How do I use my inherited properties to grow?

Question

Brent Coombs · Answer

Yep. A line of credit IS the way to go. Make sure that each buy (AND your land) still pay for themselves even if 75% leveraged, otherwise, keep looking. Welcome to BP. All the best...

Dan Scarborough · Answer

So...

The instant choices boil down to whether the "farmer investor" wishes to create an immediate "taxable event" by selling now, (with minimal tax-bite because of a recent "stepped up basis") and banking the cash for more investment purchasing flexibility in the event of a major crash in real estate and currency values, or...

Entering into a tax-deferred 1031 exchange now?

Decision: Cash reserves now, or possible adverse tax consequences in a future and nebulous real estate market?

A tax attorney and some "future value calculations" by a CPA seem to be in order... First question... "Will your retainer be tax deductible?  Next questions... What are your entity recommendations, and why.... and what are your suggestions about timing regarding these tax strategies?"

Dave Foster · Answer

@Bryan Miller, I doubt if the 1031 would be a necessity.  Right now you are enjoying a step up in basis so it acts as if you paid market value for those properties the day you inherited them.  So the only gain on them is the appreciation from 2/16 - to today.  So if you ever wanted a tax free windfall this is the time to sell.

The NE Kansas/KCMO area is ripe with development possibilities in particular corridors.  Your land may fall into that type of potential use.

Dan Scarborough · Answer

In every real estate transaction you engage in, have three exit strategies, one of which is what you will do when (not if) the real estate and credit/debt/currency bubbles burst as real estate did during the "Financial Crisis".

Keep in mind that residential properties lost approximately 50% of their value then in a very short period of time.  The corresponding loss of farmland was about 40%.

In both cases, find ways to hedge so as to minimize the levels of loss above.  The coming maxi-recession is likely to be more severe than in 2008-2009.

Talk to those who weathered the "Financial Crisis" best.  Hint: They were not heavily leveraged and had a rapid exit strategy from their leveraged positions.

Consider precious metals. My bet is that bargains will be available at "dimes on dollars" and that owners will prefer old-fashioned gold and silver as their transaction currency of choice.

Functional farmland will reap ready reward.  Row crops and livestock will benefit "real farmers" as opposed to "gentlemen farmers".  Astute investors in farm properties will prosper.

Recognize differences in harvesting cycles, the growing seasons, and carrying costs between planting and harvesting.  Vegetables and chickens have multiple cycles yearly, while harvesting timber may take a decade or two. (With timber, there are several "thinning" events that produce profit before your major harvest.)

**Consider your own situation.  At age 72, I don't want to plant a whole lot of trees I may never see harvested.** :-)

To evaluate your investment possibilities, you may have to replace "General Contrators" expenses  with agricultural, livestock, and timber consultants.

Get knowledge, learn wisdom, be patient, don't couch your trust in the government of men.. but, rather in the Creator of this world and the universe Himself.

"Forget not the Lord thy God, for it is He that giveth thee the power to get wealth." (Deuteronomy 8:18)

Read and understand "The Prayer of Jabez" (First Chronicles 4:10) for this is the prayer of a godly investor.

Rosston Smith · Answer

Look into getting s HELOC. You could also sell timber on the land if you have any.I personally would sell them, but an equity loan will be just fine.

How do I use my inherited properties to grow?

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