Renting land, how and why?

[Richard5]

Richard5....we all know the story about Input...what is the story on Calidon, I’ve only heard good things but then I live under a rock for most of my life.

Its probably more my personal opinion but I just don't like leasing companies.

First, when leasing was created it was the start of the biggest scam of the century. Interest rates were in excess of 20% and combined with the sales pitch of "the payments are 100% deductible" too many people fell into the trap of buying something they didn't need or possibly buying something that was new or significantly higher in value than they actually needed.

Today, lease rates are a bit more competitive but still quite a bit higher than a loan with good security (land). The last time I bought bins the company pushed hard for me to lease it and could not understand why I wouldn't.

"The bin payments are a 100% deductible" says the seller - so is the purchase, is my response with the only difference of when I can deduct it, which will be slower. I am a corporation so I don't need to create tax deductions faster than they naturally do with capital cost deductions.

If it was a larger purchase in dollars, personally I would look at a 10-15 year mortgage which would make affordability and semi annual payments way less than the standard 3-5 lease which is hard on my bank acct. The key thing is a 5 year lease at 6% will often work out the same total cost on a 8-10 purchase at 3.9%. Yeah I know the next comment will be you need 25% down and then my response would be if you don't have 25% then you best not be buying anything!

When I drive around and see these large bin sites and beautiful shops I often wonder how many are leased and how well its working on the cash flow. Then I hear guys talk about 2 year leases on various things and wonder how long until the government comes back on this.

Expecting a blast in return from some of you now, its just my 2 cents.

[bucket]

The recapture of depreciation of grain bins will be huge unless you sell them with the land ...

Most are bought at a buck or 10 percent purchase price so the recapture tax would be very close to 100 percent....

Not sure why ....since we are storing grain for the world ....there can't be a change in the tax laws for the purchase of bins....plus the fact that pulses are not moving....creating storage issues..

Sadly its never the graincos responsibility...

[Crestliner]

Its probably more my personal opinion but I just don't like leasing companies.

First, when leasing was created it was the start of the biggest scam of the century. Interest rates were in excess of 20% and combined with the sales pitch of "the payments are 100% deductible" too many people fell into the trap of buying something they didn't need or possibly buying something that was new or significantly higher in value than they actually needed.

Today, lease rates are a bit more competitive but still quite a bit higher than a loan with good security (land). The last time I bought bins the company pushed hard for me to lease it and could not understand why I wouldn't.

"The bin payments are a 100% deductible" says the seller - so is the purchase, is my response with the only difference of when I can deduct it, which will be slower. I am a corporation so I don't need to create tax deductions faster than they naturally do with capital cost deductions.

If it was a larger purchase in dollars, personally I would look at a 10-15 year mortgage which would make affordability and semi annual payments way less than the standard 3-5 lease which is hard on my bank acct. The key thing is a 5 year lease at 6% will often work out the same total cost on a 8-10 purchase at 3.9%. Yeah I know the next comment will be you need 25% down and then my response would be if you don't have 25% then you best not be buying anything!

When I drive around and see these large bin sites and beautiful shops I often wonder how many are leased and how well its working on the cash flow. Then I hear guys talk about 2 year leases on various things and wonder how long until the government comes back on this.

Expecting a blast in return from some of you now, its just my 2 cents.

I agree with you Richard, I have never leased but it seems to me that the interest cost is quite high compared to a mortgage and payback is very short. Plus the CRA factor could cause some pain somewhere in the future.

I know leasing has put assets into the hands of people the Bank wouldn’t touch so they serve a purpose in growing the economy. They dont need the write off but need to build equity, so it really ends up being a higher priced loan.

I have been at it long enough now that if I have cash I buy it....if not I will wait till I do. I know that for the young farmer this is not an option, I was one of them once strung out with high debt and payments and it was the most stressful time of my life. Farming is slow money and takes along time to grow a base. But sometimes it easier to grow in your means rather than try to borrow yourself into prosperity.

[farmaholic]

I've heard some major Green machinery dealerships push for company leasing on big ticket items. If you have some equity in your trade, over time you will lose that equity and always only pay for the right to use the leased equipment. But what happens when used lease machinery values go south and the buy-out price at the end of the lease term is higher than the equipment value? Oh, they didn't tell you that's possible?

