We sat down with Kyle Mehmen and Daryl Pohlman, a 5th generation Iowa farmer and a financial coach at UnCommon Farms, to talk through how to prepare to buy-out your landlord.
Here are 7 takeaways. You can listen to the full conversation on YouTube.
Buying out a landlord never comes at the right time financially
“Many times we’ll get asked if we want to purchase the ground we’re renting. While it’s flattering that they think to ask us first, the problem is these types of opportunities always come up at the wrong time, either because I just purchased another farm or I’m not in the right financial position to pull the trigger.” – Kyle Mehmen, MBS Family Farms
You risk losing revenue overnight if you’re not financially prepared
“What happens when the large landlord you have surprises you? What are the implications for your operation? I don’t know another industry where you could lose 5, 10, 15 percent of your revenue base essentially overnight. That can have a very significant impact on the rest of your profitability.” – Ben Gordon, CEO of Fractal Agriculture
Preparedness starts with being open and transparent with your landlord
“Be open and transparent with your landowner. Oftentimes, they’ve got the next generation lined up. Make it clear that you’re here to help with that transition whether it’s the next generation still owning the farm or selling the property. If they want to sell, do you want to buy it yourself or have somebody who can if you can’t. It’s about making that transition as smooth as possible.” – Daryl Pohlman, Financial Coach at UnCommon Farms
Transition conversations resonate best when they’re from the heart
“There’s a lot of ways to have this conversation. I simply say to my landowners, ‘I’m a fifth generation farmer, and I would certainly hope there to be an opportunity for my kids to farm this ground long term. We want you to own this property forever, and we love the relationship that we have. In the event that you to decide to make a change, we would really like an opportunity to at least talk about it.’” – Kyle Mehmen
From there, understand what you can afford under different buy-out scenarios
“We encourage farmers to speak with their current lender to help them understand different growth scenarios and get their input on the operation’s financial strength, so they can go out and execute. This helps you understand what types of deals you can take on, and the implications of these purchases.” – Daryl Pohlman
Don’t underestimate the impact that new land can have across your operation
“What’s the ripple effect if you buy a piece of ground? Do you need to add additional storage, equipment, and labor? There are capital costs that are associated with those things, which impact your operational efficiency. For example, if you add land, does that put you into a new line of equipment where you’re totally inefficient? Does that then drive you to grow at a faster clip, so you can regain some of that efficiency back in the operation? You need to know how that ripples through your operation.” – Daryl Pohlman
Be ready with capital and cultivate investor relationships
“Ask yourself, ‘Am I financially well positioned to be able to manage a deal at any given time?’ If not, is there another capital partner that you can bring on to help manage a position? Or can you facilitate the transfer of ownership of one piece of property from one of our landowners to another?” – Kyle Mehmen
Fractal Agriculture can help you access the capital to you need today
Fractal is a long-term capital partner that helps you unlock the equity in the land you own, so you can finance your next land deal. Learn how Fractal helps you access the capital you need while keeping you in control.
You can learn more about UnCommon Farms and their suite of financial services here.
Note this is not investment advice. The information contained should be used for informational purposes.
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