Run feasibility studies for each scenario you’re considering. Work with an ag finance advisor to figure out the current profitability of your rented acres, how it would impact your operation to purchase that ground rather than rent it, as well as the impact of giving up those acres altogether. Review the results with your advisor for their perspective and ideas. You want to get a sense of the total impact so you can make the best decision.

Determine how a purchase will impact your working capital and equity. Purchasing ground you’re already renting means you’re not farming any additional acres or bringing in additional revenue, but you’ll probably be taking on a new loan payment. That payment is typically substantially higher than the cost of cash renting the ground. In the short term, your working capital takes a hit, and your cash flow situation may be negatively affected as well. Your equity will not change – but your equity percentage will go down. For example, let’s say you purchase land for $100,000, using $50,000 in cash and $50,000 in loans. Your owned land will increase by $100,000, while cash goes down $50,000 and long term debt increases by $50,000. Your total assets increase by $50,000 and your total liabilities also increase by $50,000. While equity doesn’t change, your equity percentage does become lower.

Consider the current profitability of the ground in question. How profitable is the piece of rented ground? What would the impact be if you were to lose those acres? Asking these questions can help you determine whether that particular ground is worth keeping – at a higher cost to you – or not.

Keep your expectations realistic. Remember that if you decide to purchase the ground, it probably won’t have an immediate positive impact on your financial situation. Also consider whether purchasing this ground will fit into the overall goals of your operation. Is land ownership a major long-term goal? Consider your farm’s long-term needs and where you want the operation to be in five, ten and twenty years.