Adding farmland to the retirement portfolio...

[Whynot]

Good idea or not?

I've been investing heavily in my 401k for over 10 years now and last year it paid well with a return of 18%, this year it was only 4%. I'm 31 and unless I hit the lotto, have quite some time 'till retirement.

My thinking is to buy some preserved land (deed restricted for ag only), as this is the only really affordable option and rent it out for a few years until I can pay all the inputs with cash. Once I can pay the inputs, I'd farm it myself until the time I decided to call it quits, then rent it back out. I figure if rent stays the same as it is now $125-$150 an acre, that would be an almost guaranteed return of around $15,000 a year after taxes.

I'll admit that a lot of this has been dreamed up to fulfill a dream, but after thinking about it as an investment for the future, it doesn't seem so far fetched to me. But since I'm emotionally invested in it I figured I would get the opinion of others who are into investments to see if I'm just dreaming.

[waybomb]

Sorry if I don't know much about farming. That 150 - a year? How cheap is this land?

[Whynot]

Oh it's not cheap by any stretch of the imagination, $150 a year per acre is just what the going rate is for around here and it's good 160-180 bpa ground. I guess I could try to get more for it, but knowing the families around here, they would just let it sit.

[pixie]

Do you already own the equipment to 'farm it yourself' ? Would you rent it ?

[Cowboy]

Originally Posted by Whynot

Oh it's not cheap by any stretch of the imagination, $150 a year per acre is just what the going rate is for around here and it's good 160-180 bpa ground. I guess I could try to get more for it, but knowing the families around here, they would just let it sit.

Just curious , where about are you located?

[Whynot]

Originally Posted by pixie

Do you already own the equipment to 'farm it yourself' ? Would you rent it ?

I do not, which is why I would rent it out for the first couple of years, allowing me to save up for a minimal amount of used equipment. Probably go with a 140-150hp tractor, a strip till/fertilizer rig, and a planter to match the strip till rig. All harvesting would be hired out along with spraying unless I could find a cheap sprayer.

[Whynot]

Originally Posted by Cowboy

Just curious , where about are you located?

NJ

[Melensdad]

Depending on the state, farmland is getting to be very high priced. $3000 to $10,000 per acre for farmland is pretty reasonable based on my searches and I know of places where its even higher.

But if you take a lower price in that range, say $4000 an acre and get a $150 return and you buy 100 acres then $400,000 invested will yield $15,000 per year in return.

Take the same $400,000 and buy a 4 unit apartment with rents at $700 per month and gets you $2800 per month, that's $33,600 gross income per year.

Both will require payment of property taxes, the apartment building would require more management and some maintenance, but I'd bet you might be better off with the apartment after all the expenses than the farm land.

Just my take on things. But noticing you are in NJ, I'd bet land is more expensive, apartment buildings too.

[waybomb]

Originally Posted by Melensdad

But if you take a lower price in that range, say $4000 an acre and get a $150 return and you buy 100 acres then $400,000 invested will yield $15,000 per year in return.

Take the same $400,000 and buy a 4 unit apartment with rents at $700 per month and gets you $2800 per month, that's $33,600 gross income per year.

That's where I was going. I can't imagine this to be a good time to buy farmland. Heck buy a bunch of 50,000 foreclosed/short sale homes and rent them out at 100,000 value. 400k buys 8 houses, rent at 10k a year each. 80k. If you have cash, there's lotsa folks that can't buy a house, but still want to live in one.