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Farmland Values: Stable Investment with a bright future

Farmland values in Mower County, MN have taken between a 5%-25% hit depending on the area and the quality of the land. There are many factors like drain tile, tillable ratios, access, exposure, soils, and past production history that will make a farm more valuable.

When you look at land as an investment you want to factor in as much as possible to make the most informed decision. Even if you are not a farmer or didn’t grow up on a farm, land is a very good option for future appreciation, stability, and annual dividend. High Point provides land management services that can take care of your farm portfolio to not only make sure you are getting your highest annual return but your farm is being taken care of so when its time to sell it will be the pride of the neighborhood.

Farmland as an investment may have multiple sources of income and usually few expenses. We will use this newly listed farm in Mower County, MN as an example. This farm consists of 155.55 total acres of which 133.17 are tillable acres. These tillable acres have an average Crop Productivity Index (CPI) of 93.6 which is very close to as good as it gets on a 0-100 scale across a quarter section in Southern Minnesota. This farm has rental estimates currently of $270 per acre which will yield $35,955.90 this year in tillable rent as well as a windmill and tower that produce just over $8,000 annually. Total annual rental income $43,955.90

Expenses on this farm are property taxes which are projected for 2016 at $3784 giving you $40,171.90 in net income. Divide that by a purchase price of $1,050,000 and you have a 3.82% return.
If you look at the map next below the initial soil map you see that there are about 151.2 acres with exceptional soils. This is the existing building site as well as a grass area to the southeast side of the farm. These acres are not currently tillable but with a couple days work while tilling the farm most of these acres could be converted into tillable productive acres.

Let’s say you were able to increase tillable acres to 145 tillable acres and tilled the farm for an additional $100,000. You would now have a farm that would rent for 290/acre x 145 adding the 8,000 for the windmill would give you an income of $50,050 minus $3784 in property taxes would give you a 4.02% return on the 1,150,000 invested with a value increase to a near perfect farm including a windmill.

If this investment is held while producing an annual dividend and the market corrects to where it was in 2013 this farm would be worth top end values that we saw between 9,000-10,000 per tillable acre and value for windmill as well. Guess there is a reason there are hundreds of absentee land owners in Mower County, MN.

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