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Buying land

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Iowa1

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I am trying to figure out the numbers for possibly buying 160 acres in SE Iowa. Maybe someone with a farming background can help me find out if it is feasible. Basically I am trying to figure out if a guy can do it without a lot of cash going into it, by farming it or having it in CRP. It looks to me like the CRP will not make the payments, so how much (%) of it do I have to have in crops to cover the payments? Looks like most of this land is going for about $2000 an acre and finding a cash renter seems to be no problem at all.

Can someone help me put the numbers to this? I know this is kinda vague but I'll bet there are people hwo have already taken the time to figure this out.

Thanks in advance for the help.
 
More than likely you will not have enough coming from rent or CRP to even make the full payments. I have found you really cant buy land to rent and make money off of. Hard to break even with cash rent too.
 
If you could buy land at $2000 an acre and cash-flow the payments and taxes with rent and CRP payments, well then the person selling it would be an absolute fool for selling it for that price. Buying land to rent out is typically a "investment" in the future, not an instant income source.
 
If you will go back and read my original post, you can see that I am looking at it as an investment not as an income source. I'm just looking to find out if I can do it without pouring a lot of cash into it. There has to be a threshold at some point, given the costs of buying and owning the land, the value of the crops or the income from cash rent.

Obviously if the land is 80% timber, the numbers wouldn't come out. But what if it is 40% timber? Can a guy make enough to cover his payments?

People do this every day, so I know it is not a pipe dream. Just wondering how to pull it off.
 
You need to figure what your down payment will be and then what % will be in timber and what you will cash rent.

I follow you... I just did some figuring at 40% timber and cash rent on approx 96 acres and you may be able to swing it depending on what you use as a down payment.

Where are you finding land for $2000 an acre???? I wish I could find some for that.
 
So if I follow you, you want to know how much money you will have to come up with per year after the income from crp and cash rent is used to make part of your payment?

I don't have a clue, but I'd sure like to know too.

If the farm payment is X, the income from CRP and cash rent is Y then Z is what you have to pay out of pocket each year?

The 'Bonker
 
Fishbonker, that's exactly what I am looking for, the parts I do not know are the X, Y and Z:

What's a typical down payment? 10%? 20%

How much is cash rent on good ground these days?

How much are CRP payments?

How much flexibility is there in the length of the loan? Let's say my income off it is X per year, can I lengthen (or shorten)the loan so that X equals my payments?

There are people who have this gig figured out, that's one of the reasons there are so many out-of-state landowers right now... many of them are doing this just to have the hunting ground to hunt or outfit. Somebody fill me in so I can find out if it's something that will fit my small budget. Someday I hope to spend the summers here in northern minnesota but the winters in the tropics like southern Iowa. I'm looking at this as possibly the first step in that direction.
 
With no buildings on the ground, I think most loans will require a 25 percent down payment.

I know what you are asking but there are way to many variables to really answer your questions.

You aren't going to buy "good tillable" ground in SE Iowa for $2000 and acre, I do know that.

The better the income potential of the ground the higher the purchase price usually.

It would be a dream buy and a dream piece of property to have it completely pay for itself after the down payment.

I see where you are coming from though...
 
160 acres at $2000 is $320,000

40% timber 60% crop

Good ground should get you $200 per acre or more.

96 acres @ $200 = $19,200 per year.

Go on any online mortgage calculator and you can easily see what you will need to add pending on the down payment, interest rate and term of loan.

http://www.bankrate.com/brm/mortgage-cal...=Nov+21%2C+2037

Borrowing 90% (10% down) over 20 years at 7% int would get you monthly payments of $2232. $19,200/12 equals $1600 income a month before income and property taxes. In order to do it without adding in much per month you will need 40-50% down.

Remember the property and income taxes into your calculations.
 
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The bank wanted 30% down when we bought in 1991.

Buying land, you are most likely going to carry a 3 or 5 year ARM (no 30 year fixed mortgage), so the interest rate is going to change a little at that point (sometimes up, sometimes down).

Are they really getting $200/acre cash rent for land in southern Iowa? On $2k/acre ground?
 
"there are so many out-of-state landowers right now..."
One thing that contributes is the 1031 tax exchange, high priced real estate is sold on the fringe of growing areas and proceeds can be used to purchase land without tax liability.

People are covering most of the high points- depending on where you get your money you will need 20-30% cash down. Most mortgages are going to not go over 20 years so you can easy figure the payment once you know interest rate. Not long ago it was possible to get "close" to covering but not now and it is getting worse.

Over the last few months it sure would have been nice to have less money in stocks and more in bare land. You'll see more people with cash buying for rent and CRP payments as you get a payment that rivals a bank CD and the potential appreciation of the ground.

