SW Financial Literacy
Owning real estate comes with a lot of advantages.
There are loan programs and buying options to help lower the barrier of entry and decrease the cash down payment needed to complete a purchase.
FSA joint financing.
Seller carry financing or buy on contract.
Buy small and 1031 into larger properties (I combined a & c to get started).
Find a family member or business partner to sign as co-maker.
Land value appreciation.
Look at farm land values since the Great Depression, and you will see remarkable increases in value. While it is ill advised to buy a property with negative cash flow, most wealth is generated through the appreciation of land value.
As land value appreciates the risk of your financial position decreases and becomes more difficult to be negatively impacted by a bad year. You create stability in your financials.
Land value appreciation can help you buy the next farm through gained equity. This can probably happen faster than the cash flow gained. You can use that equity as extra collateral or 1031 exchange into a more valuable property with potentially no cash out of pocket and no capital gains tax.
When land values appreciate, it is typically easier to get approved for financing.
Cash flow.
Hopefully the property can cash flow upon purchase. If not, you may need to supplement with other properties or income sources. With improved seed genetics and farming practices, you should eventually see positive cash flow if you hang on to the land enough.
Cash flow is only one part of the three-legged stool of real estate when it comes to growing your balance sheet (appreciation is another). Each year, debt paydown on your real estate note improves your balance sheet position. Don’t forget debt pay down when analyzing a property for purchase.
Tax advantages.
Owning ground gives you the collateral needed for a cash out refinance in the future. Even if the ground is inherited, you could take a loan out on the property to pull-out cash through financing which would not be taxed.
If you do take a loan out on the property, the interest is considered an expense on your schedule F.
1031 exchange into properties of greater value or better income.
Talk with a legal advisor and your CPA on all the tax advantages that can come from owning real estate.
Legacy.
Farmers can work in rough conditions and must deal with Mother Nature daily. There is something special about owning the dirt beneath your feet and growing a crop to raise your family. Not only can the actual land be passed down for generations, but many lessons can be taught to your children and their children through hard work and discipline required in the field.
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.