Farmland is a proven investment that compares favorably with equities by returning value to the owner through
annual rental income (dividends) and increases in net asset value (appreciation). We believe that diversification of retirement assets with an investment in land is an excellent strategy for investors with a long-term investment horizon.
Step 1: Select a Self-Directed IRA Custodian
IRS regulations allow Self-Directed IRA funds to be invested in farmland with certain restrictions. The first step is to select an IRA Custodian, typically a bank trust department, who is knowledgeable in managing non-traditional IRA investments. The custodian will deposit rental income into your IRA account and pay all expenses, including real estate taxes, from the IRA. Peoples Company has relationships with several IRA Custodians that provide these services.
Step 2: Identify Land Opportunities
Peoples Company agents maintain an inventory of available land for sale including listings, upcoming land auctions and off-market property for sale. We use the analysis tools mentioned below to evaluate returns
and select farms that meet your investment criteria. The process is similar to that used by a residential Realtor in researching and selecting homes to show a potential home buyer. Through our extensive agent network and relationships with cooperating brokerages we strive to provide multiple land purchase opportunities.
Step 3: Land Value and Lease Analysis
Peoples Company has developed several decision tools to assist our clients in buying and leasing land. This allows us to compare multiple farm purchase opportunities, as well as other real estate investments such as commercial real estate.
Our analysis begins with a Comparative Market Analysis. We research local land sales to identify comparable transactions to establish a baseline land value and cap rate. We generally see a cash return of 3.5 to 4.5% to the landowner after paying real estate taxes and management fee.
The Farm Lease Analyzer is our "shock test" for the landowner's income expectations. Historical yields, current grain price projections and current input prices are entered into the model and we project side-by-side returns for the landowner and the operator under each of our preferred farm leases.
The Investment Valuation Analysis incorporates appreciation and
leverage to project total return to ownership. The baseline land
value established in the Comparative Market Analysis and the net
return to the landowner established in the Farm Lease Analyzer is
the starting point to compute the internal rate of return, with and
Step 4: Land Management
Peoples Company has developed a streamlined land management process to assist the IRA Custodian in selecting a farm operator and leasing the farm.
The recent volatility in grain prices and crop inputs has made it more difficult to establish a rental rate using the traditional cash rent lease. To address this volatile rental environment and meet our goal of providing an equitable return to the landowner, Peoples Company has developed a unique farm leasing program. We have used our flexible cash rent lease successfully with our land management clients for several years. A flexible cash rent lease can be described as a traditional cash lease plus a free call option. A guaranteed base rental rate is established, perhaps slightly below the current market rate. In addition to the guaranteed base rent, a bonus payment is paid to the landowner in December if the gross farm income is greater than current expectations.
We believe that an equitable sharing of income between the landowner and the farm operator through our flexible cash rent lease is a good foundation to build a long-term relationship with a farm operator. Shared goals, including soil conservation and improving soil fertility and crop yields, are established and a business plan for the farm is created. We maintain contact with the farm operator throughout the year and provide written reports to the landowner twice a year.
Using IRA money to buy land allows investors to diversity their portfolios with an asset that will likely appreciate while providing an annual return. To learn more about how an IRA investment in farmland could help you achieve long-term goals, contact Peoples Company today at (855) 800-5263.
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Each office is Independently Owned & Operated. Peoples Company is a licensed real estate broker in Iowa, Illinois, Minnesota, Missouri, Montana, Nebraska and North Dakota