By Marie Coffin
Clearly there are different types of purchases who buy farm land. For some, it’s a way to make a living that means developing a deep connection to the soil; for others, it’s simply another page in a portfolio. Here are the different types of buyers we see.
This is a purchaser who buys land for resale. The flipper is looking for a bargain price and a reason to believe they can sell at significant profit. This investor is not really interested in the long-term outlook of the land; rather,just the current price and the short-term price trends.
The long-term investor believes that land value appreciates over the long haul. Long-term investors will describe their reasoning for purchase as, “They aren’t making any more of it.” They believe that, since land is a limited resource, prices are likely to increase over time, despite short-term fluctuations. This investor is thinking about the quality of the land, and how that is likely to influence price in the long run. The long-term investor may very well be willing to pay a premium price, particularly for high-quality land.
Lessor or Landlord
This purchaser buys land for lease income. Often a variant of the long-term investor, the landlord intends to own the land for a significant period of time, and also intends to generate short-term income through leases. In any geographic area, lease rates tend to be quite restricted, so the landlord will be interested in local lease rates and expected return on investment (ROI). The landlord may not be willing to pay much of a premium for high-quality land because it’s unlikely to generate much more income. In fact, the savvy landlord might look for lower-quality farmland and plan to work with renters to improve the land over time.
This type of purchaser buys land to farm it directly. This investor cares about price, but also land quality, the history of farming practices on the land, location, operating costs (present and future), climate forecasts, and present and future selling price of crops. The grower-owner probably believes that land value appreciates over the long haul, but this investor usually does not have the luxury of taking a completely long-term view: They want to invest in good land that will appreciate over time, but they also need to make a profit on the land year by year in order to stay in business.
This type of purchaser buys land for its recreational value. This investor may simply enjoy living in the country, or may plan to raise some livestock, or start a truck farm. The hobby-owner will often expect to generate some income from these activities, but will have other sources of income as well. The hobby-owner is often looking for land at an affordable price, in a convenient location, and is not as concerned about land quality or long-term trends.
About Marie Coffin
Marie Coffin is the VP, Science and Modeling at CIBO, a science-driven software startup. She has focused on being a biostatistician at agriculture companies. Prior to CIBO, she worked for Monsanto, Icoria, Paradigm Genetics, and was an assistant professor at Clemson University. She holds a BS in Mathematics from South Dakota State University and a Ph.D. in Statistics from Iowa State University.