm Credit East decided to give us a chance after helping tighten our financial plan. Have we mentioned that we LOVE Farm Credit East?
In summary, we recommend a few steps to help buy a farm before you are old and grey:
1) Register as a farmer with the FSA as soon as you start operations.
2) Do everything possible to establish and maintain a good credit rating and build savings.
3) Decide where exactly you want to farm first, and start off working and leasing land there.
4) Don’t buy more than you can afford.
5) Don’t give up, even when for years all you hear is rejection and discouragement! You can buy land as a farmer!
Next time: the finances of running the farm after you buy it!