Investment Tips for Farm and Recreational Land Ownership

The finite yet essential supply?of U.S. farmland is quickly making it one of the most stable and sought-after assets right now. ?

According to the USDA, national cropland values increased nearly eight percent in 2021—with as much as 22 percent increases reported in the central Corn Belt. ?

While soaring demand for farm real estate in the last half of 2021 is expected to slow down in 2022 due to higher interest rates, higher cash rents and inflation in 2022 are still making farm real estate an?attractive investment opportunity for both farm and nonfarm buyers. ?

As an aspiring landowner, it can be challenging to find agricultural land that is the right fit for you—especially when you don’t come from a farming background.?An estimated 31 percent of agricultural landowners in the U.S. are not farm operators themselves, but rather rent or lease the land out for agricultural and recreational use. ?

So, whether you already have farming in your blood or are interested in forging your own path in rural land ownership, here are four factors to keep in mind when searching for the perfect property.?

1. Soil Health?

Before you buy farmland, evaluating soil health on the property is an important first step in establishing its production potential. Measuring the pH range of soil can provide insight into which crops would thrive or fail on the property. ?

For example, if the soil is slightly acidic (between 6.5 and 7.0 pH range), it is ideal for major row crops like corn, barley, wheat, peanuts, and cotton. If the pH range is lower (between 5.5 and 6.5 pH range), ag commodities like sweet potatoes and blueberries could be a more lucrative choice. ?

Looking back on the last several seasons of crop rotation will also give insight into how soil health has been managed on the property in the past. ?

• Were crops diversified and rotated regularly? ?
• Were cover crops grown between crop rotations? ?
• What types of tillage practices were used??

Knowing these answers upfront can save you time and money in the long run and could be the difference between land ready for immediate ag use versus land that needs restoration ahead of making a profit. ?

The USDA Natural Resources Conservation Service (NRCS) offers?free soil maps and data online for current and aspiring landowners to learn more about the soil health of their property. ?

2. Irrigation and Drainage?

Once you establish the health of your soil, be sure to evaluate whether there is irrigation in place, what type if so, and how well the soil drains. Well-drained soil protects plants from pests and diseases.?

There are ways to improve soil drainage, but these strategies often require upfront financing and delay the amount of time you will begin to see a return.?

?If the property already has irrigation tools in place, learn what type of irrigation along with the economic life remaining on it. Knowing the water and power source for irrigation is also important so you understand the true cost of production.?

3. Topography?

Topography represents the geographical elements within your land and is a huge factor influencing the success of your agricultural operation. Topographical elements land buyers should explore include:?

• The level of risk in flood zones; ?
• Proportion of farmable acreage;?
• Wetland areas (if applicable); and ?
• Contour lines (differences in elevation).?

For agricultural use specifically, steep hills and wetlands could hinder future returns. However, a hilly property doesn’t completely rule out agricultural use. Grazing livestock and growing crops that thrive in arid climates are good alternatives. Working with agencies like?the National Resource Conservation Service can help you implement swales and grass strips on non-tillable land to prevent erosion. ?

Conservation easements and programs can also offer compensation for wetland habitats that would otherwise be excluded from crop production. ?

4. Restrictions?

While easements can offer supplemental income on your operation, existing easements in place on a property can sometimes restrict land use for future buyers. ?

In fact, from water management to mineral rights agreements, there are many underlying restrictions land buyers should be aware of before settling on the purchase of agricultural land. Questions to ask the seller regarding potential restrictions on land include:

• Has the current landowner sold mineral or gas rights? ?
• Is there any kind of easement currently in place on the property? ?
• What are the water regulations in that specific area? ?
• Does the property have any deed restrictions that would prohibit development??

When these restrictions pop up, the appraisal value of the land can often decrease. Therefore, knowing the full scope of restrictions in place is a huge step towards finding the perfect property for you. ?

Financing for Farmland Ownership?

Working with a lender who understands the unpredictable nature of agricultural land ownership is a key part of setting yourself up for long-term success. Whether you’re an operator or investor, AgAmerica works with farmers, ranchers, and landowners across the nation to help them maximize the potential of their land and achieve the highest return.?

If you're interested in buying property and want to know what it's like to work with a lender who specializes in farmland financing,?contact our team of experts today.?