NDSU Extension - Mercer County


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Pros and Cons to Consider When Buying or Renting Land

agriculture, buying vs. renting land

Submitted by Craig Askim, Extension Agent/Agriculture and Natural Resources

Spring will arrive soon and the planting season will begin. In the agriculture industry, it is also the time of year landowners advertise land for sale or rent, and I start fielding calls on the issue. What is the best option? There are many factors to consider.  Following are pros and cons, but in the end, it can be a difficult decision.

Pros of buying land are that it gives you control over your destiny. You are in charge. You make the decisions and you do not have to worry about land-rent contracts or terminations. You build equity and have an opportunity to make improvements and increase the overall value of the land in the future. Presently, buying opportunities for land are limited.

Cons of buying land include that fact that land is expensive. Financing is hard to obtain and requires time to get all the paperwork in place. Buying land can tie up your available capital and reduce your cash flow, leaving fewer dollars for machinery, input needs or expansion opportunities. Buying land can restrict your ability to fund market investments and retirement programs. Buying land can cause a host of issues you will be responsible for including water, soil, environmental and zoning problems. Buying land can also tie up equity already in place.

Pros of renting land are that it is much cheaper than purchasing, allowing more opportunities to purchase equipment or expand your operation. Usually your financial obligation is less and if things do not work out, it is easier to terminate a contract. Landowners may be willing to work with you if there is a crop failure.

Cons of renting land are that it often involves a short-term contract. A one, two, or three-year lease may not allow enough time to invest in improvements to the soil structures or property. The timing may also not allow enough time to plant the types of crops you desire because of cropping rotations and previous chemical rotations. Property owners can drop your rental agreement at any time. You need to make some type of payment whether the going is good or not.

Currently many landowners are at least one generation removed from the farm. Today most rented acres are owned by non-operator landowners who usually do not live near the land and may be out-of-state. They may not understand farm economics or your perspective. Relationships are key, so you have to be willing to put in time to keep landowners current on what is occurring, annually or more often. When a problem occurs, inform the landowner immediately.

Before deciding whether to purchase or rent land, do your homework. Learn all you can about the land and its production history, soil types, landowner/family members, water, drainage, taxes, and zoning laws.

Talk to professionals such as your financial advisor, real-estate agents, Extension professionals, legal advisors, and banker to review the pros and cons to see if they fit your management plans and goals. Finally, communicate your desires with all parties involved in your operation. These decisions affect them, regardless of whether they are involved in the farm operation, because if something unfortunate happens then the decisions rest in their hands.

Source: Dennis Roddy, K-Coe Isom. Ag Consultant, droddy@kcoe.com

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