.png)
Selling VS Renting Texas Farm Land
- Matthew
- Aug 7, 2024
- 8 min read
Deciding whether to sell or rent inherited or gifted farmland can seem complex. Here are some guidelines to help you make the right choice.
Picture yourself standing on the edge of your family's Texas Farm Land, gazing at the vast horizon.
Every acre resonates with memories of past harvests and the potential for the future.
This land represents more than just soil — it embodies years of commitment, recollections, and labor.
That's why, when faced with a decision point, it's crucial to assess all aspects: Should you lease or sell your agricultural land?
Many landowners, particularly those who have inherited or received land as a gift, grapple with this significant dilemma.
It's a question we hear frequently.
Our approach always starts with a thorough examination of individual situations, requirements, and long-term objectives.
Let's begin by discussing the considerations that may arise when you first inherit land…
Factors to keep in mind when inheriting Texas farm land
Receiving an inheritance of farmland can catch you off guard and leave you ill-prepared for the decisions and duties that await. Day-to-day tasks, such as financial management and property upkeep, may seem overwhelming or insignificant. You may be contemplating how to honor your loved ones' legacy while also securing your financial future. The thought of overseeing a farm may be daunting, especially if there are no family members to continue the farming tradition. Financial constraints could be a concern, with operational hurdles, increasing expenses, and volatile commodity prices potentially affecting the farm's profitability. Alternatively, a rural lifestyle might not suit your preferences. Regardless of your circumstances, remember that you are not alone in this process and there are various options available to you. You can opt to sell the farm outright, lease it, or collaborate with a professional farming enterprise.
Selling your farm
Choosing to sell your Texas Farm Land is a significant decision.
You have the option of engaging an auction house, which can create a competitive bidding atmosphere to potentially optimize your selling price.
Alternatively, you could opt for a real estate agent who can leverage their network and expertise to list and market your property effectively.
Another possibility is to sell the farm independently. While this method is more cost-effective, it may result in not achieving the highest possible price.
Benefits of selling farmland
When selling your farm, there are various advantages to consider:
You could stand to gain a substantial sum of money. Between 2021 and 2022, the value of farmland increased by 12.4% nationwide, reaching a historic high of $3,800 per acre — the highest level since 1970.
The process of selling your land may be easier compared to the ongoing responsibilities associated with leasing it independently.
By selling, you may have the opportunity to reinvest the proceeds in ventures that better match your interests and skills.
Drawbacks of selling your Texas Farm Land
Nevertheless, there are obstacles to consider when selling farmland:
One challenge is the possibility of facing capital gains taxes. As noted by the American Farm Bureau, the capital gains tax rate can reach up to 20%. This means that if you intend to reinvest in a 'better' opportunity, you will be starting with 20% less than your current amount. Additionally, deciding to part with land that may have been in your family for generations is a significant choice that can elicit mixed emotions.
Another challenge is the uncertainty of land appreciation, which may lead you to question whether you are selling at the optimal time or prematurely.
Leasing Your Farmland
If you are thinking about retaining ownership of your farm but want to lease it out, you have several options to consider.
You can choose to rent out the land yourself and supervise all farming activities.
Alternatively, you can engage a professional land management company to handle the care of your Texas Farm Land. Under this arrangement, the land management company may oversee either the custom farming operations or the lease agreement, typically for a fee.
Another possibility is to collaborate with a professional farming operation that can both manage the land and operate the farm. By doing so, you not only benefit from someone who has a deep understanding of the land and its requirements but also gain a partner committed to its ongoing productivity and well-being.
Advantages of Leasing Your Farmland
Leasing out your farmland can offer several significant advantages:
You will receive a consistent income stream, either through fixed or yield-based cash rent. In the U.S., the average cropland rental rate was $148 per acre in 2022. (In Iowa, it was $256 per acre that same year.) Additionally, Iowa State University (ISU) notes that cash rents provide an average return of 6.1% annually.
You will maintain ownership of the land within the family and benefit from its appreciation in value over time. ISU also reports that farmland has appreciated by approximately 6.7% annually (or 2.7% per year, adjusted for inflation) over the past four decades, making it a potentially lucrative long-term investment.
You can avoid the taxing (and potentially overwhelming) responsibilities associated with operating and working on the farm.
You will have the flexibility to increase your involvement in farming activities or pass on the land in the future, should you decide to do so.
Disadvantages of Leasing Your Farmland
However, similar to selling your Texas Farm Land, leasing it out also has its drawbacks:
It might be difficult to find competent, reliable tenants or land management companies.
You will need to ensure that your tenant implements sustainable farming practices to preserve your land and enhance its long-term value.
While leasing can be profitable, it can also involve lease agreements, potential misunderstandings, and unforeseen challenges. Despite having a solid contract, occasional disputes may arise, leading to unexpected costs and time commitments.
Whether you are contemplating selling or leasing your farmland, the decision is rarely straightforward. That is why it is crucial to ensure that your choice aligns with your values and long-term objectives.
Questions to Consider Before Deciding Between Renting and Selling Farmland
When deciding between leasing or selling your family Texas Farm Land, asking the appropriate questions is crucial.
