The decision to purchase land or a farm is not an impulse decision. It requires planning, research and organization. This article discusses five tactics to help you develop your plan to buy land.
- Why do you want to buy land?
Are you looking for an investment that will give you a return or a getaway for recreation? An immediate return on an investment is commonly referred to as positive cash flow. This can come in the form of rent payments on land that is tillable, pasture or hay land. This means that you will receive a payment from a farmer so that they can use your land to grow crops, run cattle or mow the grass for hay for a season. These payments are based on a set amount per acre. It could also be an annual payment from the United States Department of Agriculture (USDA). They have several programs that provide annual payments such as the Conservation Reserve Program (CRP).
If you are looking for a getaway, you need to identify what improvements you want. Improvements might be a pond, cabin, access to water and electricity for an RV or for potential building later. Deer or wildlife habitats may be important if you plan to use the land for hunting.
- Research
First, conduct online research through real estate websites to determine land values in a particular area. Identify prices for land that looks like what you want to purchase. Here are links to land-specific websites.
Next, talk to a local realtor. They can give you an idea of property that may be coming up for sale in the area as well as prices they are seeing.
- Organize Your Finances
Use a loan calculator to run different scenarios to determine the amount of money you need to save for a down payment. Land loans typically require anywhere from a 20 – 30% down payment. This may require you to analyze your budget to determine when you will be able to purchase land based on your current financial obligations. We remind people that a budget is a tool to help you plan, analyze and track your spending.
- Determine Loan Type
There are several loan types that we explain in this video. In an ideal world, a buyer wants a traditional land loan working with a lender who specializes in land and farm financing. FCS Financial offers long-term fixed rates as well as flexible payment terms based on if the land produces income and the applicant’s income stream.
For the buyer who wants to buy a farm that they intend to plant and harvest, the USDA Farm Service Agency (FSA) offers a couple programs you may be able to use. The programs typically require that the applicant be unable to obtain financing in a traditional manner.
- Pre-approval
Obtaining a pre-approval letter means that you can confidently make an offer on a piece of land when you find it. Some sellers request pre-approval letters when they make a decision regarding who will purchase their land or farm. A lender who specializes in land financing will walk you through all the steps of the application leading up to pre-approval. You will have an idea of the payment structure, down payment needed and loan terms prior to making an offer on a piece of land.
Talk to a loan officer in your area about financing options and pre-approval.
