It May Be More Important To Not Overpay for Land Than Have Too Much Leverage
Two speakers from Kansas State Univeristy indicated that overpaying for land in their analysis was more likely to be more harmful to a farm operation than having too much leverage.
Their bottom line objectives for their land buying decisions in 2011 is that the perceived land rent value should be at least 4.50% of the amount paid. If it ends up being lower than 3.50%, then the farmer most likely pass on the purchase.
If 2011 is like 1981 in values and returns, under all their scenarios, all farmers would have a negative return over 20 years, however, it is very unlikely it is like 1981, but it might be.
Just make sure you use consistent decision making in your land purchase decisions.
Paul Neiffer is a certified public accountant and business advisor specializing in income taxation, accounting services, and succession planning for farmers and agribusiness processors. Paul is a principal with CliftonLarsonAllen in Walla Walla, Washington, as well as a regular speaker at national conferences and contributor at agweb.com. Raised on a farm in central Washington, he has been immersed in the ag industry his entire life, including the last 30 years professionally. Paul and his wife purchase an 180 acre ranch in 2016 and enjoy keeping it full of animals.
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