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Small Farmer's Journal
PO Box 1627
Sisters, Oregon 97759
800-876-2893
541-549-2064
agrarian@smallfarmersjournal.com
Mon - Thu, 8am - 4pm PST

Starting Your Farm

The Small Farmer’s Journal has decided to run editor and publisher Lynn R. Miller’s book Starting Your Farm as a serial series. Below is Chapter 2.

Chapter Two

“We can lie to ourselves about many things; but if we lie about our relationship to the land, the land will suffer, and soon we and all other creatures that share the land with suffer. If we persist in our ignorance or dishonesty, we will die, as surely as those bighorns perish from not knowing where they are. We are smarter than sheep, in most respects. Seeing the danger in ignorance, we may be moved to invent or recover some of the lore that connects us to the land, and tells us how to live in our place.” – Scott Russell Sanders

Who are You? And How Much is That Farm Worth to You?

Last chapter we started a discussion on the self analyzing procedures that might go into considerations of the purchase of a farm. We discussed the important first questions including; why you want to farm, what kind of farm you want, and where you want to farm? This chapter we’ll look at how much you might, or should, pay for a farm.

Up until the late 1980’s conventional farm lenders used to be proud of the formulas and yardsticks they employed to determine the value of a given piece of farmland and thereby the lending value. Today they are not so quick and ready with the numbers. The devastating farm crisis of the 1980’s and the resultant general farm banking collapse have forced an inch-by-inch, case-by-case, re-evaluation. That’s probably the way it should have always been. Because beyond the obvious variables of proposed crop and/or livestock, prevalent weather, region, soil types, proximity to markets, and such, there are myriad other particulars which can have dramatic effect on the value of a given piece of farm property.

WHO ARE YOU

The most powerful OTHER variable is personal circumstance (and I’m not speaking of class or social position). For example; if you want to increase the size of your farm holding and the neighbor’s twenty acres comes up for sale, it is safe to “suggest” that it will be worth more to you than someone looking for an investment. How do you factor in those two variables when deciding if the parcel is worth 400$ an acre or 2,000$ an acre? Operating farms in Lancaster County Pennsylvania have sold for twice or three times their justified farmland values to Amish families who are culturally, and personally, bound to try to remain within the communities to which they belong. And at the same time suburbia spreads like a pestilence putting altogether different pressures on those Pennsylvania farmland values.

On the flip side, there are hundreds of thousands of lovely farms with attractive buildings and good soils for sale at a fraction of their real value in areas suffering from large-scale out-migration. Portions of up-state New York, the upper peninsula of Michigan, Kansas and even the Ozarks fit that bill. In every case, these cheaper farms are located in regions that are not close to large metropolitan areas. But these depressed farm regions do enjoy strong growing seasons, good soils, proximity to some markets and the well-established fabric of farm communities. YET these are the areas that, for the time being only, many folks don’t want to live in.

That’s the oh-too-simple truth of it. If lots of folks want to live in an area, the land values go up. If they want to leave an area, the land values go down. Lancaster County is a popular place for the Amish who’ve lived there for generations, for the farmers who value the proximity to the Amish communities and other excellent market realities, and to the commuters who just want an acre in the country on a good road to the city.

But let’s get to your situation. The question was something like “how much should I pay for that farm I want?”. We need to approach the same question differently for different folks because the suitable, and/or acceptable, price per acre will vary. So we need to figure out who you are. Let’s oversimplify and lump you into one of these categories:

A. Young adults, few assets, no tools (didn’t know you needed them), no cash on hand, ineligible for conventional financing, limited to no farm experience, college education or part of one, no cultural or community ties to determine location (i.e. Amish, Native America, 3rd Generation S. Carolina Tobacco), but an abundance of health, high moral fabric, enthusiasm, industry, creative intelligence and good humor.

