Using Farm Land Equity

12 Replies

Hello all, 

My father and I are wanting invest in buy and hold multi-family rentals.  He owns farm land which appraises for a little over $800,000.  Has anyone used the equity in the farm land to use as a down payment?  Or, is there any innovative ways to utilize the farm land as collateral?

He does not have a lien on the property and owns it outright. 

Thank You

Originally posted by @Kevin B. Kasper :

Hello all, 

My father and I are wanting invest in buy and hold multi-family rentals.  He owns farm land which appraises for a little over $800,000.  Has anyone used the equity in the farm land to use as a down payment?  Or, is there any innovative ways to utilize the farm land as collateral?

He does not have a lien on the property and owns it outright. 

Thank You

Is the farmland in use, does it have any structures on it? or is is purely vacant land? Is it zoned for anything besides farmland? If it's just vacant, you may find it difficult to find a lender to take collateral on vacant land. Your best bet (besides finding a HML) is to go to small local banks, who might be able to recognize the value in the farmland.

Best of luck to you!

Thank you.  It is not raw land, it is farm land.  You are the second person who advised to use a local bank.  

@Kevin B. Kasper

I know you posted this 2 months ago, but I figured I would check in with you. I have used this strategy and still use it. Let me know if you have any questions.

Best,

Bennett

@Bennett Wiltfang

I do have questions.  

Was it difficult in obtaining an equity loan using farmland?

Did you obtain the full amount for the property you were purchasing or just the down payment? 

Thank you!

Yes you can! I'm in the same situation I have 25 acres with 2 abandoned buildings, worth $250k on taxes. I called tons of banks in my area and some will lend  to you with the land as collateral. I've heard different terms for the loan such as land loan or lot loan cash out. Generally the terms are 10y at 7-8% interest , you can borrow up to 70-80% of the appraised value, its about $5k in fees and$1k for appraisal. The banks didn't seem concerned whether it was farmland or not, but it couldn't have a "habitable" building on it, which was my case.  I almost got one a loan for $70k , after fees it would be 64K and $800 a month for the next 10 years. Pretty steep, but possible. also I only found 2 banks, one was 1st bank and the other was a credit union in Western NC.

I love deals like this!  If you really want to learn how to use stagnant equity, find an equity markiing session to attend.  Your local Rea group is great in the beginning.  However, an equity marking group can facilitate this deal to completion in multiple ways.  I am going to one next week in Louisville.  

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I have used farm land Equity to buy properties outright to be able to come in with cash offers. Does your father Farm? If he Farms than the bank he uses already uses a revolving line of credit to fund his farm operations most likely. Every rural area has a go to bank that is willing to be aggressive when it comes to rates, otherwise move the opetation sonewhere that does. If it's not your bank then you just have to find it.

so, how does this work? Is it like taking a home equity loan?

Why not sell the land? I wouldn’t borrow money at 8 percent to go invest in something that gets you 10-12 percent.

I'm having similar challenge. I own outright 47 acres of farmland that is rented to good farmer, yet the annual return to me averages only 3% of the market value. Land appraises for $5000/acre. I don't want to sell land for sentimental reasons. I'd like to cash out as much equity as possible in order to invest in other real estate where I'm certain of much better ROI. My credit worthiness metrics are great. The first 2 lenders I've talked with declined interest. A 3rd needed to know exactly and pre-approve how I was going to use funds, even though the farmland would be security for loan at a 75% LTV. A 4th referred me to their commercial lending, which is where I going next. I'm just surprised how much harder this is than doing an equity cash out on a residential property..

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