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I WANT to buy Farmland!

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  • Avatar Tim 
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    Status: Accountant
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    Joined: 09/18/2018

    “I grew up on a farm and now live 7 hrs from my folks. I miss the driving out in a truck and checking crops and seeing deer and wildlife – it makes me happy-”

    By no means do I mean to discourage you. What comes to mind is “the good old days”. Whenever you visit your parents, memories come into play. Your folks can remind you about all the work that went into it! Your new farm, will not come remotely close since you are starting over.
    Nostalgia is powerful, but it’s in your mind.
    Not sure you would get the same feeling checking someone else’s crops. You did say you were renting the land out didn’t you? Sarcastically, I never met a farmer that would charge you for checking out his crops. Shoot, he would let you do some chores and wouldn’t charge you a dime. New start is the point.
    Lifestyle is a completely different issue. I’d spend some time walking country roads where you are at. The nature experience is available too via local, state, and national parks. Not the same as a farm, I know. It’s how some scratch the outdoor “itch”. Maybe you should buy some land. Hope it works out.

    #229446 Reply
    ENT Doc ENT Doc 
    Participant
    Status: Physician
    Posts: 3298
    Joined: 01/14/2017

    Kind of like the ESA thread where I could never be a landlord (again), I could never own a farm after listening to the recent Planet Money podcast where a farmer was having over a hundred thousand chickens slaughtered by bald eagles every year and there was nothing he could do about it. Some things you just don’t see coming. Too much idiosyncratic risk for me.

    #229447 Reply
    jfoxcpacfp jfoxcpacfp 
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    Status: Financial Advisor, Accountant, Small Business Owner
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    Joined: 01/09/2016

    Regarding the tax aspects:

    Does not need to be in an s-corp. You will have losses in the beginning – maybe for years – that may eventually be suspended by basis limitations. Plus, it’s never a good idea to put an appreciating asset in a corporation.

    EDITED TO ADD: PLUS, you do not want to turn passive (rental) income into active (FICA-taxable) income.

    Beyond that, you really, really need to talk to your CPA about structuring, tax planning, etc.

    My hubs grew up on a farm, began driving a tractor at 8, and absolutely hated all the hard work he was expected to do while his friends were playing sports – until he grew up and left home. Then, when he began making $$ at his factory, what did he do? Bought a farm. He’s made a lot of $$ on farmland over the years on what he learned from his parents. That’s not to say it will be the same for you, but I don’t think people who haven’t grown up on a farm really “get” that longing to go back to it. As long as your plan and long-term goals allow enough free cash flow for the purchase and to potentially lose money year after year, I have no problem with it.

    Johanna Fox Turner, CPA, CFP, Fox Wealth Mgmt & Fox CPAs ~
    http://www.fox-cpas.com/for-doctors-only ~ [email protected]

    #229460 Reply
    Avatar Radonlake 
    Participant
    Status: Physician
    Posts: 29
    Joined: 01/24/2019

    We bought a farm with farm land some of which we rent out. I was also advised not to put into S corporation – in agreement with Johanna. It is very difficult to avoid having losses for tax purposes usually so I would not worry about it. Our farm rental gets between $130-200/acre (we rent for a share, and then all depends on crop prices and harvest). We are right at the border of town without any code requirements and the freedom to convert to any use so land does appreciate – at least for now.

    It does sound you need a little farm AND farmland…

    #229467 Reply
    Liked by Tim
    Lordosis Lordosis 
    Participant
    Status: Physician
    Posts: 1194
    Joined: 02/11/2019

    Is it the farming that you desire or just a plot of land to call your own that you can have fun with the kids?

    I have plans for the second.  I am on the lookout for some forested land withing an hour of my home.  Unimproved land is rather inexpensive and it tends to rise with inflation.  Other then transaction costs, property taxes, and opportunity cost I do not expect to make or lose much money.  Those costs would be pretty low for the type of land I am looking for.

    “Never let your sense of morals prevent you from doing what is right.”

