Okay Guys (and Gals),
Here's the question:
Given 100 acres of prime NE Iowa Farmland w/estimated value of $900K (i.e. $9K/acre) and annual rental rate of $300/acre.
Would your rather have the farm free & clear w/annual property taxes & ordinary income?
Would you rather have the same $900K invested in a Roth Vanguard S&P 500 Index fund (i.e. Tax free & annual yield of 2%)?
There are no right or wrong answers. But does anyone care to take a well informed, but still back of the envelope SWAG today?
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Does the farm need tile? I`d take the farm right off the bat, only because it`s in Iowa, cause some of these other states/counties are pretty greedy on the property taxes ahem, Minnesota...Nebraska ...Illinois
Illini - I think the question is if you owned such a farm would you rent it out at $300 or sell and put it in a 2% tax free fund? I'm in SE SD, and if you make it $4500 an acre and $150 rent, that's about where we are. I manage my father in laws farm properties, most of which are rented on shares, not cash. After fertilizer, insurance, property taxes, and income tax prep, we get about 2.5% return on the estimated value of the land. Of course, this is family land, so some of it was bought for $100/acre in the 50's, so it's hard to say what the real long term return is/will be. But I'd take the farm any day. Stocks can go to zero if a company goes belly up, but land is NEVER worthless.
Also. for everyone who's sure the stock market will tank I can find someone who thinks land values will tank. I hope neither happens, but I sure wouldn't mind selling some $4.50 corn again someday!
I kind of doubt the $300 is going to hold much longer...just something to throw in the mix.
As well, the vanguard yield is certainly not guaranteed either.
Neither yield will keep up with inflation, not even close, fwiw.
I'd say diversify part of the asset base, maybe 25%, into the very under-valued real goods sector, like silver or platinum. Keep the rest in land, even if it declines to $4500/acre ( normal retracement) it will still be worth $18000 around 18 years from now.
From what it sounds......nobody has a good outlook for the future, and look for lower returns on everything (farm ground and investments)
sounds like good things ahead for the economy
One thing about it, the S&P isn`t in as much of a "bubble" as the Dow is, therefore stocks in that index may not be as "over valued"?
Something to look at with land values is much of that is due to the 0% interest rate gift that the Fed gave the previous administration. The current administration is more of a "red headed step child" whose failure would be cheer lead by much of the powers that be. 0% interest will go up, the negative % rates we heard about in Cyprus or where ever wouldn`t happen here, especially with the red headed step child in as POTUS.
My concern with farmland is as it gets harder for the federal government to perhaps balance the books, entitlements and services will be pushed to the local levels and that funding will be the captive landonwers. You can`t pack your quarter section in a carryon bag and bug out to Uruguay when TSHTF.
Farmland goes up, because they ain`t makin` more of it, however, we are in uncharted territory. It`s possible that corn will be $2 and $5 beans...that could happen for a few years (hope it doesn`t) and credit could tighten...all that could happen. Hindsight is the only way we`ll know.
I would probably take the farm. But the better money decision today would probably be sell and take a long term CD split in $250K chunks across several banks for FDIC coverage of 5 or more years.