B. Middle ages adults, some assets (including tools), money saved, access to capital, college education, limited or no farm experience, used to convenience and comfort and high rate of pay, BUT absolutely MUST get out of the rat race and onto the farm, not as strong as you once were BUT know how to work, think you have a clear fix on what’s important, long ago determination replaced enthusiasm, in search of good humor that was lost somewhere in the city environment, think “creative intelligence” is a fancy way of saying “nut case.”

C. Middle aged adults, very few assets (unless you count this year’s vegetable garden and the cellar of canned goods plus the side of home-raised beef- Oh, and I almost forgot the old Chevy pickup is free and clear), nearly a thousand saved, bad or no credit, no education worth mentioning except lots of practical hands-on working experience including farming and ranching skills, lots of good tools (thought everyone knew they were important), used to working very hard for everything (except on Sundays), enjoy good health- humor- and outlook, value many friendships, already live in country on small rented place but always dreamed of a small farm of your own.

D. Nearing retirement or early retirement age, considerable assets (including equity in home and a stocks and bonds portfolio), $100,000 in nearly liquid form, pension and/or personal retirement income plan, no tools (or calluses), raised on a farm or ranch, adult life in city, concerned about health, education too long ago to matter, in desperate search for something long ago lost, suspect a return to farm-like setting will bring back quality of life. Concerned about protecting finances as they represent old age security.

E. Middle aged or older. Used to be a commercial scale farmer but lost everything during crisis of the eighties. Slowly building back up. Assets include full range of tools and the complete knowledge to use them plus a dangerously clear fix on how not to get into the same financial mess again. Some education, strong family, good health, moderately good rate of pay working in agri-business industry. A little saved. Not much sense of humor, bitterness overrides, straight ahead intelligence wary of “creativity.” Can’t get the NEED to own your own farmland out of your waking dreams.

I hope you’ve picked up on the fact that there could be an infinite number of different categories. I’m sure that you don’t fit any of these completely, maybe no one does. But this is an exercise in trying to show you how some seemingly insignificant things can have a huge effect on who you are and why you want a farm, and how much you might pay for it (not to mention how you might pay for it). The details of your personal circumstances and prejudices become very significant. A lot of these things bounce back to questions of “why” (or, ultimately, motivations) which we talked about last chapter. And things like tools and fears will have an effect on your success.

It needs to be said that every one of the “example” people painted above could reach their goal to own their own farm. And I’ll be borrowing from these examples in future discussions about how they can do just that. But here let’s get back to the discussion of how much to pay:

DOLLARS PER ACRE

If your goal is to own a farm which pays for itself, and from which you derive your income and you kind-of fit in category A, C, or E, you will most likely have to purchase a farm in an area where land is cheaper. That doesn’t limit you to just a few regions because almost every state of the union has within its boundaries areas of less population and low land prices.

The cheapest land I personally every tried to buy was $85 per acre (offered for sale in 1987 and located in eastern Oregon). It had a small house, a falling down barn and corral, scattered pine trees, good native grazing land, and a hundred acres of farm of hay ground. But there were two catches: you had to purchase the entire 1200 acres and it was twenty miles to the general store, post office, and 75 miles to a city of any size. I resolved to try to buy it and called to make my “offer of terms” only to find out that this ranch property which had been on the market for six months sold the day before I phoned. It was purchased by a group of doctors to function as a hunting retreat. They paid cash.

I know of remote farm and ranch property as low as $100 dollars per acre, as I write this, but the new owner must be prepared to travel 60 to 75 miles to go shopping. (Please don’t call or write me about this property because I’m sure it will no longer be available when you read this; which is an important point in and of itself- there is very little that is static about real estate availability and values.)

In the case of most all these cheaper properties, they are abandoned and can be purchased with little or no down payment (more on that later). If the above figures can be used as a bottom, up from that good farmland can be purchased for any price per acre from $100 to $10,000 per acre. The majority of farmland, sold in close proximity to markets and with a history of intensive farming, changes hands from between $500 to $2,500 per acre. Remember, true value, asking price and selling price may all be far apart from one another.