    #229469 Reply
    Liked by CordMcNally
    CordMcNally CordMcNally 
    Participant
    Status: Physician
    Posts: 2475
    Joined: 01/03/2017

    Can’t you just drive out in the country and look at somebody else’s crops? I still have family members that farm and that’s one thing that I know I wouldn’t want to do. I would still like a little bit of land for a house and a shop…maybe 10 acres. I agree with @tim , is it the actually farming or the nostalgia that you miss?

    “But investing isn’t about beating others at their game. It’s about controlling yourself at your own game.”
    ― Benjamin Graham, The Intelligent Investor

    #229473 Reply
    Avatar Veritas 
    Participant
    Status: Physician
    Posts: 11
    Joined: 06/27/2019

    Well I hate to sink money in something that doesn’t have some return on investment.  My family just made 80 bushel per acre wheat this year, farmers who farm with some scale can still be profitable and afford cash rent.  Yes I do want farmland not just an outdoor space.  It is interesting to not use a LLC or S Corp to do this.  The reason to not use a corp is to subtract the losses from my income?  I was hoping to start with 80 acres and overtime let some infusion of cash from my doctor job and profits from cash rent afford expansion of farmland assets in the future..

    #229477 Reply
    Avatar Kamban 
    Participant
    Status: Physician
    Posts: 2327
    Joined: 08/01/2016

    I also really want farmland, or rather, I want a large tract of land (40+ acres) that is wild and can remain wild, with a small area around the tiny house I would build on it cleared of brush.

    Click to expand…

    Many of these 40+ acre properties have issues. I had a chance to buy a 30 acre land with a mix of a creek, small lake, grass and trees at a low price when my former office nurse moved to a different county about 13 years ago. The issues were.

    1. You have to keep the grass cut with a tractor too keep it at decent height. You have to have a service that can roll it into hay and then sell it. Tractors and bush hogs break down and repairs are costly.

    2. Creeks overflow after moderate to heavy rain and you should have a plan of management to prevent it or take action when it happens.

    3. The gravel road from the road to house is almost half a mile long and has to be maintained by you. So does maintenance of fences.

    4. It is not in county or city utility zoning. So water well and septic tank with its headaches. Some places have the cable companies charge an arm and leg to run the cable from the street to your house.

    5. The most important issue was that your spouse should like it. We hate being alone with no neighbors nearby to keep a look out on us or our house. We have a child so no guns in our house. Perceived safety is paramount for our family.

    All these factors, especially the last one, nixed the idea of a 30+ acre farm. Our compromise has been to build in a 8 lot subdivision with 3-5 acre lots. It is Goldilocks right size, not too big like a farmland or too small like a postage stamp sized lot.

     

     

    #229478 Reply
    jfoxcpacfp jfoxcpacfp 
    Moderator
    Status: Financial Advisor, Accountant, Small Business Owner
    Posts: 7737
    Joined: 01/09/2016
    It is interesting to not use a LLC or S Corp to do this.  The reason to not use a corp is to subtract the losses from my income?

    Click to expand…

    I didn’t say to not use an LLC – you should have it in an LLC or have appropriate insurance coverage. You just shouldn’t have it inside an S-corp because of the basis limitations I mentioned earlier and also because real estate is an appreciating asset. The result is that, if you ever decide to distribute the real estate to yourself or your children (even by dissolution of the s-corp), you will pay capital gains taxes on the increase in value of the property even though you are not selling it. This is referred to as “phantom income”.

    Johanna Fox Turner, CPA, CFP, Fox Wealth Mgmt & Fox CPAs ~
    http://www.fox-cpas.com/for-doctors-only ~ [email protected]

    #229480 Reply
    CordMcNally CordMcNally 
    Participant
    Status: Physician
    Posts: 2475
    Joined: 01/03/2017

    Well I hate to sink money in something that doesn’t have some return on investment.  My family just made 80 bushel per acre wheat this year, farmers who farm with some scale can still be profitable and afford cash rent.  Yes I do want farmland not just an outdoor space.  It is interesting to not use a LLC or S Corp to do this.  The reason to not use a corp is to subtract the losses from my income?  I was hoping to start with 80 acres and overtime let some infusion of cash from my doctor job and profits from cash rent afford expansion of farmland assets in the future..

