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Senior Contributor

Re: Rockwell farm auction/Shaggy98-Thanks for the compliment

Yes, I can be an egotisical jerk sometimes. But at least I admit it. The higher Iowa farmland values go, the more of a jerk I become. LOL

Don't worry, I see a 20% increase in land values for Iowa in 2013, and then a few years of a 3-5% increase, and after that a 0% or even a year of a 5% decline. It really depends alot on interest rates and the inflation rate. I don't see another farm crisis at this time, but more of a return to the 50 year average Return on Investment Ratios. You look at the 50 to 75 years of past data, farmland always returns to a traditional 4 to 6% ROI Ratio.

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Senior Contributor

Re: Rockwell farm auction/BA Deere- more auction Prices in Iowa/KAY-ROI

Kay- it appears that your numbers for a rental house of a cost of $100,000 and a rent of $9,000/year seems resonable, a rough 9%. On farmland, the long-term corn ROI is in the 4 to 6% and the 75 year appreciation rate average for farmland is 6%. So, with some luck, the overall farmland long-term Corn and Appreciation rate would be a rough 12%. Houses vs Farmland, what I like about farmland is you have alot less problems with renters on farmland, plus there really isn't alot of maintance of farmland. Plus on farmland, at least in 2012, you had an option to Custom Farm your land that increased your net income by double over just cash-renting your farmland. So you have alot more ways to use farmland in regard to cash-renting, a 50/50 crop share, a 80/20 crop share, etc. With houses you can only rent it on a monthly rent payment. So farmland allows you many more ways to get the income return by using any of the other options than just cash-renting. Allows you to become more involved if you Custom Farm it. Just my opinion.

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Advisor

Re: Rockwell farm auction

BA - My equipment may be viewed as junk by many!  But it is paid for, I use American Parts, and I do not pay tech fees to anyone.  Hey!  If driving nice green paint makes you feel like a big shot, helps your self esteem, and makes you feel successful go for it. 

 

My rush in life is farming the land I own, with my equipment which is paid for.  When people only use a tractor or combine 4 to 6 weeks a year, it is clear they have no understanding of economic utility.  I will pick as many acres as you can with my older   equipment, and my only cost is a few repairs and diesel fuel.  

 

I think it is much more fun to have your land base mostly paid for, no equipment or operating debt and money in the bank, and have the ability to write the check, then go into a JD dealer with hat in hand to purchase $400,000 piece of equipment that will be worth $80K in five years, just to get a maintenance warranty where you never have to fix anything but sit on your ass while a dumb ass from John Deere comes out and does all the work on it.  

 

I spent the money to protect my assets from taxes, lawyers, and the IRS by spending 7 years of my life picking up an Accounting Degree and a Law Degree and a CPA Certificate, I know tax law!  I do not have to hire help with my taxes.  No one, but no one knows my business.  

 

There are many on here that own the land they farm, do not borrow operating money, do not choose "wants" over "needs", and do in fact have the money to write the check for the adjoining quarter, and they can purchase anything you or any other image building sucker on this site can buy they just do not feel the need to buy toys to have the world believe they have succeeded.    

 

 

If you want to adopt a spendthrift mentality, do it, I know a lot of people who chose leasing new iron and rolling it year to year to make payments, many are no longer standing on their own land every morning when they get out of bed. 

 

Better get in that new pickup and get to the Coop you will miss the whining session with the puppy dogs.   Only a dumb ass, would have his business affairs structured where he would pay income taxes.   Adios Amigo.  John

 

Honored Advisor

Re: Rockwell farm auction

Hey Faust, I`m allowed to say "junk" because I farm with junk myself and the rest of you are only allowed to use the "J-word"  in hushed tones or I`ll be offended and file a suit with help from the ACLU Smiley Very Happy  My pickup has 253,000 miles on it. 

 

Here`s the thing about stereotyping, see I only go to the elevator when I have business to conduct.  Those sitting at the table at the coop ..."Hi guys, I seeee you reading this. Hows it going?"...those are the usual suspects that are actually buying this $15,000 land, they don`t need a clutch to shift their tractor, they wouldn`t know or remember how to "time the cylinder sheaves" on a combine, they don`t have to plant @ 4.5mph to maintain accuracy of "finger pickup" units.

 

I just rattle the cages to get at the truth of how it is farming was treading water, then after a few short years of good going all these guys can be writing out $2 million checks (they obviously didn`t use Richard Brock`s marketing serviceSmiley Very Happy)...I`m just sayin`. 

