We’ve all heard the saying, “If you ain’t growing, you’re dying.” As your neighbors only get bigger, we’ve all felt pressure to farm more acres.
While it may be tempting to pounce on every opportunity, it’s crucial to carefully assess your land acquisition strategy. Expanding too fast with the wrong opportunities may only stunt your growth long-term.
Here are four considerations when assessing how much land to purchase this year:
1. UNDERSTAND WHERE YOU NEED TO REINVEST IN YOUR BUSINESS
You should first ask: Do I need more machinery and infrastructure to justify my acreage, or do I need additional acreage to cover my fixed costs?
“Many farmers can’t finance both,” according to Steve Conaway, a real estate appraiser and farmer in North Kansas, “There’s a trade-off between financing machinery and going out and buying new land. You need to pick one and run with it.” Add capacity across your team, machinery, and storage, then focus on adding more acres to reduce your overhead.
2. SECURE YOUR RENTED LAND FIRST
The easiest way to gain ground with the least amount of risk is to purchase your rented ground when it comes available. “You have production history, you know the soil, you have the relationships to acquire this land quietly for a fair price,” says Conaway.
He recommends taking stock of your rented land and estimating what will go up for sale and when. From there, budget for down payments and debt service, while keeping an eye out for other lucrative land opportunities as they come available.
3. DEFINE WHAT A GOOD LAND OPPORTUNITY LOOKS LIKE
It’s not unusual for a farmer to receive a call to purchase new ground on short notice. But not all parcels are created equal. Conaway recommends only jumping on land that you know will add efficiency to your operation or fits your business model. “Land that reduces your farming radius or gets your foot in the door with another landlord are slam dunks. Likewise, land that can be flipped is a no-brainer if you specialize in tile or irrigation.”
Stay tuned to learn how Fractal defines a “slam-dunk” opportunity.
4. SEE HOW MUCH YOU CAN AFFORD
At the end of the day, your operation needs cash flow. Don’t shoot first and aim later. Sit down with your banker and discuss how to put together a down payment, service new debt, and pledge the necessary collateral. “The biggest limiting factor to buying land is finding a down payment without eating into your working capital. There are lots of solutions out there to preserve your working capital. Make sure to work with investors and bankers early on,” says Conaway.
IS A DOWN PAYMENT PREVENTING YOU FROM WINNING THE NEXT LAND SALE?
Access more capital with Fractal, a long-term investment partner that helps you tap into your equity while keeping you in control. Learn more
Note this is not investment advice. The information contained should be used for informational purposes.
Harrison Rogers is the Marketing Lead at Fractal Agriculture
Steve Conaway is a real estate appraiser and analyst, and farmer of corn, beans, wheat, and grain sorghum in north Kansas
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