You are not alone if you are considering renting your farmland or looking at how to readjust lease terms for the coming year.
Renting farmland can be an excellent investment strategy. However, as with all investments, it takes knowledge and understanding of how you can get the most return on your investment.
The key to making wise decisions when looking into renting farmland is knowing how to secure the best deal possible for the land you are renting. It’s not a decision to make lightly, as farmland is an incredibly valuable asset.
So, with plans being made for 2020 already, here are some factors every landowner should consider before choosing to rent farmland – and how to prepare for next year.
Renting farmland is very common
It’s no secret that many owners of farmland do not actually farm the land themselves.
Many farmland owners choose to rent the land they own to someone else. Nationwide, 355 million acres of farmland are rented out by landlords to farm operators. That works out to about 40% of U.S. farmland. The market for that rented land is an impressive $32 billion.
Renting farmland is even more common in Iowa, where more than half of all the farmland in the entire state is farmed by renters. It’s a lucrative arrangement for most property owners. According to The New Food Economy, revenue generated from farmland in Iowa equals about $3.7 billion. That’s second only to Illinois in total farmland rental revenue for a single state.
Benefits of leasing farmland
The benefits of leasing farmland show why the practice is so common. Some of the many benefits, as provided by Land for Good’s guide to leasing farmland, include:
- An additional revenue stream
- An opportunity to help a new farmer or farm family get started in agriculture
- Keeping land in the family in production
- Increased local food production
- Property tax advantages
- Help maintaining land
Establish or review goals for your land
Every landowner needs to establish and track goals for their land. If you have set goals, which should be included in any farmland lease agreement, then it will be easier to review how a tenant relationship is working out.
When you are creating or adjusting the goals you have for your land, consider what type of decision-making input you want to have regarding the farm property. Additionally, consider how much income you want the land to provide – and for how many years. What are your short- to long-term goals for the land and your ownership of it?
For landowners with existing leases and goals, review performance for the current and previous years. Is your investment creating a satisfactory return? If not, what needs to change?
Know how much your land is worth
If you haven’t already, now is the time to check your property’s fair market rental value. This will help you as you plan your lease for 2020. As Successful Farming advises, set the determined value of the lease based on its crop production potential in the coming growing season.
Don’t let a bad year due to weather or another unfortunate circumstance undercut what you believe the land to be worth, either. When you set your lease value, it’s about potential yield.
Check the lease details
There are also a few items on the lease itself that property owners may want to adjust or tidy up in terms of language. For starters, begin planning your next steps about 30 to 60 days before the lease termination date. This will vary by state.
If you take the time to plan ahead, then you can plan better for lease options in 2020.
In addition, make sure there is an actual lease agreement between you and your tenants. Handshake deals should not be relied upon.
Talk to your farmer
Communication between tenant farmer and landowner is critical to any successful lease arrangement. Ask questions and get curious about their operation. Show them that you truly do care. After all, their success leads to your own success.
As you are speaking more with your tenant, make sure that they have crop insurance and that it meets any requirements you have set in the lease. It’s also highly recommended that you make sure you have all the data necessary from the previous year and set expectations for what data they will share with you – and how often – this coming season.
Know how your tenant plans to care for the farm
Your farmland is one of your most valuable assets. It’s important to know how your tenant, whether current or future, plans to ensure it will remain productive in the years to come. Question your tenant as to how they plan to practice proper land stewardship by caring for the land, its water resources and other environmental factors.
This is in fact an important concern for many farmland owners. A 2012 survey from Iowa State University found that 93% of landowners pointed to “good land stewardship” as the most important attribute they look for in a tenant.
One way to encourage this good land stewardship is to allow multi-year leases. As reported in The New Food Economy, this can show the tenant that it could be worth investing their time in better conservation practices, such as planting cover crops.
Landowners could also consider not charging the tenant top dollar, which could encourage tenants not to squeeze every bit of production out of the property and straining the land’s resources.
Let an expert assist with your lease
Not sure of a certain part of your lease? Want to make sure you are setting yourself up in the best way possible to receive a return on your farmland investment? Get in touch with an expert.
Reach out to us at Advantage Realty and Land Management if you have any questions about farmland leases. We are experts in land management, crop consulting and real estate services, so we can provide you with the answers you need to truly gain an advantage in today’s competitive ag market.