If your goal is to enjoy a part-time farming experience and you do not need or wish to gain all of your income from the setup- and if proximity to hospitals and town convenience is important to you- a higher price per acre will have to be paid because you’ll find yourself living where many others want to live. If you are in category A, C, or E this could pose a problem (but not insurmountable). If you are in category B or D, this will not be a problem.

Acceptable rates per acre (if there is such a thing) can be, and often are, determined by figuring the production value of the land. If the land produces 60 bushels of wheat per acre (at $3.50 per bushel) the annual gross potential receipt from that acre might be $210. Buying on contract and amortizing the purchase price of the land over twenty years (at today’s interest rates) you’ll end up paying off 10% of the purchase price (or mortgage principle) per acre per year. Add to that figure property taxes and calculate your cost of raising an acre of wheat (with or without a return to you on your investment and labor). It might look like this:

  • purchase price: $300 per acre
  • yearly mortgage: $30 per acre
  • property taxes: $2 per acre
  • seed, tillage, fertilizer, fuel, etc: $80 per acre
  • equip, loan: $50 per acre
  • sub total costs: $162 per acre
  • crop value/income: $210 per acre
  • return on investment: $48 per acre

To translate; a hundred acres of wheat with these numbers would result in $4800 annual potential return to you, 300 acres $14, 400 annually. The numbers improve dramatically when you reduce the price per acre, raise the price per bushel, or reduce your inputs. Conversely, it is easy to see that there is no room to raise the price per acre or any other input without jeopardizing the financial balance.

Readers of the Small Farmer’s Journal know that we are always arguing the importance of diversification and appropriate technologies. The above scenario can be beneficially affected by reducing inputs with low cost appropriate technologies as well as increasing the return per acre of wheat grown by having livestock utilize the straw and help fertilize the acreage.

Imagine that you were considering fertile acreage suitable for market gardening: it is possible that this land could produce crops with a gross return of anywhere from $800 to $10,000 per acre. Of course the higher returns come from intensive perennial cropping with high offsetting inputs. It is a mistake to assume that blueberries or some other high return crop will automatically NET you more money. Net income is what you have left after all else is paid. And, by the economic measures we encourage you to use, what you have left must include waste products suitable for other purposes (i.e. fertilizer [manure] and stock feed [harvest waste] as well as the measured gain you’ve enjoyed in increased soil tilth and fertility along with livestock gains. (Some will argue convincingly that the health, and enjoyment of the working farm family is also an asset which should be taken into the whole economic balance.) Crops that return less in a simple dollar measure may actually return more when you consider all these elements.

Market gardening acreage (with a history of this use) sells frequently for $850 to $2500 or more per acre. And what makes a piece of ground suitable for market gardening has as much to do with proximity to primary, secondary, and tertiary population centers as it does fertility because fresh produce needs to get to the public quickly and easily. But, by the simple practice of drying or canning, shelf life can be extended and the farmer can justify being further from cities and thereby enjoy a cheaper land price (and, I must add, fewer suburban restraints on his farm practices). To oversimplify: it is difficult or impossible to justify a purchase price of over $1200 per acre for any farmland if you depend on the farming to pay for the land and pay you back. Your success after the acquisition of the land will be affected by what you paid for it. You need to get the price down as low as is possible. If you pay too much for your farm, you may be guaranteeing failure.

If you are new to this real estate game, you have every right to ask how someone comes up with a given price for their farm- or even how the tax assessor comes up with a value for property taxes. The answer is that MOST prices and values are set after examination of recent similar property sales. In other words, if five people have recently paid an average of $1,000 an acre for similar farmland, in a set region, these sales establish a current de facto true market value. There is nothing to prevent you as a farm owner from asking ANY price you want when selling. But it is unlikely that you’ll be able to sell for a price that is out of line with what other properties have sold for in the same area because most buyers shop around and are familiar with area real estate market pricing. There are, of course, exceptions to this rule but they won’t include you most likely. If you are wanting to test the validity of a given farm price, you should go to the county seat and ask the records department to let you see the “sales data files for real estate.” Some counties may refer to these records by a different name, but they’ll contain the same information. These records usually consist of real estate tax lot plot maps clearly identifying who owns which acreage. Either with those records or in a separate file, identified by the plot numbers, you will find when that property last sold and for how much. By checking these records you can find out whether the seller purchased the farm and how much he or she paid for it. You can also check to see what neighboring farms sold for in the recent past.