    Click to expand…

    Who are you going to have work the ground, plant everything, and then harvest? If you’re planning on doing it, it likely isn’t going to be close to breaking even if you’re having to buy all the equipment. You’ll find that your doctoring will be subsidizing your farming. The areas that I’m familiar with, farming isn’t making anyone any money. The real money is in owning the actual land and having the mineral rights. However, I suspect the big oil boom will probably be on the decline. It’s sad because these cycles come and go yet the results are the same for a majority of people in the area. If they make $30k/year, they’ll spend $30k/year. If they make $1M/year in oil and gas income, they’ll spend $1M/year.

    “But investing isn’t about beating others at their game. It’s about controlling yourself at your own game.”
    ― Benjamin Graham, The Intelligent Investor

    #229486 Reply
    Liked by Kamban
    q-school q-school 
    Participant
    Status: Physician
    Posts: 2487
    Joined: 05/07/2017

    my cpa also advised against LLC or s corp, just for the record

     

    #229489 Reply
    Avatar Veritas 
    Participant
    Status: Physician
    Posts: 11
    Joined: 06/27/2019

    Okay that is helpful sounds like I should consider a single-member LLC taxed as a sole proprietorship or partnership with my wife?  I am not sure if I understand advantage of LLC or none.

    #229492 Reply
    jfoxcpacfp jfoxcpacfp 
    Moderator
    Status: Financial Advisor, Accountant, Small Business Owner
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    Joined: 01/09/2016
    medical school scholarship sponsor

    Okay that is helpful sounds like I should consider a single-member LLC taxed as a sole proprietorship or partnership with my wife?  I am not sure if I understand advantage of LLC or none.

    Click to expand…

    LLC provides asset protection and insulates you personally against any lawsuits based upon injuries on your farmland, with your equipment, etc. Farming tends to be a dangerous activity. I’ll leave it up to your CPA and your attorney to recommend how to set up your farmland.

    my cpa also advised against LLC or s corp, just for the record

    Click to expand…

    Why did s/he advice against an LLC? S-corp, for the reasons I stated. LLC, see above.

    Johanna Fox Turner, CPA, CFP, Fox Wealth Mgmt & Fox CPAs ~
    http://www.fox-cpas.com/for-doctors-only ~ [email protected]

    #229494 Reply
    Liked by G
    Avatar G 
    Participant
    Status: Physician, Small Business Owner
    Posts: 1641
    Joined: 01/08/2016

    Like Vagabond, I own LAND (and each of the publicly traded farmland/timber REITs).  Not nearly as much fun as having a farm and forest to play in…but infinitely less hassle and those distributions show up like clockwork.

    I keep an eye out for property, but I have no illusion that it is going to be a liability aka luxury purchase.  In terms of a farm, we’ll see how things shake out, but I may end up with one(two) via a combination of inheritance and sentimental purchasing, so I am always reading and interested in threads like this.

    This blog is one of my all time favorites: https://www.whitecoatinvestor.com/investing-in-agricultural-land-and-timber/

    Good luck!

    #229498 Reply
    q-school q-school 
    Participant
    Status: Physician
    Posts: 2487
    Joined: 05/07/2017

    Okay that is helpful sounds like I should consider a single-member LLC taxed as a sole proprietorship or partnership with my wife?  I am not sure if I understand advantage of LLC or none.

    Click to expand…

    LLC provides asset protection and insulates you personally against any lawsuits based upon injuries on your farmland, with your equipment, etc. Farming tends to be a dangerous activity. I’ll leave it up to your CPA and your attorney to recommend how to set up your farmland.

    my cpa also advised against LLC or s corp, just for the record 

    Click to expand…

    Why did s/he advice against an LLC? S-corp, for the reasons I stated. LLC, see above.

    Click to expand…

    he’s a JD/CPA.  i didn’t really ask why, he just said didn’t feel we needed at the present time.

    i can ask him again

    #229502 Reply

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