Look for all sources of cash, retirement funds, insurance policies, private equity, owner financing, etc. Look for well sited smaller parcels that may be more per acre but more affordable overall. Good luck.
 
Ghost- I don't have the new numbers right here but I think it was in Iowa Farmer Today site- the group run by a guy from Hertz Farm management had a faster increase late last year because of $4 corn.
 
Excellent information... that's what I was looking for. I can now pencil out the numbers and it looks like it is doable if I can find the right property, and I can come up with a lot mroe down payment than I was expecting.

Land in the area I am looking for has been going for as low as $1800 with the average higher than that, quite of a bit of it at $2800. I'm talking the kind of land that a deer hunter would be interested in. Cash rent is going for as high as $270.

Of course this could all change within the next few months and there is a significant risk involved.
 
I know this isn't exactly on the same line as what you guys are talking about but I just thought I would see what you guys thought about the 1031 exchange situation and its effect on land values. I have thought/known that over the last 5 years in Iowa and Illinois where I live that 1031 has had a big impact on the prices we are seeing today. I have a big interest in real estate and land development and have talked to many guys that do this for a living. I just had a conversation the other day about 1031 and he had a lot of interesting things to say about it. His thoughts were that all of it was being driven by big developers near cities like Chicago and other places that were seeing big time growth. These developers were paying huge money for land near the cities and in turn these farmers that were making out big time were turning around and buying farmland farther out into Illinois and Iowa. He seemed to think that this type of transaction over the last year has basically ceased. Right now not one person is buying land in and around cities for development and in turn the amount of people that are 1031 exchanging has really slowed down. I thought this was really interesting thought and I wonder what impact if any this will have on land prices over the next few years. I know the real estate market is a long way from turning around but I just never imagined that the housing market could have or was having such a big impact on the farm land/recreation ground. I also have thought of the impact of the commodity prices that we are seeing today. I personally think that these prices are temporary and many of the people that are paying top dollar for farm ground today because it makes sense with $4 corn and $10 soybeans will not be buying land at these prices once corn and soybeans go down. I know everyone says land never goes down but I believe I saw a chart where land values went through something similar to what were seeing today back in the 80's. I know one of our family friends paid over $3000 an acre back in the 80's for some farm ground that in the early 90's was worth around a $1000. Just some thoughts that have been going through my head and I wanted to see what some of you guys thought. Thanks!
 
I see what your saying Droptine, but I dont think land will ever drop like that again. We have an ever growing interest in hunting and managing land for maximum "personal" recreational return.

This in turn results in more and more posted ground which was not really seen in the 80's. Back then you could basically walk as far as your legs would take you and not have to worry about getting into trouble for trespassing...no one cared then. Hunting was not the industry that it is today.

Today, nearly everything is posted or maybe even leased and posted. Combine this with accellerating population growth and no more land being made.....No, I don't think land will be dropping much in most areas.

Demand far exceeds supply and the problem is only getting worse.
 
If this topic really stirs your interest, here is some more reading about past and present land value trends in Iowa.

Dang...hind sight is 20/20.....but $500 bucks an acre in the early 1990's sure looks good today!

Iowa Land Values
 
Ghost, you are the man at coming up with the facts. Might just start calling you Britannica instead of Ghost. /forum/images/%%GRAEMLIN_URL%%/smile.gif

Iowa1 - since I live in MN also, hows about you and I go in together and buy Highjumpers 80 acres of paradise and we can drive down there together all year long. 200K split 2 ways over 20-30 years would be less than my truck payment right now. /forum/images/%%GRAEMLIN_URL%%/smile.gif I'll only shoot the big ones, you can shoot the big, big, big ones that he's got started. /forum/images/%%GRAEMLIN_URL%%/smile.gif
 
I just kinda scanned through the post and didn't read all of it, but, 2000.00 an acre for crop ground is out of the question right now. Take it you buy 160 acres with a balance of 40 acres timber, 120 crop. The crop part will be around 3200.00 an acre (on average) with the timber going around 1800-2000. (on average). This puts the farm average at 2600 an acre for the total farm. CRP payments are from 65-90 dollars an acre, depending on when it was signed up. Cash rent is on the average of 170.00 an acre.

Now take it that you will get 200.00 an acre for cash rent, you will have to have a CRS of 70, which is 4000 dollar an acre ground. Most bare land loans require a 25% down.

There are many ways you can go about getting your payment cheaper, but you will be the only deciding factor on how much you can spend. Land is very pricey right now, I have been trying to buy for the last 6 months.

All this info comes from southwest IA, which is very comparable to SE IA. Good luck!!
 
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