That specific recent sales data is the important information. If the asking price is way out of line with those actual recent sales, you owe it to yourself to find out why or to give up on that parcel. There may be a perfectly legitimate reason why this is priced higher (i.e. gas or oil discovery or development, proximity to new zoning changes or developments, or other unusual extenuating circumstances) but there will be less reason for you to pay that much more than others have for comparable properties.

In some areas that have experienced increasing demand for real estate, less than scrupulous realtors will approach landowners with no desire to sell with the suggestion that they might realize enormous profits from the sale of their property. In our own area it is quite common for a realtor to suggest, “let’s list it and ask twice (or more) what you think it’s worth. If it sells, we both win out big. If it doesn’t, you haven’t lost anything.” It can be confusing for you and seem somewhat dishonest but the fact remains that the asking price for a given piece of real estate may mean little or nothing. You may desire a certain listed farm property only to find out that the owner is far from serious about selling.

How do you learn the true status of that farm with the “for sale” sign? Here are some important pieces of information for you to learn about a given selling farm. The answers will most probably tell you how serious the seller is.

  1. How long has it been on the market?
  2. How much is owed against the property?
  3. Is the seller living on the farm?
  4. Are there back taxes owed against the property?
  5. Are there any outstanding liens against the property?

Numbers 1, 4 & 5 may suggest some urgency to the sale that would help you determine what is an acceptable offering price. It may also spell trouble in clearing up all the indebtedness with the sales transaction. We’ll get into that in a future chapter.

Number 2 can be a very important piece of information when it comes to structuring a deal (more later) but for now it could translate to some inflexibility on price and terms.

Number 3 can give some clear indication of the up front cash needs of the seller. A family that needs to buy another home to move will need more cash than an absentee landowner who is not looking to physically move. Absentee ownership might indicate that the farm property in question is but part of larger holdings suggesting that the owner may be best served by a land sales contract with a small down payment thereby avoiding or postponing some taxation. If you are able to give more of a down payment you will have a strong negotiating point to reduce the total price, especially if the seller is in great need. If you are willing to sign up to a creative land sales agreement with a slightly high than standard interest rate you may be able to acquire land for little or no down payment, especially if the seller needs to unload the property but is not in need of a lump sum of cash.

Keep in mind that the price you may pay per acre over time can be justified or offset in your budget by the amount you pay initially. If you are looking at the farm income to pay or help pay for the farmland, it becomes critical that your mortgage payments be structured to your advantage. We’ll get into greater detail on this in another chapter, but for not let me say that whether you have monthly payments, quarterly payments, or annual payments- or whether you split your interest payments month with an annual principle payment- or whether you set up a mortgage with lower initial payments for a couple of years- or any other custom variety of mortgage- these determinations can have a tremendous effect on your financial solvency or insolvency. And there is NO one best way to structure your payment schedule, but there are several ways that a payment structure could hurt you. You need to have a clear picture of what you will try to raise and how you will market it and when you will market it to help you customize a schedule that at the very least will not set you up for hardship. For example; if your livestock and crop receipts will be coming in annually some time in October, it would be doubly foolish for you to have a large mortgage payment in March. I say doubly because March will be a month of little or no receipts plus the possibility of many expenses for seed, fertilizer, equipment, repairs, fuel, oil, etc. in preparation for Spring work. In such a scenario, November would be a better month to have a big payment come due. (At the same time such a schedule provides yet another argument in favor of greater diversification and marketing creativity to spread the receipts- and expenses- out over the whole year.) All of this to say that you may well be able to afford a slightly higher price per acre in exchange for some consideration in structuring a payment schedule. And don’t forget the interest rate may well be a negotiable bargaining chip in the mortgage terms negotiations. Of course, if you can keep the price low AND get creative payment scheduling, you will be better off yet.

