Should You Buy or Rent Farm Land?
Bottom Line Up Front: There are many decisions you must make when starting a new farm, and potentially the most important is whether you should purchase land or rent. There are pros and cons for both choices, and your decision will likely come down to your goals and financial position.
You've seen it. We all have. Maybe on a postcard, maybe on Instagram, but it's all the same. Rolling hills, big skies, happy animals, laughing kids, and an old farm tractor sputtering across the homestead. Makes you want to throw the briefcase into the dumpster and run out to the country to get a piece of that wonderful farm life.
Ha! That ain't real life, is it? And the first item most aspiring farmers and homesteaders research is the first thing to bring us down to earth. You type in "farm land for sale" in your Google machine, and... what-the-whaaa?!?!? How much for farm land?!
Yep, land isn't cheap, and it's a significant obstacle on your way to the rural lifestyle you may have been daydreaming of. Suddenly those overpriced eggs from Whole Foods sound like a more economical option than raising chickens yourself on land that costs an arm and a leg.
But buying land isn't the only option, and being surprisingly expensive doesn't mean purchasing land is a bad option. Let's dive in to potentially the biggest decision you make when starting up a farm or ranch of your own: should we buy or rent land?
Is Buying the Right Option?
By and large we are compelled to want to own the land we farm. Makes sense. We want the final say in what happens on the property. But the reality is it's a big expense, and that expense can slow you down just as you're coming out of the starting gate as a new farmer, eating up your finances and leaving little money available with which to actually do some farming. For example, let's say you want to buy land in my home state of Texas near Austin. It's a growing area in a state with a rich agricultural tradition - what better place to have a farm than a hub of culture, technology, and politics? Well, it's going to run you $6,300 per acre based on end-of-2019 average land prices for the Austin area.
...buying land isn't the only option, and being surprisingly expensive doesn't mean purchasing land is a bad option.
So is that a bad thing? It depends on what your goals are. If you want a 500 acre ranch with a big herd of cattle, that probably isn't realistic without lots (and lots) of outside funding help. But what if your goals lend themselves to a smaller scale operation? There are many examples: market gardens, meat chickens, eggs, rabbits, honey production. You don't need a lot of land for some agricultural production models, so owning some rural property isn't necessarily going to break the bank.
Is Renting the Right Option?
There's no way around it, renting land is exponentially cheaper than buying. In many ways it affords you flexibility not associated with owning. Renting frees up money that would otherwise be tied up in a mortgage, and renting also provides you the ability to leave an operation that isn't working out. My grandfather rented most of the land he ranched. This was in the days before water wells were readily available in this area, so a drought was truly a disastrous thing. In those droughts when it was difficult to make a profit he had the flexibility to downsize his herds and leave a lease once it expired, or negotiate lower rent since the landowner was often desperate to keep someone on the property.
With the relative low cost of renting land you can experiment with different production models and revenue streams to see what you are most interested in pursuing long term.
But there are disadvantages you must consider. Obviously the lack of full control over your operation can be discouraging when the desires of the land owner limit the path you want to take. And the lack of long term certainty usually negates incentives to invest in infrastructure or operations that require a long duration.
Each choice has pros and cons you should mull over.
Here are the pros and cons for BUYING land:
You own the land, so you make the decisions on how it's managed.
You don't need to ask permission to improve the property.
You can make long term management decisions or infrastructure additions without risk of losing access to land as you might experience with renting.
The equity in the land belongs to you, which increases your potential wealth.
If you decide you're in over your head with farming or don't have the time to commit to it, you can rent the land out.
With few exceptions, it is expensive to purchase land, and that expense ties up funds you could otherwise use to finance your farming endeavors. Check average prices here (in some states).
Normal wear and tear expenses to infrastructure will fall on you. It's not uncommon in rental agreements for the land owner to bear the expense of major infrastructure repairs, or at least share the expense with the renter.
Buying land isn't always a free ticket to do what you want. For example, deed restrictions may limit the type or number of livestock you can raise.
It's more difficult to walk away from owning a farm than it is to end a rental agreement.
Here the pros and cons for RENTING farm land:
It is inexpensive to rent land as compared to buying it. The cost savings allows you to invest more money into your operation, and this could be a key variable when you are new to farming and lacking much capital.
This may be best way to try farming if you're new to it. With the relative low cost of renting land you can experiment with different production models and revenue streams to see what you are most interested in pursuing long term.
You can test out an area where you are considering buying land. Gaining experience with the local culture, weather, competitors, and markets will give you priceless insight before deciding to purchase land.
You can write off lease expenses from your taxes.
While it's no guarantee, a good landlord is invaluable to helping you with meeting your goals. Flexible payment schedules, long term lease options, openness to cost sharing, and willingness to mentor are hallmarks of a good landlord.
You can walk away. If you end up with a difficult landlord or otherwise untenable farming situation, you don't have to renew your lease agreement.
Lack of control. Land improvements and many management decisions may have to go through your landlord for approval.
You can lose the lease on the land, which in turn creates a great deal of upheaval as you have to search for other land options to continue farming. Or cease operating altogether.
It's difficult to plan long term projects since rental agreements are normally short. For example, a typical lease agreement would not be ideal for an orchard since it would take a long time to recoup your investment. Likewise, major infrastructure builds would normally not be advisable with no guarantee you would be able to use it long term.
The finances may still point to renting as the better option with your money, but it's worth noting your hard work is helping to build up equity for your landlord.
You could end up with a difficult landlord. Working with someone who doesn't share your vision can undermine your ability to operate effectively.
Making the Decision.
What will you do? How to answer that is different for everyone, and as I suggested previously it comes down largely to what your goals are. Start asking yourself these questions and weigh your answers against the pros and cons for each choice. Some of these may require you do some research, but that's okay as that will lead to a decision you can be comfortable with.
What are my goals and vision for a farm?
What do I want to raise or produce on my farm?
Where do I want to farm?
How much land do I need to farm?
How much does it cost to operate a farm like the one I want?
How much do I need to invest in equipment, livestock, training, etc.?
How much financial risk am I willing to accept?
How much does land cost where I want to farm?
If I lost access to my land, would it be catastrophic to pack up and move somewhere else?
How do I treat management decisions? Do I need the final say or am I able to work with others?
The decision to buy or rent land is important, and it requires careful analysis as you work toward starting a farming enterprise. Both choices have good reasons for considering them and pitfalls as well. Start with your goals, and work from there to make your decision.