 

I don`t buy the entire story that "plowing with a 4620 and planting open pollinated corn and banking 100% of farm profits" is some sort of secret to buying land, there`s more to it than that.  Unless you have a P.O. Box in Lichtenstein and have your grain checks sent there, you will have income tax on profits generated in America.  The only "secret" that I would know is, incorporate your farm pay yourself the minimum amount (collecting earned income), renting your farmland to your corporation avoiding having to pay social security tax on that...but that`s the limit of "tricks" I know. Oh and burn "tax exempt tractor gas" in your car.  Or just don`t file income tax, chances are 100:1 you won`t get checked.  

 

There`s more to these stories, and those that know don`t want to share and that`s cool.  I just keep pestering until I find out Smiley Happy

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Senior Advisor

Re: Rockwell farm auction

Faust, excellent post and I agree 100%. For the record, I'm not calling anyone's equipment junk because I've got a lineup that is well seasoned as well. Although I haven't bought anything brand new ever, a couple years ago I had to make a decision to either purchase a different tractor or restore the one I'd been running since the mid 80's. I decided to get mine restored. New paint, new interior, new window seals, & completely ran it through my dealers winter service plan. It had several issues that I repaired that weren't completely needed at the time, but since it was in the shop already torn apart I decided to get it completely fixed up right the first time. Moral of the story, I spent just a little over 20K, but the ole girl is like brand new again. If I would have decided to replace it rather than repair it, probably could have easily spent 10x that amount.

My newest piece of equipment is a 2000 vintage 2388 combine that I also treat like a baby. None of my equipment is new & shiny, but it is all paid for & maintained to the tee, It gets stored inside the shed probably 360 nights out of the year & washed/waxed regularly. There is no replacement for care & maintenance.

I have bought into the whole precision thing though. I'm equipped with GPS guidance including steering. I spend a few dollars each year on it, just a few more years & I'll have all the latest & greatest GPS toys on my 20-30 year old equipment. This includes section & boom control.

Great post.
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Senior Contributor

Re: Rockwell farm auction

if it huts 20k   then act and buy more..

 

get credit etc.

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Senior Advisor

Re: Rockwell farm auction

Not understanding you Artifice, what do you mean?
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Veteran Contributor

Re: Rockwell farm auction

I am with B A the numbers don't work whether you pay taxes or equipment that is why we dig at raw he farms with round #s. 2 million is a ton of money to pull off the hip and the ones doing it are leveraging. Buying cash just means your loan came from out of town. It is ego driving sales and rent.
Faust, two things, love your rants but new equipment also allows me to coach little league go to high school games and keep an eye on my wife. Can't put a value on that.
The rich gentleman who die in their old pickup looking down on the wasteful youth only get satisfaction, money is only good if you spend it. Raise your own kids well enough and they will make their own money.

I will enjoy my old camaros and new one and smile at the grumpy old men wishing they were having as much fun as I am.
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Honored Advisor

Re: Rockwell farm auction

Hi Fringeacres, I`m small potatoes but here is an example of how I did some "cost shifting" to buy things with "cash" in about the last yr and 1/2.   I always wanted a shop on the farm where I live, however a bldg has to be depreciated over 20 yrs....until recently.  A bldg put up in 2012 was elgible for a 50% schedule 179 federal 1 yr tax deduction(Iowa doesn`t participate).

 

In the past I, couldn`t swing a long term depreciation of 20 yrs, having to pay up front with essentially "after tax dollars", to buy a farm is even tougher, no depreciation only after tax dollars.

 

But, the stars lined up for me, 2011 and 2012 were fantastic yrs and I had "$80,000" in cash after prepaying crop inputs and everything.  However I needed a different grain cart and my Wife needed a new car.

 

Here`s what I did:  I went to my friendly home town banker and  borrowed "$80,000" at 3.8% for my shop......Then I had "$80,000"..."in cash" and bought my grain cart.  Then my Wife and I waltzed into the car dealer and I said "What`s the best deal?  We are paying with CASH!".

 

See, I didn`t technically have "cash" to buy my Wife`s car and the grain cart, I only had "cash" to pay for my shop and that was it.  But I strutted around the car dealer like I had "cash" I wrote out a personal check which was like "cash", the car dealer probably told the story of a farmer buying a car and paying "cash".

 

But in reality, I`m going to be making payments on my shop for 5 yrs @ 3.8% Smiley Happy

 

It`s important for us to understand this, because when David Kohl, Moe Russell or Micheal Duffy says "this land is being bought buy farmers that pay in cash and it`s in strong hands to weather a down turn in crop prices".   I`m just being dvil`s advocate here...was this land really bought with "cash" or was it a shuffleing of financing around?   If it is the later, land prices are very vulnerable to a down turn in commodity prices and interest rate hikes.  

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Highlighted
Contributor

Re: Rockwell farm auction

Great analysis of what I believe is going on also. Creative financing!

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