Key Takeaways:
Inheriting farmland offers various options for landowners to consider, ranging from immediate sale to long-term income strategies.
Selling the Land: Provides a quick financial return but ends potential for generational wealth.
Leasing the Land: Offers passive income through various lease types, including:
Farming/Ranching/Hunting: Continuous use of the land with minimal involvement from the owner.
Resource Leases: Solar, wind, carbon, oil & gas, and mineral leases offer financial benefits based on land location and resources.
Solar Leases: Require 40+ acres, lasting 25-50 years.
Wind Leases: Need 10+ acres per turbine, lasting 30-50 years.
Carbon Leases: Range from short-term 12 months to 5-100 years for agricultural programs.
Mineral Leases: Vary by mineral type; precious minerals need fewer acres than others like sand.
Hiring a Professional Land Manager: Manages the land, ensuring it's utilized efficiently for profit or conservation.
Joining a Landowner Association: Access to resources and training for better land management, increasing land value potential.
Partnering with Conservation Organizations: Supports wildlife and environmental efforts, potentially opening avenues for carbon credits and offsets.
Additional Resources: Landowners can get free property evaluations to understand potential rental incomes and make informed decisions.
Inheriting farmland, or just a large acreage of land, can be stressful if you have no idea what to do. There are many options that landowners have if they are inheriting land. For a quick option, landowners can sell the land and make a quick buck.
However, many passive income routes will allow landowners to start or continue generational wealth. Land ownership can provide long-term benefits and be passed down to other family members.
Understanding the Ownership Type for Inherited Farmland
The structure of the ownership for inheriting farmland can vary depending on how it was set up in the will. It can be set up with one owner, or what’s known as, fee simple or with multiple owners. Fee simple ownership means that only one person or one organization, like a trust or LLC, owns and controls the land. Multiple owners means that there may be a hold tenancy in common or joint tenancy. Joint tenancy is the traditional passing of ownership. When one of the owners dies, their piece of the ownership is transferred to the other owner(s). A tenancy in common happens when there is a shared tenancy between multiple parties. Figuring out the type of ownership you have of the inherited property is important before you can consider the available options!
Tips for Selling Farmland
If you have inherited farmland you do have the option to sell that property if you don't plan on using it. Effectively selling farmland requires a blend of strategic planning, market savvy, and proactive measures. Successfully navigating the complexities of the real estate market and land sales can significantly impact the outcome of your transaction. Here are essential tips to guide you through the process:
Understand Your Market: Conduct thorough research on current trends and demand in your region. Familiarize yourself with recent farmland sales, pricing, and the types of properties that are in demand. This will help you set competitive and realistic expectations and make informed decisions based on solid data.
Enhance Curb Appeal: Just like residential properties, the visual appeal of your farmland matters. Ensure the land is well-maintained, free of debris, and visually attractive to prospective buyers. Simple improvements such as mowing, clearing overgrown areas, and repairing fences can make a significant difference in how potential buyers perceive your property.
Gather Comprehensive Documentation: Prepare detailed records on soil quality, water rights, crop yield history, and any property improvements. Comprehensive documentation can instill confidence in potential buyers regarding the land’s value and potential. Include maps, aerial photos, and any environmental assessments that highlight the land's attributes.
Leverage Professional Photography and Videography: High-quality images and videos showcasing the property’s best features can enhance online listings and marketing materials, making your farmland stand out. Consider using drone footage to provide a unique perspective and highlight aspects of the property that may not be visible from the ground.
Utilize Online Platforms: Take advantage of real estate websites and social media to reach a broader audience. Virtual tours, aerial drone footage, and engaging descriptions can attract interest from both local and distant buyers. Utilize platforms like Facebook, Instagram, and LinkedIn to share updates and engage with potential buyers.
Consider Timing: Market conditions fluctuate throughout the year. Selling during periods of high demand or when agricultural policies are favorable can lead to quicker and more profitable sales. Pay attention to factors such as planting and harvest seasons, economic conditions, and government incentives that might affect the demand for farmland.
Be Transparent About Potential Issues: Honesty about any existing issues such as zoning restrictions, environmental concerns, or water rights disputes is crucial. Transparency can prevent future complications and build trust with buyers. Provide documentation and be prepared to discuss how any issues can be resolved or mitigated.
Consult with Experts: Engage real estate agents, legal advisors, and financial consultants specializing in agricultural properties. Their expertise can help navigate complex transactions and optimize your selling strategy. Experts can provide insights on market trends, pricing strategies, and legal requirements that you might not be aware of.
Highlight Unique Selling Points: Differentiate your farmland by emphasizing unique features like organic certification, specialty crops, or renewable energy potential. Tailor your marketing to highlight these points and attract niche buyers. Mention any conservation efforts, water sources, or historical significance that adds value to the property.
Be Flexible with Negotiations: Flexibility with terms and conditions can make your offer more attractive. Consider offering seller financing, lease options, or other incentives to close deals faster. Being open to negotiating on price, closing dates, and other terms can help you reach a mutually beneficial agreement with buyers.
Farmland Options For You
Lease the Land
Many times when inheriting farmland, some form of farming, ranching, or recreation is currently taking place. As a new landowner, you can continue to lease the land to a farmer, rancher, or hunter who has experience managing similar properties. This can provide you, the landowner, with additional income and reduce the burden of managing the land yourself.
