What to do with Farm/Hunting Land?

6 Replies

My family owns a parcel of land about an hour west of Minneapolis. It's 78 acres, 40 of which are farmland that they rent out. The other 38 acres are woods and a river that we use for duck and deer hunting. Rental income each year is $3000, while the annual taxes are $2360. The estimated market value on this property is $226,700, per the county record. The property is jointly owned by my mother and her two brothers. In theory, I and my siblings/cousins would someday inherit this land, but in reality only two (out of eight) of us would have any real interest in owning this in the future.

As an investor, I have a couple questions:

  1. As a pure investment, the numbers here are terrible.  What I don't know is if we are getting a fair market rent price, or if we are giving a discount to a farmer friend.  Where would I go to get a good sense of what tillable land rents for in a given area?
  2. A couple decades ago, the neighbor abutting this property dug up the gravel access road to the property, so it is technically now landlocked.  Legality of this action aside, I would assume this impacts the value of the land.  Any ideas how to calculate the accurate value of landlocked land?  Any ideas on the steps I'd need to take to rebuild the access road and what that might cost?
  3. If I and my cousin wanted to "buy out" my disinterested cousins/siblings, is that something we could do now, or is it something we'd have to do later, since our parents are the true owners right now.  What initial steps would my cousin and I take to being that kind of discussion, both from a legal and price standpoint?

My goal in all this is to keep the property in the family, while still making a smart investment decision.  I apologize for the various facets of this question, and I appreciate any advice the BP community might have.  Thanks!

@John Woodington  

Caveat, i am not a land investor (yet), but grew up around farming, and one day want to go back to it. i can provide a little insight on your questions just based on my own experience.

1. Farmland is not the best investment, numbers wise. whether you are working the land yourself, or renting to others generally it must be debt free to be profitable. Trust me, as someone whose life long dream is to get into farming, its very difficult to make the numbers work if you have to mortgage the land. even for land owned free and clear, expect returns in the single digits. As for rent amounts, there is no single combined source to determine land rents that i have found. Im currently looking for farmland for rent in georgia for my expanding cattle heard, and its difficult to determine what to expect. my best advice is talk to local farmers in the area. most farmers of any size rent some amount of land, and should know what the going rate it. If you dont know any, your local Natural Resources Conservation Service (NRCS) office can most likely help you out.

2. Yes, being landlocked decreases the value. but are you landlocked from a legal sense (your property does not touch an access road) or do you just not have a proper driveway? If the former, you will need to work out an easement with a neighbor to get access to the land. the best way to do this is to buy the easement, so there are no legal issues down the road. this would give you the most value for your land. If no neighbor is willing to sell, you will need to work out a right-of-way. 

as far as rebuilding the road once you have access, your local NRCS rep can help with that. They can help you determine soil suitability, lay out the road and grading plan. you will then need to hire a grading contractor to build the road. You will also want to check for any needed permits in your county. 

3. I believe you can work something out with your cousins/siblings now, but i would highly encourage you to get an attorney involve and get it property documented and recorded. The easiest path - everyone agrees to sell their share to you, yall all agree on a price, and get your parents to write this into their will. or have them set up a trust and name you as the beneficiary. Either way, get a lawyer involved. These things can get nasty, and no one things probating a will can cause a family dispute until it happens to them. No matter what the path, you will have to agree on a price and buy out your relatives, unless they are generous enough to give it to you. 

On that note, valuing land is not very straight forward. unlike houses, which generally have the same components, land can vary greatly. Irrigated vs non-irrigated, are wetlands present, are their conservation easements, soil type, access can all play into the value of land. in general, its worth what someone is willing to pay for it. What someone is willing to pay for it is based on its future use. does it have future potential for commercial development? if so the land will be valued much higher.

There are a lot of what ifs and family dynamics at play, but if a buyout is in your future, you may want to wait to make any improvements until after. hope this helps. 

@Zach Westerfield Thanks for all of this valuable information.  Very helpful.

The thing that I think may cause strife in the future is getting everyone to agree on a fair value for the land, so that any buyouts can occur equitably.  I wouldn't value the land as high as the tax record is assessing it, but if I were selling rather than buying, I'd want the highest price possible.  I'll have to think on that one for a while.

As far as the landlocked issue goes, the property does not touch an access road anymore, though it used to.  That's where I don't have clarity on how to proceed.  It was not intended to be landlocked, and my family used to drive in there for years until the neighbor dug up the access road.  It feels crappy to have to go to the guy who illegally wrecked our access and ask him if I can now pay him to access our land through his property.

I appreciate the insights!

@John Woodington

I live in MN and work in the Agriculture industry. Here is a helpful link for you to get a good idea of what you should be getting for tillable acre rent. https://extension.umn.edu/farm...

The average per acre rental rate in those counties ranges from $200-225. The $3000 you are getting renting 40 acres puts you at $75/acre. You mentioned there is a river on the property, this could possibly mean that the crop land has sandy soil, which is less productive if not irrigated, and therefore could be driving your rental rates lower. Even with that said, $75/acre is very low.

Like Zach mentioned, ROI on farmland is quite low right now due mainly to low corn and soybean prices (which is most likely the crops your tenant is growing on your land). If you know what the average corn and soybean yields are for your land for the past 5 years, you can easily get an accurate rental estimate. Hope this helps!

@Karl Butenhoff Thanks for the info!  I don't think I've ever seen irrigation on the land, and you're right, the farmer alternates each year between corn and soybeans.  But in theory we should be able to get about $8000 per year in rental income, which still isn't life changing, but is better than where we're at now.

I can say the soil does not seem sandy to me at all.  I walked it a couple days ago while deer hunting and it looks very dense and dark, even muddy in spots.  That said, I'm not an expert, so it could be that it isn't the best soil in the world.

If the land rents for $8000/year at market rates, is there some standard multiplier I could run that would determine potential overall value?  Or does that go out the door once the 38 wooded acres come into play?

Thanks for the valuable insights!

@John Woodington If the soil looks really dense and dark it could be more of a silty, mucky type soil with poor drainage, which means it won't be the most productive soil unless it has tile drainage installed (which definitely adds value). As far as a simple multiplier, no, farmland is typically valued based a productivity index which is related to soil types and past yield production history. If you know those things about your farm you can do a google search to find recent land sales in the area with similar soils/productivity to better value your property. As a general rule of thumb, decent farmland is going on average around $5-6000/acre.

As far as the hunting ground, I would do the same thing and look for recently sold non-buildable hunting ground around the area and see what it is going for. $2500-$3000/acre is ballpark, but that number could be higher if it's decent hunting ground within an hour drive from the cities.