Help with structure of land lease.
Hello, I have a uniuiqe situation that I'm trying to get some ideas on and would love some input.
My gradfather farmed a little over 600 acres mostly by himself for over 45 years before his passing. The land was left to my aunt. She has had it leased out for almost 20 years. Recently she has brought up that the land is willed to me and asked if I had any interest in farming it. My first thoughts were to say no. I'm 40 years old and although I spent plenty of summers helping out on the farm when I was young I just don't know if I want to tackle 600 acres on my own.
My preference would be to go to the current lessee of the land and offer a partnership. If he will bring me on and let me get my farming legs back underneath me and learn the land and the in's & out's or anything he may know from farming it for the past 20 years. My ultimate goal would be to phase him out and take over completely. I understand that this may not be favorable to the lessee but it would be better than just pulling the land out from under him and taking over. I would of course want this to still be a profitable indevour on his end so in there lies the question.
How do I go about structuring a deal that allows him to feel like it's worth it for him and I to work together?
1.Would I reduce the cost of the lease and obsorb the difference as my end of the deal.? Or
2. Would I just break it into a percentage partnership?
3. Would the better plan be to take 200 acers back over the course of 3 seasons to let him phase out and me phase into it?
I am not wanting to step on his toes and I understand that he almost considers this his land after 20 years. His lease is very favorable considering what tillable acreage is renting for right now. I just want to apporach this in a fair and mindful way and would love any opinions or ideas you all may have.
Also most of the farm equipment was auctioned off to pay for nursing home care. So I would either be renting equipment or buying. If I were to partner with the current lessee I would just be using his equipment is my guess. A few years as partner is my preference. Alows me to put a little aside for my own equipment and have someone there to help when problems arrise as they always do.
And I forgot to mention it is currently corn and maybe some bean being grown on the land currently. What can one likely expect to make on 600 Acers without any land cost factored in. I am seeing around the $300 mark pre land cost. How accurate is that?
Re: Help with structure of land lease.
You will just have to sit down and put pencil to paper and see how it works out. It sounds like the land is paid for, which is very favorable for you. The first thing I would look at now is your current employment sitution; are you working full time and will be burning up both ends to do it or will you have the time to put into 600 acres? After that I would assess your equipment needs and look into that cost, then get into the yearly number crunch of what inputs you have versus expected yields and see how it pencils out for you.
As far as the current lease arrangement, it is good that you are going into it cautiously and not trying to disrupt everything. That being said, if I was renting the ground and someone came to me offering a deal to phase me out I would feel slighted and that someone was stepping on my toes. Just depends on your relationship with the tenant i suppose. A deal that loses him ground eventually is never beneficial to a farmer so keep that in mind.
A lot of words for a couple pennies, but that's just my 2 cents. Don't think that I am trying to discourage you if the tone seems negative, you're willlingness to take control of family ground and keep it your own is just fine by me. Just always two sides to consider! Good luck with whichever route you may choose
Re: Help with structure of land lease.
What you have before you is a major business analysis and financial plan that ought to seek professional help with. You would help your aunt's family and yours, if you approached one of the major Farm Management Companies in the midwest (assuming this 600 acres is located somewhere in the US midwest, and asked for their help in analyzing the current farms value, lease contracts, cropping plans, current leasee competance, competitive lease rates in the farming area, current condition of the farms assets, tax implications of planned future ownership transfers, and your own capacity to come up to speed with modern agricultural operations. You would learn a lot more of the right way to do things if you signed up for some classes at one of the major Ag universities located in most every state with commercial farms rather than to try and work with the current tennant who considers the farm his land. The land isn't and likely won't be. Unless, of course, you become easily discoraged by following the wrong path and try to strike a deal with someone who should instead be trying to strike a deal with you after you acquire better knowledge of your situation. If I were you, I would get on the web sites of the major professional farm management compaines and start reading about how to be a successful farm inheiritor of a commercial farm, and how you can best continue to benifit by inheirting it. I'd start with Farmers National Company and Hertz Farm Management. They both know how to help a guy like you with family farming history and unsure loyalties to long term tennants that may need protection in the process. There are a lot of tennants that take advantage of unknowledgable land owners for more than a few decades. There are other tenants that are better to you than your own favorite uncle. A profesional farm mangament company can tell you the difference, using professional knowledge. That's what you need, to assess your future. -NottaStree