Co-Ops: The Easy and Feel Good Way To Finance Land

When I first started investing in land, I was surprised to find that many traditional mortgage lenders do not underwrite for agricultural property. This is when I learned about cooperatives or co-ops. A co-op is controlled by and operated for the benefit of their members, rather than outside investors. The co-op business model is critical to rural America because they are the gateway for farmers and ranchers to obtain financing. Most importantly, the members of these co-ops (both the borrowers and lenders) have a sense of shared community because the performance of the co-op is based on the collective performance of its members. If this concept is foreign, you aren’t alone. Let me break down why it’s important to know more about co-ops and how they can fuel your land investing journey.

Co-ops Return Your Money

In my adult life, I’ve owned several homes. I’ve never once had a mortgage company return a portion of my mortgage payments (other than if I overpaid). However, on the ranch land I’ve financed, I always get a handsome annual patronage check that generally equates to getting one “free” month. What’s the catch? There is none. The co-op I’ve done business with since 2019 is Central Texas Farm Credit . In 2024, Central Texas Farm Credit returned over $8.6M back to its members. They are able to do this by taking a fraction of each member's payment and investing it in a manner that yields positive returns.

Co-ops Provide End-to-End Service

Farm and Ranch Co-ops are highly specialized in all aspects of agricultural financing and have tremendous flexibility to meet the needs of the borrower. If you don't know anything about purchasing land, don’t worry– just call a Farm Credit Bureau. These co-ops will likely have in-house underwriters and appraisers, making the buying process seamless and efficient. They also have an array of financing tools that can be beneficial if you own land. An amazing tool that is often underleveraged is known as a ‘farm line of credit’. Similar to a home equity loan, this line of credit can be used to purchase livestock, equipment, or to fund other land improvements.

Co-Ops Are A Community

Remember that co-op is short for ‘cooperative’. In my experience, helpfulness, and a genuine sense of community underpinned all the interactions between myself and employees of the co-op. Examples include how to purchase land as an LLC, how to successfully complete a 1031 exchange, and even introductions to tradesmen to complete land improvement. Many co-ops, like Texas Farm Credit , fuel the next generation of farmers and ranchers by giving scholarships to high school students who are pursuing a degree in agribusiness.

In conclusion, co-ops play a critical role in rural America by providing financing for farmers and ranchers. They offer unique benefits such as returning a portion of payments to members, providing end-to-end service, and fostering a sense of community. If you're considering investing in land, it's important to understand the advantages of working with a co-op and how they can support your journey in land investing.

This newsletter is educational in nature and not intended to be financial advice. Reach out to [email protected] for questions or ideas for future topics.