How to Invest in Farm Land

Farm loans and grants may help the new investor.
Farm loans and grants may help the new investor. (Image: AlinaMD/iStock/Getty Images)

Investing in farmland is a way to establish multiple revenue streams that offer a steady future income. By investing in farmland, landowners have the ability to benefit from various agricultural grants and loans, even if they choose to lease the land for agricultural proposes. In addition, emerging agricultural and green markets such as biofuels, ethanol and wind technologies make farmland an appealing investment. Farmland also makes an excellent tangible asset for future financing endeavors.

Put together a business plan determining how the farmland will be used. Banks will require a business plan to demonstrate how the loan will be paid back, and the land must have an agricultural use to maintain its farmland tax status. A good business plan will give investors a chance to review the various income streams available to farmland owners. Farmland investors can judge if the property areas they are considering are viable for such things as wind development, recreational uses or natural resource sales or leasing. Natural resources such as water, oil, natural gas or lumber are all highly sought-after products.

Decide if you plan to farm the land yourself, crop-share with another farmer, lease the land to a farmer or lease with an option to buy. Your business plan will define how the property will make money, and it will aid in getting both private and government loans and grants. The U.S. Small Business Administration will help farmland investors create a business plan at no charge.

Secure financing. Investors armed with a strong financial business plan will need to seek out financial institutions that offer agricultural loans. Farmland owners will not be able to apply for certain grants until they own farmland. However, the U.S. Department of Agriculture does offer farm loans for first-time farmers or for minorities seeking to become farmers. Have an attorney and an accountant, who are experienced in purchasing farmland, help you gather the correct financial documents needs to apply for loans and grants.

Start evaluating farmland properties. Remember to keep state farming regulations in mind when buying land. For example, raising only horses in Illinois will change a property’s farmland tax status. Other farming states, such as Iowa, offer financial incentives to new agricultural businesses. Starting a new agricultural business there may offer incentives not available in other areas. A financially sound business plan will indicate the locations that will financially sustain any farmland investment strategy. When pricing and comparing properties, break down land costs into a per-acre price.

Once a property has been chosen, review the land surveyor’s report, negotiate a bid, review all contracts with an attorney and make sure mineral rights are included in the sale. Financing should be in place so that once the current landowner approves the bid, a date for closing the sale can be assigned.

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