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!
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.
