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Adding Rental Ground
Learn a new skill: negotiating
I recently was posed the question from a young producer,
“How in the world do you pick up rental ground? I've had good conversations with landlords but am never able to place a bid high enough to win the offer. Any higher bid will not cash flow. How will I ever be able to get new ground?”
Here is how I would attack the problem:
Tax Credit
First, have you tried using the beginning farmer tax credit? http://nextgen.nebraska.gov/index.html
(The credit may not be available to you based on state or situation, check with your CPA for options available to you.)
This way you present your lower cash rent offer while the landlord gets a tax credit for renting to a beginning farmer. The tax credit essentially raises your bid by providing additional benefit to the landlord.
Without being willing to raise your bid, I would say there are 3 negotiating tactics you could try to use to win them over:
Tactic 1: Make multiple offers
If they insist on cash rent, make them a cash rent offer (with the beginning farmer tax credit baked into the offer). Then present a second offer that is share rent or flex rent. With this example, show them the upside they could receive with high crop yields and increasing commodity markets. They may have never heard of these options and could be tempted by the upside. Plus, you are impressing them with your knowledge of the industry and the amount of time you spend considering the best-case scenario for them, the landlord.
Tactic 2: Make your offer more professional
When meeting to present the offer, you could have a professionally finished offer sheet explaining details about your operation, a breakdown of your offer, and all the information you would be willing to provide the landlord to make your offer stand out and create a better first impression. You could create your own website outlining your operation's approach to conserving the land and take care of mother nature. A formatted PowerPoint is another option, but in my experience handing over physical, custom-made items creates a deeper connection.
Tactic 3: Build the Relationship
Spend more time with the potential landlord to learn what is important to them. Instead of talking price, find out about the farms' history and what their vision is for the farm. Maybe the prefer mowed ditches every two weeks and a weed free field. They could enjoy a crop tour once a month or ride-along during harvest. Find out if there is anything they want from their current tenant they aren't getting. If you only approach the conversation with price, that is what you will be competing with and relying on to win the bid. Don’t be a one trick pony. There are potentially dozens of ways to win a deal.
Bonus: Alternative Opportunities
Ask if they have any ‘other’ properties for rent or work that needs done. You may miss out on the ground you had your eye on but could discover there is a different farm 10 miles away that will be coming up next year. Maybe they need some custom work done on a few properties. It is even possible they were looking to sell a bin site next door. Open the conversation and you will find new opportunities that were waiting for someone to ask.
Conclusion
If it absolutely comes down to price, then you have two options: reduce your current expenses so you can offer more or find ways to generate additional income.
While you work on those two financial items, develop some sales and negotiation skills by:
Making multiple offers.
Make your offer professional.
Create a relationship.
Bonus: Be open to an alternative opportunity.
Need help with your operation's financials?
Have you updated your financial statements for the year?
Did you complete a review of your position with your lender?
If not, this is a dangerous step to skip. How will you know if you are in a position to buy ground (and how much ground) without getting a lender's feedback? How can you learn anything new without a review?
If you missed this crucial step during your renewal appointment, there is still time. I've opened up 30-minute financial review consultations helping you:
Update your balance sheet for the year if not yet completed.
Give feedback on the strengths and weaknesses of your position.
Help you plan for growth.
Sign-up here if my services can benefit your operation:
Also, I want to continue bringing you the resources to help you grow while in a healthy financial position. If you ever have an interest in the Farm Buying Toolbox, sign-up here:
I can’t wait to be in touch and start helping you toward your goals.
Have a great week!
Grant
