SW Financial Literacy
Last week I rolled out Part 1, but I had way more deals than that to share!
Too often, individuals read my content and are angry that only the big farmers get the big deals. I am sharing these scenarios to inspire you to find a way to make the deal happen. Get creative if you are financially able to buy, these deals can fall into anyone’s lap if you are taking the right steps.
Here is Part 2, How 11 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.
Tim had a long-time landlord looking to sell ground. The landlord wasn’t in need of the money and was wanting to help Tim out for being such a good tenant for decades. They decided to have ½ of the $1,000,000 purchase due at closing and ½ of the purchase put on seller carry at 4% interest over 10 years. Tim was able to get traditional financing on $500,000 with the lender taking the first lien position and landlord taking a second lien position. Tim bought the ground at a considerable discount with no cash into the purchase. The seller got $500,000 up front and will get paid $62,000 over the next 10 years, helping to make up the difference of the discounted sales price by earning it back in interest.
Danny has bought a lot of farms and is very diligent with his numbers. There were 3 farms listed, and 1 of them had his interest after they sat on the market for 3 months without going under contract. During that time there were several local sales which suggested the listed properties were overpriced. Danny came in with a low offer and an aggressive deadline to accept his price or he would withdraw his interest. He was quickly given a counteroffer within a few hundred dollars per acre of his bid (but well below his top dollar) which he accepted. After that point, the other 2 farms received higher bids than where Danny completed the purchase but were never sold and eventually removed from the market.
Fred farms 6,000 acres which are all leased through many landlords. He is well known as a top-notch producer and regularly must turn down offers to rent acres from new and existing landlords as those farms don’t fit within his operational goals. For his first opportunity to buy out a small parcel from a landlord, he had the ability to make the entire purchase on his own. His understanding of the importance of cash to keep his risk levels down and how much cash is needed to scale the operation led him to pursue a different option. Instead of buying the entire property, he found a friend from college who ran his own business. These two bought the ground on 50% shares. The ability to bring in a like-minded investor and preserve cash will allow Fred to buy ground each time a landlord approaches him wanting to sell.
Doug was a few years out of college but had been farming his whole life. When he moved back to the farm, he was very serious about growing the operation and making it on his own. He kept living expenses WAY down, rented ground from family, saved cash, and built equity fast. When a retiring farmer was selling his acreage and renting out 1,000 acres via private bid, Doug was selected as the winner. In slightly overpaying for the house and bin site, he was able to jumpstart his operation with the extra acres and has stabled his operation for the next 10 years (the rental ground is on a long-term lease with very favorable terms).
Two brothers bought 240 acres through a listing. While they did not individually have the capacity to make this purchase and acquire financing, together they were able to get it done. They were each able to buy on 50% shares and acquire 100% financing through FSA’s joint financing program. This preserved the cash needed to keep their operation stable and help get the new crop in the ground.
Dave was privately offered to purchase 80 acres pasture outside of a major city for $400,000. The seller needed cash now but asked Dave to hang onto the property for at least 5 years so he could continue running cattle there until he retired. If Dave bought the property, he would lose $30,000 each year until he got it sold. Knowing the ground was worth a premium, Dave found a developer in town that was willing to agree to the terms of the seller and not develop the property for 5 years. Dave was able to charge a finder’s fee of $60,000 to the developer and all parties were able to benefit from the transaction.
Matt is an excellent producer who runs a pristine farm. Equipment is older but serviced regularly and will continue to run for several years without being upgraded. Matt has made many smart land purchases over the past 25 years which has allowed him to keep debt levels low. This would allow him to buy any property he chose, but he doesn’t make bad choices. He attended a land auction that many farmers expected would bring a ‘no sale’, so they weren’t prepared to bid. Matt bought Tract 2 for $930,000 while the farm across the road sold for $1,120,000 that same day. His farm went below market value while the other farm sold at market value, but the combination did not ‘no sale’.
Logan was in a good financial position and got himself preapproved to bid on a 400 acre property that was listed in a prime area. He felt he would have to overpay for the property to get it bought which he wasn’t willing to do. Logan was correct, by staying within his means he did not win the bid on the property. 45 days later a young landlord called Logan to let him know he was getting divorced and wanted to sell 168 acres to him alone. Logan was given permission to even sell off the home site which would greatly improve the terms of the purchase. By staying within his means and being active in the market, he got a better property for a better price.
Two brothers were 15 years apart in age. The older brother moved back to the farm straight out of college while the younger took a few extra years. They keep expenses and debt low which allows them to buy ground nearly every other year. Due to their different financial positions (because of their number of years farming), the older brother purchases each farm on 70% share while the younger brother purchases on 30% share. This is their magic number to allow them to each grow steadily based on their position today.
Marty and his two sons saved for years and kept expenses down when they found out they would have first right of refusal to buy out a family estate in a few years. It was going to be a massive purchase, but they had the option to buy at the estate’s appraised value instead of having the ground go to auction. The estate appraisal came in close to $600,000 less than what the property would have probably brought on the open market.
Duane had strong financials but no collateral (or debt) in his name. A divorcing family was selling their ground and moving away from the farm. The winning bidder would be able to buy the home site, bin site, 2 farms, and rent an additional 1,700 acres. Total dollar bid on the purchased assets was the only amount to be given from the bidders. Duane was able to break down the maximum amount to he could finance on the house, bins, outbuildings, and 2 farms using a combination of loans, note structures, and collateral types. He won the bid. The favorable terms that came from the rental acres allowed him to double his net worth in 3 years and aggressively pay down the debt.
Have a great week!
Grant
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