Are Farmland and Ranch Land Good Investments?

It is commonly asked how farmland and ranch land as an investment can preserve its value while apparently producing such low returns per dollar invested. Furthermore, farms, ranches and other real estate investments are in general considered less liquid compared to other investments.

Farmland and ranch land tumbled in the early eighties, and by 1987 appeared to have bottomed out. By late 1989 they began to rise somewhat and could become good real estate investments that need to be held for a long time.

One of the biggest advantages of owning a farm and holding it for capital appreciation is that it does generate income, often high enough to make the annual payments, and it sometimes generates cash flow.

Most farms held for capital appreciation are farmed on shares. The typical arrangement is that the person doing the farming receives two-thirds of the crop, and the landowner one-third. Typically, too, the actual farmer pays for the seed and the fertilizer. An alternative arrangement is for the owner to hire a farmer who is paid a salary and is furnished with the farm home free of charge. In this case, of course, the owner must be ready to furnish the equipment, which in this day and age is extremely expensive.

Warning: Income on a farm is normally generated only once a year: when the crop is sold. But you must also be able to meet any necessary monthly expenses, such as fuel bills, hardware, and other maintenance items throughout the entire year.