Hopefully this discussion, and that of the previous chapter, will convince you that there is much to think about and prepare for in the process of buying a farm. Advanced preparation will be beneficial to you. And we’ve only touched on the beginnings.

Here are a few off the cuff rules: MOST ALWAYS TRUE

STANDARD RULE OF THUMB NUMBER ONE:
the fewer acres you purchase, the higher the price per acre.

STANDARD RULE OF THUMB NUMBER TWO:
the closer you are to markets, the higher the price per acre.

STANDARD RULE OF THUMB NUMBER THREE:
the closer you are to social services, the higher the price per acre.

STANDARD RULE OF THUMB NUMBER FOUR:
the more other people want the property, the HIGHER the price per acre.

STANDARD RULE OF THUMB NUMBER FIVE:
seven times out of ten the asking or listed price per acre can be negotiated down (or up – yes and perhaps to your advantage – more later).

STANDARD RULE OF THUMB NUMBER SIX:
realtors are NOT working for you or for the farm owner- they are working for themselves.

Please don’t let all this material discourage you. The point in writing this is to try to help you succeed at your dream of buying a farm by providing information that will, hopefully, encourage you to be well prepared.

Spotlight On: People

Back to the Land

Back to the Land

by:
from issue:

Tired of living in a crowded urban environment with its deafening noise and bumper-to-bumper traffic and eager to escape what they saw as an economy bent on destroying the planet, Matt and Tasha left their home in the Washington, DC metropolitan area in March 2014. In doing so, they became modern-day pioneers, part of a wave of Americans who have chosen to go back to the land over the past decade, seeking to reclaim and rebuild their lives and to forge a deeper connection to the earth, the animals that inhabit it, and to each other.

Birth of a Farm

Birth of a Farm

by:
from issue:

“Isn’t it nice?” I offer to my supper companions, “to see our beautiful horses right while we’re eating? I feel like I’m on a Kentucky horse farm, with rolling bluegrass vistas.” I sweep my arm dramatically towards the view, the rigged up electric fence, the lawn straggling down to the pond, the three horses, one of whom is relieving herself at the moment. “Oh, huh,” he answers. “I was thinking it was more like a cheesy bed and breakfast.”

In Memoriam Gene Logsdon

In Memoriam: Gene Logsdon

by:
from issue:

Gene didn’t see life (or much of anything else) through conventional eyes. I remember his comment about a course he took in psychology when he was trying to argue that animals did in fact have personalities (as any farmer or rancher will tell you is absolutely true), and the teacher basically told him to sit down and shut up because he didn’t know what he was taking about. Gene said: “I was so angry I left the course and then left the whole stupid school.”

Beating the Beetles – War & Peace in a Houston Garden

Blooming that is, unless the cucumber beetles arrive first.
And arrive they have … “At first I thought they looked like big, yellow lady bugs.” Paul said, “Then I looked…

The Value of What You Grow

The Value of What You Grow

by:
from issue:

There is a lot of value in the produce you sell that contrasts it from what someone can buy at the grocery store. First, you probably sell varieties that are different from what the grocery store sells. As you’ve probably tried dozens of different varieties, you can let the customer know why yours are different. Be brief and talk about things like taste and texture that are easy to get across.

No Starving Children!

You’d never be able to harvest the broccoli or the hay or milk the cows or make the cheese if it were subject to government process. Not only are our industrial farms too big…

Another Barn Falls In

Another Barn Falls In

by:
from issue:

The barn was built around a century ago. A pair of double doors on the front flapped when the wind blew, and a short service door was on the side. It wasn’t a big barn, about 30 feet wide by 40 feet long with a small hay mow above. It had a couple of windows for light, and of course a window in the peak. There was a hitching rail outside that gave it a certain welcoming charm. A charm that seemed to say, “tie up to the rail, and c’mon in.”

