cancel
Showing results for 
Search instead for 
Did you mean: 
wt510151
Senior Contributor

Re: Credit

I wonder if the land prices have much to do with the banks' financial instability. If you have money in the bank that is greater than $250,000, would you pay as much as you could so the money could be in "a safer place." It may also produce a better return than that of a CD, as I read in soyroy's column. There have been many public bank closings and with all the consolidation lately, it is hard to spread the cash to be under the FDIC guarantee. If the land is clear, credit wouldn't be a problem for those people.

0 Kudos
kraft-t
Senior Advisor

RE From this perspective

It is not too important that the purchased land cash flows. What is important is whether the buyer cash cash flow. I assure you that if I carried the paper and that parcel was my only security, I would want it to cash flow independently.

 

The last parcel I bought, I knew it would not cash flow independently. But I did know where the revenues were coming from to service the debt.

 

I view a farm purchase just like an IRA. I know I want to save money each and every year. If the land generates enough revenue to pay a goodly portion of the cost of ownership, I am prepared to subsidize it with other earnings. I do want to save money somewhere and it just as well go into the mortgage.  I believe that savings put into a land purchase is so much more secure in that assets invested there are less liquid and less likely to be spent.

0 Kudos
long_run
Contributor

Re: RE From this perspective

The original question was asking how tight credit was when lending to farm land.  I agree with you from a farmer's perspective.  I was just explaining how much we are lending/acre and why.  As a lender we are always considering a worst case scenario and justifing why we lending beyond that.  I don't want to say that we are collateral lending, because we are not.  Cashflow is vitally important, maybe not always in relation to the capital transaction, but as a whole the farm must demonstrate the ability to support the new loan.

 

From your persepective, I am also a small farmer and I need to at least see the interest and taxes covered by a conservative rental payment ($150/acre).

 

You are correct in that land is less liquid, however, buyers need to understand that it can also freeze your liquidty and may even see some equity deterioation if you are buying $5-$6K land.  If you buy $5,000 land and I require $3,000 in equity, that equity/liquidity can be very difficult to get back to if you needed it.  I am seeing scenario's right now where farmers poured their cash from 2008 run into high dollar land and now are in a liquidity pinch.  If we see some extended periods of $3 corn we may see some forced land sales by the owner or a lender. 

0 Kudos
kraft-t
Senior Advisor

Re: RE From this perspective

I appreciate your comments and definately wish to encourage  your future participation.

 

My only purpose is to encourage farmers that want to own land to make a commitment to it and use the discipline it requires to make it happen. In my younger days I was addicted to farm machinery and procuring farm land was not a high priority. A mistake in investing in machinery and IRA's that they reduced working capital. Capital that I could have used for down stroke on land. Too many years wasted in my opinion.

 

But it not only takes the  commitment to land purchase, it requires a determination to pay for it. Plus the willingness to make sacrifices toward that end. The new car or pickup gets sidelined to meet the mortgage obligation. Without that obligation the tempotation for compuslive spending is too great. I speak from experience.

 

Btw I do have  cash holdings that could be better placed on an existing  mortgage. It would save nearly 7% in interest charges, but I wish to retain a cash position for an emergency fund or a catalyst should another venture interest me. With an uneasy financial market one should be prepared for future events. Thanks for the discussion..Don

0 Kudos
belarus
Senior Contributor

Re: RE From this perspective

Don, that is why I've always said I'd rather have thousands of dollars of debt per sow in land rather than buildings.  One ends up being worth something for the next generation and one costs them money to get rid of.

0 Kudos
jrsiajdranch
Veteran Advisor

Re: RE From this perspective

Long run so you think those forced sales will lower land prices enough to let a poor dairy farmer into the game or is land still going to be viewed as a safe haven for money thereby mot reducing price that much?  Just lookin for a little hopeSmiley Tongue

0 Kudos
BKsandFarmer
Frequent Contributor

Re: Credit

I would say farmland is still easier to come by than other sources of credit. Last year my wife and I purchased 80 acres and also refinanced our home. The land was much easier to buy than refinancing our home. Buying the land was easier mainlly because the beggining farmer program helped us out. The bank also knows land prices in this area are still strong so they will be able to get their money one way or the other. Refinancing our home was a huge pain in the a**, we both have great credit and good jobs and still we jumped through alot of hoops to refinance a home we had been paying for the last 3 years!

0 Kudos
WI AgLender
Contributor

Re: RE From this perspective

There is always a chance it could decrease.  The people who say land always goes up in value are the ones who will be giving it back to the bank.  The farm community has much more equity now than it used to, and the individuals have a believe that land is a good investment.  This will keep them buying land.  As stated previously it must cash flow for them as a part of their whole farm, not necessarily by itself.  if it cash flowed by itself everyone would buy it. 

The situation that would cause land to decrease in value would be a significant change in farm income.  If we see an extended period of low farm income (crop,dairy,livestock, etc) this will  cause them to get worried about the future and stop buying.   That situation has happened, and can again.

0 Kudos
k-289
Senior Advisor

Re: RE From this perspective

I look at some of my investments with an open mind--but considering the demand for oil- minerals-water- food it seems to me the only one that is sustainable is ag while the oil and minerals are a disappearing commodities?? The only thing AG will have to come to grips with is the feed the world gimmic--the world will have to help take care of them self to a point? The only thing about a cheap anything is the cost of the end result- mainly pollution--displaced people etc. 

0 Kudos
Kay/NC
Honored Advisor

Re: Credit

One of my favorite commentators on economic issues is Erin Burnett, who cuts in on during Joe Scarborough's monring TV show.  She mentioned this week that a possible interest rate increase planned for around the beginning of 2011 will likely not occur now, since the economy is still a lot softer than anticipated at this late date. 

I hope that she is right in some ways, but would love to think things will improve enough to feel that we aren't so fragile.  I think higher rates will set things back even further, in terms of rebounding business activity. 

Am glad we do not need to be in a borrowing mode now, regardless.  Interest rates flat are making it sort of look like we will be working forever, but having something to do is a good problem to have right now, isn't it? Met with our investment guy last week to roll over traditional IRAs to Roths this year, and he's got a couple of ideas that we are considering that I mihgt never have considered two years ago. 

Weird times. 

0 Kudos