Read The Risk of Selling the Farm: Part 1
Last time we discussed possible risks that are inherent to those cashing in on the red-hot land market. The bottom line questions to ask are, “Does it fit my goals?” and “Will I have enough income from the proceeds to make a living given the impact of inflation over time?”
Here are some additional points to consider:
- Another important consideration before selling is to conduct an audit of your skill set and what motivates you. I often tell producers that they will need to earn $70,000 a year at an off-farm job to compensate for the opportunity cost of giving up the farm. Why? First, when you sell the farm many of those commingled personal and business expenses are lost. Insurance, housing, fuel, and other perks that are deducted through the business can account for 25-50% of the paycheck.
- Some who sell the farm and become employed give up the opportunity for a flexible schedule, which includes going hunting on fall mornings or taking a three-day weekend. Yes, producers work very hard; however, being you own boss comes with the ability to call your own shots.
- A friend just sold his dairy in California. He was considering relocating his family to the High Plains until he found that the rural area was not the fast-paced California life they were accustomed to. Now he lives in California and commutes to the farm, which is locally managed. Lifestyle issues and goals should be considered also.
- Finally, always consider taxes, and in this case deferred taxes. Some find that land and structures as well as machinery with a low tax basis can represent a large tax burden, making the sale very unattractive and in some cases using up to 40% of the equity.
Before You Sell:
Check with your accountant, write out your goals, have a third party conduct a skill assessment and determine if you will be happy moving.
Editor’s note: Dave Kohl, The Corn And Soybean Digest Trends Editor, is an ag economist specializing in business management and ag finance. He recently retired from Virginia Tech, but continues to conduct applied research and travel extensively in the U.S. and Canada, teaching ag and banking seminars and speaking to producer and agribusiness groups. He can be reached at [email protected].