The neighbor stopped in a few days ago and said he has decided to retire this fall. He plans to sell his cows this fall and his land after Jan. 1. He has 150 tillable acres. Decent land around here is selling for $4,500 an acre, and this land is average or slightly above average. My son and I milk 200 cows and own 225 acres. He owns the cows and machinery, and I own the land. He has no debt and I owe about $175,000. I’m 60 years old and my son is 35. We rent 100 acres 3 miles from our farm. My question is, should he buy the land, should I buy the land, or should we form a limited liability company and buy it together? Or would we be better off not buying land? What are your thoughts?
Hodorff: Your son should buy the land. You can make it work by renting the land back from your son. Your son has many years to let the land appreciate in value. The farm will not come up for sale again in his lifetime. In your business plan, you may have to adjust some rental agreement for this land and also reflect some compensation for the purchase. You should be able to make this purchase work without much financial pain.
Miller: The first factor to consider in determining if you should buy the land is to compare the difference in debt service cost to the rent of the 100 acres 3 miles away. After determining this cash-flow impact, also take into account any improvement in time, convenience, crop rotation or fertility between the to-be-purchased and existing rented acreage. If your cash flow can handle it and you gain other tangible and intangible benefits, it makes sense to go ahead with the purchase.
As for who should purchase it, it may depend on how much of a down payment you will need to finance the land, how the cash flow will be handled out of the existing business, and whether you have additional children your son would need to address upon your passing. Consult with your accountant and attorney as to the pros and cons of buying the property as individuals versus forming an LLC.
Wantoch: In your question you don’t say how far the neighbor’s land is from your farm, but I assume it’s closer than the farmland you are currently renting. When you rent land, you have an increased risk that you may lose this land base that may be critical to the financial security of your farm. You and your son are in a strong financial position, and it makes sense to purchase your neighbor’s 150 tillable acres rather than continuing to rent.
It sounds like you have done some farm succession already and transitioned ownership of the cows and machinery to your son. I’m not sure when you plan to retire from the farm, but you should prepare and consider for this when making your decision. If you will need income during your retirement, you might purchase the farmland and rent it back to the farm. If you have other income sources, then your son might want to purchase the property. Each situation is unique, and no single option works for everyone.
Agrivision panel: Doug Hodorff, Fond du Lac County dairy farmer; Sam Miller, managing director, agricultural banking, BMO Harris Bank; and Katie Wantoch, Dunn County Extension ag agent specializing in economic development. If you have questions you would like the panel to answer, send them to: Wisconsin Agriculturist, P.O. Box 236, Brandon, WI 53919, or email email@example.com.