As a Land Specialist in the Loess Hills of Western IowaI have many conversations with different people about farm purchases I often hear one question "how do people afford to buy a farm to use for hunting?"  The good news is that it will not take you a degree in farm economics to understand how the purchase your own farm for hunting or any other purpose for that matter.  In reality your farm purchases is going to be an investment, that doubles as a hunting farm.  Rather than just being a hunting property you land is likely to become and income generating property.  If you are used to driving down the road seeing land parcel after land parcel and never paying much attention you might not realize the many financial benfits of owning land.

The words hunting land, hunting property, farm, hunting farm, hunting land, recreational land all refer to rural property or land when I use them.  Each is as unique as a snowflake but common in the fact they usually contain a mix of timber, open pasture areas, tillable crop areas, creeks or ponds and may even have a dwelling, outbuildings or livestock infrastructure on it. 

I'm going to put my thoughts into simple terms about the purchase of a farm and work from very general to specific.  The real answer to how someone can afford a farm is that farms generate income.  When you look at the price of a farm property I have listed you might be overwhelmed with the price tag if you have no background with farming or land investing.  Looking at a listing with a price tag of $700,000 may seem like a lot of money but you have to consider 3 benefits of land ownership.

Tax Advantages-Now certainly I don't give tax advice but if you have an understanding of taxes you'll understand your farming operation is a business and certain exemptions apply to agricultural operations.  What farming operation?  Yep, you are buying a farm and you'll understand more when you read further.  There are some attractive tax advantage to land owners that you should talk with your tax advisor about.

Land Appreciation-Even if you purchase land for recreational purposes it's still doubles as an investment. After all you are going to put alot of money into your Iowa farm purchase so you want that money to grow like it would have in the bank.  How has your 401K been doing lately?  Let me tell you what has happened with land appreciation and where savvy people have had their money.  With the economy in poor shape you may not have noticed but land has appreciated, in fact land has doubled in value in the last 5 years here in Iowa.  A great place to find information on Iowa land values is at the Iowa State University Extension.  Has your 401 K doubled in value in the last 5 years?  Had you purchased that $700,000 farm just a short 5 years ago you could be looking at a return of $700,000 on that farm in ONLY 5 years.  When the rest of the real estate market has absolutely tumbled land is still appreciating.  Here in Iowa land auctions for tillable land have been well attended and big events for the past 3 years which you might note was a turning point in our economy.  Commodities have a direct connection to the land used to grow them and provides a secure investment that can weather tough economic times.

Income Potential-Here is how you can afford to purchase Iowa land right here and the most overlooked aspect of farm ownership by those with no farm background.  When you are driving down the road and you see rows of corn and beans it is probably pretty easy to figure out that crop will be sold for money and its the most common form of farm income.  Tillable farmland is the most valuable land but there are many potential income sources of farm income.  The most common are crop production, pasture rent, grass and hay sales, hunting leases, timber sales, livestock sales, and income from government programs such as the Conservation Reserve Program (CRP), Wetland Reserve Program (WRP), Grassland Reserve Program (GRP) and the list goes on an on.  With government programs the government essentially rents portions of your property for conservation and water quality programs which results in an annual income to you.  Do you realize when you drive through the country and you see many of the new ponds going in that a government program called the Environmental Quality Incentives Program has paid for up to 50% of those structures for the land owner?  The government often cost shares such projects because a clean environment and water benefits everybody, while the land owner agrees to abide by certain restrictions in exchange for the cost share.  These restrictions are conservation restrictions, often welcomed by conservationists that are purchasing land to improve the wildlife habitat on the property.

Income can come from many other sources as well.  Using small pieces of the property for specialty farming can yield a higher income per acre, and if you become involved in the farming you'll also keep more of the money in your own pocket.  I was by a farm the other day that was 80 acres of planted trees.  The landowner claims a $100,000 per year income from the property by selling sapling trees to landscapers in the Omaha area.  This tree farm had started off as a recreational hobby farm.  In many cases when a person purchases a farm they will rent parts to other farmers, cattlemen or hunters. 

Renting to others is often the easiest way to make income from the farm.  Some may opt to have their farm "custom farmed" in which case they actually manage the crop production, but hire somone to do the work such as tilling, planing, spraying and harvest.  Custom farmers usually charge by the hour or acre and are paid for their work and use of their machinery.  In Iowa custom farming rates are available to give an idea of what this may cost you.

Owning a farm is no different than owning a business, other than you will get much more enjoyment out of a farm.  You'll want your farm to turn a profit so your input costs must be less than your income realized at the end of the year.  The difference between the two are your profit for the year. 

With land purchases you'll often hear of a capitalization rate, as with any investment property this is a way to measure what your Return on Investment ROI will be.  The "cap rate" is the measurement of the ratio between cash flow from a farm and its original cost paid when you purchased the land or you can use its current market value.  Calculating the cap rate is not complex.  When you have figured the net operating income which is the amount left over after fixed and variable costs have been subtracted from the annual figure divide it by either the original purchase price or the current market value.  If your farm purchase is $500,000 and your annual income is $50,000 it would look like this.

Net Operating Income / Original Cost (or Market Value) = The Cap Rate

In this case the result would be .10 or 10%

At 10% it will take 10 years for this investment to pay for itself.  10 years X 10% = 100%.  If the result were 20% it would take 5 years for it to pay for itself. 

Not all recreational properties are going to "pay for themselves" but some do better than others so a thorough analysis should be a priority for you. Purchasing a propertyWhen you consider a farm purchase you'll likely look at its income potential against its recreational value to you to find the right mix that fits your budget.  The Land Specialist at Whitetail Trophy Propertiesshould always be your first choice when buying or selling land.  Our commitment to helping you make your dream a reality comes with our expertise in evaluating properties that will fit you, your interests and budget.  If you want to learn more about how to acquire and manage land watch Whitetail Properties TV where you can pick up a few great tips and learn about buying, selling, owning, and managing recreational ground, along with featured property listings.