Although certain aspects may be straightforward, others could be more ambiguous.
Nevertheless, pondering these seven questions can steer you in the right direction.
What is influencing my decision?
It is essential to understand the reasons behind your decision to either rent or sell your farmland.
Is it because of a lack of expertise or interest in farm management, financial constraints, the absence of successors to continue the farming legacy, or another factor?
Discovering your primary motivation can act as a basis for all future choices.
Thoughts: Consider whether your drive originates from a passing feeling or is in line with enduring life objectives.
Are the market conditions favorable to me?
The value of your property can be significantly influenced by the supply and demand for farmland in your region.
When there are more buyers than available agricultural land for sale, it creates a sellers' market. Conversely, a surplus of listings and fewer buyers can make it a more challenging market for sellers, potentially slowing down the sale process.
Having a grasp of these market dynamics can help you decide whether selling or renting is the best option for you.
Thoughts: Research recent farmland sales and rental rates in your area, taking into account factors such as interest rates and broader economic conditions. If farm sale prices are high and there is a strong demand for leasing, you are in a favorable position to either sell or lease your property.
What are the tax consequences of renting out and selling?
When it comes to your Texas Farm Land, both selling and renting have tax implications that can significantly impact your financial situation:
If you sell your land, you may be subject to capital gains tax on any profits.
Opting to lease the land will mean paying income tax on the rental income.
Additionally, estate or inheritance tax considerations may arise if the land has been inherited.
It is advisable to seek advice from a tax professional to fully comprehend the range of tax implications. Understanding this impact will enable you to make an informed decision that is in line with your financial objectives.
To what extent do I value the legacy of my land?
For many landowners, their farm holds significant family history and cherished memories — whether they have been tending to the land for years or have recently inherited it.
Opting to sell the farm could potentially mean breaking those bonds, while leasing it could help maintain them.
The crucial step?
Try to see your Texas Farm Land from an objective standpoint, as a commodity.
This requires a shift in mindset, an adjustment in attitude that enables you to make decisions that respect both your heritage and your objectives.
However, we understand that putting this into practice is often easier said than done.
If you find it challenging to approach the situation impartially, seeking an external perspective might be beneficial.
Thoughts: Reflect on your emotional attachment to the land. As part of this reflection, contemplate how your choice to sell or lease the land will affect your legacy and your community.
Am I prepared for what lies ahead?
Are you ready for what the future holds? Opting to lease your land will require you to shift into a landlord role, which comes with taking on new duties.
These tasks might involve managing tenant relationships, supervising property maintenance, and resolving any potential conflicts.
Conversely, selling your land signifies closure. It involves giving up your ownership of the property, letting go of the day-to-day challenges, and forfeiting any future profits.
Thoughts: Evaluate your willingness and ability to engage in ongoing farm management. If you are considering selling, reflect on your readiness to part ways with the land. If the thought of being a landlord seems daunting, but you are not yet prepared to sell, think about teaming up with an experienced farmer, such as Weiland Farms, who can manage both the property and daily farming operations to ease your burden.
How will my family be impacted by my decision?
Each family possesses its own unique dynamics. The choice to sell or lease the Texas Farm Land could have a significant impact on both your immediate and extended family members.
Are there any legal ramifications to consider, especially if there are multiple heirs or stakeholders involved?
Will this decision disrupt any family traditions?
Do sentimental attachments to the land exist that other family members may not be prepared to let go of?
Perhaps you have a cousin who is contemplating entering the farming industry and wishes to take over, or maybe your children have aspirations for that specific piece of land.
Thoughts: It is advisable to engage in open discussions with family members early in the process to understand their sentiments. Their perspectives could provide valuable insights that may influence your decision on whether to retain the land within the family (through leasing) or release it (through sale). Seeking advice from a legal professional might also be necessary to comprehend any potential implications fully.
How can I secure trustworthy tenants if I decide to rent out the land?
When your land is in someone else's possession, it's natural to feel concerned about the future.
However, leasing your land doesn't mean giving up all control; instead, it presents an opportunity to be discerning.
Consider the agricultural practices you wish to promote, the types of crops you prefer, and the environmental impact you envision for your land.
All these aspects can be specified in lease agreements to communicate your preferences to potential tenants.
Thoughts: Develop a comprehensive lease agreement focusing on sustainability and land conservation. Moreover, think about partnering with a reputable professional known for upholding these values. This not only ensures reliability but also a proven record, preserving the legacy of your land in trusted hands.
The main point
Determining the future of family farmland is a significant and deeply personal choice.
Whether the land has been a part of your family for many generations or was recently inherited, it holds memories, aspirations, and years of hard work.
Each question you ponder, each memory you recall, and every option you weigh contributes layers to this decision.
By opting to sell or lease your farmland, you are extending its narrative.
Here at High Caliber Land, we recognize the gravity of this choice. We support our landowner clients as they navigate these crucial junctures, providing not only expert advice but also compassion and empathy. If you wish to explore your alternatives or delve into your Texas Farm Land possibilities, feel free to arrange a consultation with our team.
Comments