December 13, 2017

Iowa Farmland | Return on Investment

Investors today tend to alway look for the best return on their investment when looking to sink hard earned dollars into farmland. Iowa Land Company land agents understand why it’s important to reap the benefits of the best return on your investment because that’s common economics. However it’s important to keep a few things in mind before pulling the trigger on the farm that provides the best return on investment. A couple questions to ask yourself before buying land might be..

        What is cash rent today on the farm and what will the farm cash rent for next year, 3, or 5 years from now be? It’s obvious nobody can determine what cash rent will be on Iowa farmland in 5 years but we should have a pretty good feel what cash rent will look like in 1 – 2 years. When calculating projected cash rent on a farm make sure you’re using realistic numbers. If you’re new to the land buying business reach out to one of our land agents. It won’t cost you a dollar for them to represent you in the purchase of a farm but it might cost you a fortune if you don’t.

1. What is the quality of your prospected farm? In most cases the farms that return the absolute best are the farms that don’t support the best soil type. Also they’re the farms that are least desired by local farmers due to the size of the fields the farm supports or the slope the farm fields have. It is important to not only look at the ROI but also look at the quality of the farm you’re considering to purchase. You want to make sure you purchase a farm that is going to be highly desired down the road by both investors and operators especially if you’re paying market value for the farm.

   2. What return on investment should I be looking for? Location, size, and farm quality are three major factors that impact what return you should be looking for. In today’s market most of our investor clients are seeking farms that are highly tillable and above average CSR2 rating depending on the region they’re looking for dirt in. To break that down in numbers investors below HWY 34 are looking for  3.8% – 4% net ROI. Investors between interstate 80 and HWY 34 are looking for 3% – 3.5% return on their investment. The return is typically not as good north of HWY 34 and south of I-80 because the land is much more desirable due to the better quality of the farmland in this region. Investors north of 80 are struggling to get anything bought north of I-80 because they typically get outbid on auctions by local operators. Local operators are willing to pay more money for surrounding farms because their numbers will return better for them when they farm the farm themselves. When investors bring money north of I-80 to buy farmland they typically expect to buy farms at a 2% – 2.5% return. Once again the better the dirt the less amount of return.

Are you an investor looking to park winnings from the stock market into a more controlled investment ? Purchasing Iowa farmland right now and into the spring of 2018 is in our opinion a very safe and rewarding investment. Call one of your Iowa land agents today to discuss why!