The Farmer and the Horse

The Farmer & The Horse

In New Jersey — land of The Sopranos, Jersey Shore, and the Turnpike — farmland is more expensive than anywhere else. It’s not an easy place to try to start a career as a farmer. But for a new generation of farmers inspired by sustainability, everything seems possible. Even a farm powered by draft horses.

Great Oregon Steam Up

Great Oregon Steam-Up Bonus Gallery

by:
from issue:

The best thing about the SFJ website is “unlimited real estate.” With each issue of the Small Farmer’s Journal comes the required agonizing over what to keep and what to sacrifice due to page space. What follows is a photo gallery of every picture we took at the 2016 Great Oregon Steam-Up. Why? Because we can! And, because there were a lot of interesting machines there that we are sure some of you will enjoy seeing.

Icelandic Sheep

Icelandic Sheep

by:
from issue:

I came to sheep farming from a background in the arts – with a passion for spinning and weaving. When we were able to leave our house in town to buy our small farm, a former dairy operation, I had no idea that the desire to have a couple of fiber animals would turn into full time shepherding. I had discovered Icelandic sheep, and was completely enamored of their beauty, their hardiness and their intelligence.

Biodynamic Meeting at Ruby and Amber’s Organic Farm

Biodynamic Meeting at Ruby and Amber’s Organic Farm

by:
from issue:

One weekend I attended a Biodynamic meeting at Ruby and Amber’s Organic Farm in Dorena, Oregon, in the Row River Valley, just east of Cottage Grove. I always enjoy seeing other food growing operations, as this is such an infinitely broad subject, there is always much to learn from others’ experiences. At this farm, draft horses are used for much of the work.

LittleField Notes A Trip to the Auld Country

LittleField Notes: A Trip to the Auld Country

by:
from issue:

I’ve come to the north of Scotland this October almost by accident. And I find myself standing on the windy, rocky point of land that is northernmost on the isle of Great Britain. The sea lies before me: the flooding tide from the Atlantic pours in on my left where it collides with the North Sea pouring in from the right, the opposing currents whipping up a frenzy of white capped, tidal confusion: for sailors past and present, treacherous waters indeed. Straight ahead, across the seething waters of Pentland Firth lie the Orkney Islands, my ultimate destination.

Fjord Horses at Work in the Green Mountains of Vermont

Fjord Horses at Work in the Green Mountains of Vermont

We own a 40 jersey cow herd and sell most of their milk to Cobb Hill Cheese, who makes farmstead cheeses. We have a four-acre market garden, which we cultivate with our team of Fjord horses and which supplies produce to a CSA program, farm stand and whole sale markets. Other members of the community add to the diversity of our farm by raising hay, sheep, chickens, pigs, bees, and berries, and tending the forest and the maple sugar-bush.

The Shallow Insistence

…a life of melody, poetry and farming?

Mule Powered Wrecker Service

Mule Drawn Wrecker Service

This will only add fuel to those late night discoursians about the relative merits of horses over mules or viciversy. Is the horse the smarter one for hitching a ride or is the mule the smarter one for recognizing the political opportunity which this all represents? In any event these boys know what they are doing, or should, so don’t try this at home without horse tranquilizers. Remember that politics is a luke warm bowl of thin soup.

Ripening

Poetry Corner: What A Boy Lies Awake Wondering

This is a poem from Paul Hunter’s book Ripening.

B. Adroit's Profiles in Passion: Herscel Gouda

B. Adroit’s Profiles in Passion: Herscel Gouda

Excerpt: Um, ya, you’re just gonna have to read this one.

Farmrun - Sylvester Manor

Sylvester Manor

Sylvester Manor is an educational farm on Shelter Island, whose mission is to cultivate, preserve, and share these lands, buildings, and stories — inviting new thought about the importance of food, culture and place in our daily lives.

Small Farmer's Journal

Small Farmer's Journal
PO Box 1627
Sisters, Oregon 97759
800-876-2893
541-549-2064
agrarian@smallfarmersjournal.com
Mon - Thu, 8am - 4pm PDT