Ohio State University research attorney Robert Moore offers five key takeaways for beginning landowners:
- Assess your goals
- Understand the land’s value for sale and lease
- Plan for taxes and legal structures
- Explore alternative uses and revenue streams
- Protect the investment through insurance and setting up a business entity
Moore goes into greater detail on each point in a helpful resource, “The Beginner’s Guide to Farmland Ownership,” a guide available through OSU.
This information is important to landowners and farmers alike because 80% of the 880 million acres of farmland in the U.S. is owned by non-farm owners who lease the land.
“As far as leasing land, there are more farmers wanting to lease land than there is land available for leasing,” Moore notes. “And there are a lot more buyers than sellers.”
The one who holds the land has the power
In the current environment, landowners are in the driver’s seat, Moore adds. As such, there are definitely some best practices if you have recently acquired farmland.
The first step is to understand the value of that ground by getting it appraised.
“It's easy for me to spend other peoples’ money, but I like licensed appraisers,” Moore says. “They go through the process of looking at comparable sales and income data and they have certain forms they use. They have to sign off on it. They have some liability for it and also if the value ever is challenged by the IRS or whoever might do it, having a licensed appraiser that can testify to the value I think is very viable.”
Moore also hammers home the importance of getting liability insurance.
“Liability insurance is relatively cheap,” he says. “It's effective and there's just no way you should be owning farmland without it.”
Beginning landowners ultimately have several options. They can farm it themselves, they can convert it into renewable energy projects – such as solar or wind, or they can lease it to another farmer. Alternative revenue streams – including carbon credit programs – also are available.
“Generally, there's three different types of leases: cash rent, share rent lease and flex lease,” Moore says. “I usually tell people to go cash rent. It's the easiest. Cash rent means you get a set price for your land every year. It doesn’t matter if the crop yields are good. It doesn't matter if prices are good. You get the same price. It's easy so I always tell people just do cash.”
Handshake agreements are still a thing, but Moore urges both parties to enter into a signed contract.
“Get the lease in writing, so there is less chance of misunderstandings,” he says.
Knowing the “local flavor” in your state is also critical, Moore says. For example, he says, a farm in California may have to think about water rights, but that isn’t a consideration in Ohio. You also will do well to identify specifics regarding mineral rights and hunting rights.
“Farmland is a low-risk asset, but it’s also a high-value asset,” Moore says. Make sure to treat it as such.