Thursday, October 13, 2011

Land, land, land. Buying land. Farms are made of land.

It's approaching flood season for me, and for my farm, surrounded by a dike, and on an island, this is the time of year when my workload increases. 

Well... maybe not the workload.  Lets say the working time.  I have to be on call on an hour or so notice for the next 3-4 months, while the flood season is in progress.  We've had a lot of rain this last year, and the weathermen are predicting another wet year.    I could REALLY use 5-10 acres off the flood plain to put my stock in the event of a flood.

This is a particular problem for me -- pig farms are not popular as your neighbor.

I've been wanting to add some more land to my operation, and I usually look for land in foreclosure auctions.  I'm interested in land for the bottom dollar; farming is a game of pennies, and land is a big expense. 

My north property is an example of that.  I purchased it at a foreclosure auction, fenced it, and I send the cattle up there to graze every year, between march and October.   Here's how the math works out:

Purchased the calves for an average of $300 each.  Put out to good pasture and provided with minerals, they put on weight pretty well.  At the end of this they're worth about $1,000, so I've made about $650 gain per cow, or $4550.00.  After transport costs to auction and other misc stuff - like the corral construction expenses and fencing expense, I'll net about $3k.   I could make a little more by USDA slaughter and selling cuts, or I can take them directly to a packer and sell them wholesale.  This quoted net profit is the wholesale price. 

So at $3k, that pays for about 10% of the purchase price of the land.  Put another way,  land purchased at the right price will pay for itself in 11 years with a few cows on it, and cows are pretty easy if you have good fencing. 

The problem a few years ago is that land was going for astronomical amounts.  1 acre of nice pasture for $100,000, for instance, as a building lot.   No way to make any agricultural profit with that sort of math. 

So I'm back to my usual habits looking for land, and I did the research for this Decembers foreclosure auction. 

What I do is this:  First, I check the list, and for each property I look up the county records; last sale, size of parcel, taxes due, etc.  Then I check with the local planning department to see if there are other things -- violations of building codes, complaints, fines and so on.  And finally I look at the satellite views of the property, and if everything checks out, I'll drive out to look at it. 

After all of that checking, if it still looks good, THEN I'll go to the real estate sites to figure out what similar parcels are selling for.   I do that because I want to buy either at or below the minimum retail price I can find for a comparable parcel.   My rule of thumb is to always buy the cheapest house (land) on the block.  My experience is that if you do that, it's very difficult to get into trouble. 

I've narrowed my original list of 220 properties down to something like 10, and I start working up the comparable parcels, and as I look at real estate for sale sites, I notice something that I haven't seen in many years.   I'm seeing properties that have been on the market for 2, 3, 4 years. 

The last time I saw that sort of thing was in 1987, when I purchased my first house.  I wrote 30 lowball offers to people selling houses before one guy agreed.    I paid $500 to the previous owner to move out, and assumed a $40,000 mortgage from the guy.  He really, really wanted to move.    I sold that same house in 2002 for $400k. 

I think it's time to write some low offers to these multiyear listings.  Not short sales;  it's difficult in this area to get financing on raw land, so most of these parcels are owned outright. 

I wonder how many offers I'll have to write this time. 

1 comment:

Portland Charcuterie Project said...


I really enjoy reading your blog. As a reformed child farmer, I can relate to your issues, and now as I get older, the allure of making a living off the land becomes more attractive.

At some point, I'd love to come up and share my charucterie with you or purchase/slaughter an animal.

You're doing a great job managing your enterprise, and it makes me happy to see your success ( difficult as it is sometimes :)