Should I Buy This Farmland?
In today’s world, farmland is not cheap. With the low interest rate environment, land prices have risen steadily in recent years. The question then becomes, are these land prices sustainable where they are? In order to answer that question, you need to be honest with yourself.
Before we answer that question, think about this. If land prices are high, its because demand is high. If demand is high, land must be a place a lot of people(the herd) are putting their money.
Consider this quote from George S. Patton Jr.
“If everyone is thinking alike, then somebody isn’t thinking.”
Think About The Economics Logically
If I buy this land, will the cash flow be enough to cover my debts and pay me a salary/return for my hard work and effort. Beyond that, a farmer must play out different what if scenarios to insure they are insulated if the unimaginable happens….not unlike a CEO of a business.
Here are some worst case scenarios to think about. If interest rates rise, how will that affect crop prices? If it negatively impacts crop prices, will I be able to afford my land loan payments?
If weather turns south for a season, will insurance pay me enough to continue making my farmland mortgage payments?
If land prices fall quickly, will I have enough equity in my land to not be underwater on my land loan?
These are all things that need to be considered when purchasing land, especially in today’s environment.