Hello Ritche Bros...one of the best appraisers of used equipment....through auction.

Rinse and repeat and repeat and repeat and....

No matter how you decide to pay for the use of the machinery...there is a cost. Pick the one that works best for you. Cash, term loan or lease.

[farmaholic]

Re: land rental...

Gotta love it when land beside me gets bought by an "investor" who has a bit of a mortgage against it and the tenant's rental payments make the mortgage payment....smart investor!!!....when you can get someone else to pay for a portion of YOUR asset.

My assumption is only about three out of the seven quarters are paid for. There may be a mortgage against all of them but in essence the tenant(s) will be paying for four of them over time but never "own" them.....BITTER SWEET depending who you ask.

[Marusko]

Re: land rental...

Gotta love it when land beside me gets bought by an "investor" who has a bit of a mortgage against it and the tenant's rental payments make the mortgage payment....smart investor!!!....when you can get someone else to pay for a portion of YOUR asset.

My assumption is only about three out of the seven quarters are paid for. There may be a mortgage against all of them but in essence the tenant(s) will be paying for four of them over time but never "own" them.....BITTER SWEET depending who you ask.

Bittersweet.... On the other hand, I could only afford to expand a little bit by buying land. Renting land allows me to make a living without having to pay today's exorbitant land prices.

[farmaholic]

Bittersweet.... On the other hand, I could only afford to expand a little bit by buying land. Renting land allows me to make a living without having to pay today's exorbitant land prices.

Can't argue with that. It is cheaper to rent land than buy it now. But I guess my mantra is why make it worth "their" while to own it? But I do have a bit of a soft spot for a farmer who is using his land rental to fund his retirement.

[bigzee]

I won’t be renting anymore land in two years when my leases are up. I have enough owned land to make a good living. Going to put money into my own and improve it for my well being. Putting $$$ into others land to have someone else farm it is just a waste. At the end of the margins are minuscule and to keep spinning tires for someone else is pointless IMO.
I want to start enjoying things I’ve worked so hard for. I wouldn’t rent for cheaper $$$ if someone asked me. I still have to do the work and that takes time away from other things I want to do.

[blackpowder]

I agree. I think there is a number of younger people who will look at renting a little differently someday soon.

[GALAXIE500]

Good morning to all , and for the guys who aren't done their havest , I am crossing my fingers for some warm fall weather for you guys/gals.

Here is my take on this subject:

I am surrounded by three types of neighbors in my area. 1) the neighbor who is a lifelong friend of mine and would help me in a heartbeat no matter what / and likewise for me. 2) the neighbor who has expanded their farming operation by renting land in my area because their was no opportunity in his area 10 miles away. they are good neighbors also , who have been farming this rented land for over 2 decades, and made the land better than the owner ever did. number 3)The neighbor who has done whatever they had to do to either acquire land , rent land , pasture ,etc. using sneaky tactics to expand the operation. THIS neighbor has went behind the backs of both #1 and # 2, and myself, trying to barter/ screw them over suckholing to the landlords trying to get that land as well. They haven't had much success, and now land in our area is selling for $325,000+ per quarter and the leverage is declining , and they aren't not liking it.
I am 49 years old and my son is 12. We have a 2200 acre mixed farm operation , 850 useable farm acres , and the rest is in pasture and hay. 10 years from now (or sooner?) will be the deciding factor when we continue , or sell /rent and the wife and I take on the next phase of our lives. One of these neighbors is going to get his ass handed to him financially by me , because everything I have ties into everything they have. Sooner or later , ****ing with people to get ahead will come back to haunt you , and I am looking forward to that day. The old saying "you pay the price when you don't act nice" applies. Sorry , but being used like a pawn on a chessboard is not fun anymore.

[bucket]

Galaxie500

On an extension to that story is the fact that the conservatives and saskparty have been taking the farm vote for granted....time for them to get a ****ing as well....

Just read an article about the value of the GTH.....there isn't any unless you are paid at unload....