Leasing land for farming, ranching, or hunting is not the only leasing option landowners have. Depending on the location, leasing the land for certain resources like solar, wind, carbon, oil & gas, battery storage, and mining could work better from a financial perspective. These types of leases can last between 1 to 50 years providing an easy passive income that is very appealing.
Solar Lease: This type of lease requires a minimum of 40 acres of buildable land and the lease contract typically lasts 25-50 years and can be extended.
Wind Lease: This type of lease doesn’t have a minimum amount of acreage but a wind turbine does need about 10 acres minimum to be built. This lease contract typically lasts about 30-50 years.
Carbon Lease: Carbon leases involve the selling of carbon credits and carbon developers look for large tracts over 40 acres. These leases can be quite short around 12 months, but if it's an agricultural carbon credit program it can be 5-100 years long.
Water Rights: Companies or organizations looking for water resources are looking for large amounts of water available. This is definitely dependent on land location and the leasing could be seasonal based or long-term.
Oil & Gas Leasing: This type of lease doesn’t require a lot of available acreage because it is all below the surface. However, it is important to note that owning surface rights is not the same as owning the mineral rights.
Mineral/Mining Lease: The acreage needed for this type of lease varies depending on the type of minerals being mined. For precious mineral leases, a few acres are needed but for less valuable minerals, like sand, require large acreage amounts.
EV Charging and Battery Storage: EV charging leases need at least half an acre and battery storage needs at least two buildable acres. The length of these leases is typically between 20-30 years.
To start the process of leasing land, understanding your values is a primary step in considering your options. Get your free, full property evaluation through the link below! You will understand what kind of rent payment you could expect for different leasing options and this can help you determine how best to manage your inherited land.
Hire a Professional Land Manager
The landowner can hire a professional land manager to manage the land on their behalf. A land manager will have experience and expertise in managing large tracts of land. They can provide advice on how to best utilize the land for hunting, farming, or conservation purposes. Land managers also oversee any construction or development projects on the property. They make sure the landowner is paid correctly for any leasing revenue.
This is especially helpful if inheriting a farm that you would like to keep running and making a profit. The land manager can make sure someone works the land and the upkeep is handled properly.
Join a Landowner Association
Joining a landowner association can provide access to resources and expertise to help manage the land. After inheriting farmland, you have the option to learn about the land you now own. Many associations offer training programs and workshops on topics such as habitat management, wildlife conservation, and forestry practices.
Learning how to operate the land in ways other than a farming operation can help increase the potential value of the land. For example, if landowners in your area are profiting off of certain crops or having a wind farm on their land, that is a good indication to get some land evaluations done!
Partner with a Conservation Organization
A landowner can partner with a conservation organization to help manage the land for conservation purposes. Conservation organizations can provide resources and technical assistance to help protect and restore wildlife habitats, improve water quality, and maintain healthy forests.
Through extension and outreach, partnering with these organizations can be very beneficial. It may even open the door to carbon credit or carbon offset financial opportunities.
What is Farm Succession Planning?
A farmland succession plan is a comprehensive strategy devised to ensure the seamless transition of agricultural land and operations from one generation to the next. This plan addresses several key aspects, including the financial stability of the farm, the equitable distribution of assets among heirs who may inherit the farmland, and the preservation of the farming enterprise. By outlining clear directives for the transfer of ownership, management roles, and operational responsibilities, a farmland succession plan helps mitigate potential conflicts and uncertainties that can arise during the succession process. Ultimately, it aims to maintain the farm's legacy and sustainability for future generations.
The Importance of Farmland Succession Planning
A thriving family agricultural business is founded on robust planning and clear communication. Every farm, ranch, nursery, and dairy operation is more than just a business; it is a legacy. Therefore, every agricultural enterprise should have a well-defined succession and estate plan. Farmland connects us to family, tradition, and heritage, while also providing vital food, fiber, fuel, and myriad other benefits to society.
In the United States, there are approximately 911 million acres of farmland, with nearly 40% (371 million acres) owned by individuals nearing retirement. Yet, only 29% of these landowners have succession plans in place. Although discussing business succession and estate planning can be uncomfortable, such conversations and practical decisions are essential. They ensure that the farm continues to fulfill its vital roles for both your family and society, safeguarding your legacy for future generations.
How Do I Start Farmland Succession Planning?
Beginning the process of farmland succession planning involves several critical steps to ensure the seamless transition and continued success of your farmland or agricultural enterprise. First, initiate open and honest discussions with all stakeholders, including family members, heirs, and business partners, to identify their interests and concerns. This helps to establish clear goals and expectations for the future of the farm.
Next, gather comprehensive documentation of your farm's assets, liabilities, and operational details. Consult with professionals such as estate planners, attorneys, and financial advisors who specialize in agriculture to develop a customized plan that addresses legal, financial, and tax implications. Working with real estate land professionals with networks in the local community is recommended. Organizations such as GeoRanch can consult property owners on the highest and best use for their properties while assisting with the entire leasing or selling process.
It's also essential to create a timeline for the succession process, which should include mentorship and training for the next generation to ensure they are prepared to take on leadership roles. Regularly revisit and update the plan to accommodate changes in the family dynamics, market conditions, and legal frameworks, ensuring its relevance and effectiveness over time.
