SW Financial Literacy
I am always working on several real estate transactions at any point throughout the year.
The best part about what I do for a living is coming up with creative ways to make these purchases happen. While public land auctions get all the attention (because they are public and people actually know about them), a lot of my work happens privately. Private deals are rarely straight forward and often require out-of-the-box thinking.
The good thing is the options and tools to complete these transactions are endless if you are willing to learn the skills (yes, they can be learned).
One of my biggest pet peeves is when individuals vent about being too small to get any deals. From my experience, the limiting factor in getting land bought isn’t the size of your farm or net worth, but the size of your network and having the right connections to get these deals done.
Here is Part 1, How 10 Real Estate Deals Happened.
Author’s note: Names, dollar amounts, acres, and other details were adjusted to keep information confidential. The lessons learned remain the same.
Phil was making a $150,000 improvement to the headquarters in a high interest rate environment. He wanted to save cash but didn’t want a new high interest rate loan. Phil did a 1-year payment deferral of $105,000 on his real estate note at 3.75% interest. Instead of making his next $105,000 payment, the payment was able to be deferred at low interest and the funds were instead used for the improvement. This essentially made a $105,000 loan at 3.75% interest when the best rate he could find was 7.00%.
Luke bought 80 acres five counties away and was able to convert the ground from $1,800/a pasture to $3,000/a dryland row crop, immediately creating $96,000 in equity. This gave him the opportunity to buy out the next-door neighbor of an additional 400a on contract which was also converted from pasture to dryland. The terms of the contract were a $250,000 down payment, seller carry of the remaining balance for 3 years at 2% interest, then after 3 years a balloon payment will be due in which there will be sufficient equity to find good financing terms with a bank. The net worth gain from converting all this land from pasture is estimated at $576,000.
Mark was part of a sealed bid to buy 200 acres from his landlord. As a part of the sealed bid negotiation, he was able to offer a lower amount than the competitors in exchange for paying higher rent over the next 3 years on an additional 1,000 and he was renting from sellers. This helped the seller save on capital gains tax they would need to pay after the sale. Mark benefited from needing less cash for the purchase and lowered the finance amount in a high interest rate environment.
Walt bid on and won 160 acres at auction four counties away that he never intended to farm. His landlord had ground next door from this property. Walt and his landlord were able to complete a 1031 exchange for Walt to buy ground from this landlord across the road from Walt’s home which he will now own instead of rent.
Rob is always looking to buy ground and is known as a strong producer in the area. There was a parcel of ground he was slightly interested in owning but didn’t bother going to the auction. At a break in the auction, the realtor called asking for help with the sale which the farmer place 1 bid and won the ground. It sold for $475,000 but appraised for $700,000.
Mitch was the second to last bidder at public auction for 600 acres that were all sold together. A day later he was informed the buyer didn’t want 180 acres of the purchase. He was offered to buy those 180 acres through assignment of the purchase for a small fee.
Bobby was the second to last bidder for 160 acres on auction. After the winning bidder put too many contingencies on the purchase, the ground was offered to Bobby at that price which he accepted. Bobby prefers this property over another farm he already owns and has paid off. Bobby would like to reverse 1031 exchange to avoid putting new debt on his balance sheet. Bobby listed his owned property but was not able to get a sufficient offer prior to needing to close on his new 160 acres. Bobby put the 160 acres on a long term note which has no prepayment penalty so he can pay the debt off whenever he gets an offer he is willing to accept.
Joe had two landlords he knew were interested in selling ground over the same winter. The operation had sufficient cash flow to absorb both properties thanks to owning a few diversified ag businesses providing strong income. With higher interest rates, Joe wanted to put a large amount cash into the first purchase to cheapen the interest paid. After reviewing all options, he instead financed the first land purchase 100% by using the rest of his FSA joint financing funds that were available in conjunction with traditional financing. Cash was saved for the second purchase to take place, which fell through. He is still in a strong working capital and cash flow position to make the second purchase if it is presented to him again.
Bart owned 25 acres which the town (less than 400 population) took over by imminent domain. He was able to be paid 250% what the ground was worth and converted the proceeds into a new 80 acre farm free of expense.
Rick had been farming 200 acres from a landlord for years. The property had a railroad going through it which needed the rock removed and ground leveled. There was also an acreage which made up 15 acres of the purchase. Rick was able to buy the ground as is at a fair market value. Rick spent the winter levelling the railroad and old acreage site. He was able to put a new pivot in the middle of the farm, irrigate an additional 32 acres, and increase the value of the property by $350,000.
Have a great week!
Grant
All views expressed on this site are my own and do not represent the opinions of any entity whatsoever with which I have been, am now, or will be affiliated. Information provided is authentic to the best of my knowledge, and as such, is prone to errors and the absence of key details. The content of this blog is for entertainment and informative purposes and should not be seen as professional advice to finances or any other field.