RANCHING Business
15 Questions to Ask Before Purchasing Land Record land values make buying decisions tougher
T
HE INCREASES IN CROP AND LIVESTOCK PRICES HAVE GEN- erated signifi cant profi ts for many agricultural producers, which some are using to buy addi-
tional land. Growing demand has driven land values to record highs in many areas. Whether producers are using cash or borrowing money, buying land should include a well-researched fi nancial plan. Given market conditions, the American Bankers
Association’s (ABA) Agricultural and Rural Bankers Committee, made up of leading agricultural bankers in the country, has developed 15 recommendations.
1. What is your business’s fi nancial condition? Consider needed investments, expected expenditures,
and crop conditions to determine if buying land is the best use for your cash. Are there other opportunities that can provide a better return?
2. Have you created a pro-forma cash fl ow? Research sales trends and expected revenue of a po-
tential plot of land to determine how well the purchase fi ts within your plan. Does the potential return meet your objectives? Your banker can help you develop this essential planning tool.
3. Given your revenue forecast, are you overpaying? If you are paying a premium, how long will it take
you to recoup? Determine how much your business should prudently spend on a land purchase and the revenue needed to justify your purchase and stay within those targets.
52 The Cattleman November 2013
4. Have you thought long and hard about it? Never be rushed by a broker and never confi de your
best price or fi nancial goals with a party working for the seller. Don’t buy impulsively or make a deal be- fore visiting the property numerous times. Rework the standard broker’s purchase contract with your lawyer, deleting what you don’t like and adding what you want, before presenting the offer.
5. Does it make more fi nancial sense to rent the land rather than own it? Rental rates are high, but renting frees your cash
for other activities. What will be your total land pay- ment per productive acre owned, and how does this compare to cash rents in your area?
6. Should you go all in with your cash? Talk to your banker about alternatives to using all
cash in the transaction. Land is an illiquid asset, and purchasing it will impact your operation’s liquidity. Your banker can work with you to structure a loan that will enable you to acquire the land you need while preserving some of your working capital for necessary expenditures.
7. How much land are you acquiring? Sounds simple, but many times there is confusion
about how much land is actually being purchased. Know exactly what you’re getting before making a bid. See if the land has been surveyed and make sure it matches the details of the offer. If the land has not been surveyed, work with your attorney to determine the acreage based on the legal description or consider having the land surveyed and determine who will pay
thecattlemanmagazine.com
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