Land can be financed over long periods and held forever. So a few hundred grand will pay off $5 million in about 20 years and then that's steady income forever after (as long as you keep farming).
Yeah, this is the pertinent detail. The whole point is putting down only a fraction of the amount.
When you calculate the rate of return on a financed property, the rate of return is versus the capital you put down, not the value of what you financed. Plus accruing equity in the property is part of the return.
If you put down $1.25 million and you get a $5 million property paid off after 20 years, that's double the rate of return on your bonds.
But opportunity cost is a thing. No land equals no farm and no opportunity for that return.
If not farming, what kind of job can the would-be farmer get and how would they accrue enough capital for their return on T-bills + income to equal their farming income paying off the land? Also my calculations didn't consider that the land value would rise, which it almost assuredly would.
What really happens is as you pay off equity on your land and equipment, you leverage that into buying more land and more equipment.
Successful restaurateurs buy more restaurants, successful tech startups hire more devs and buy more servers, successful farmers buy more land.
Actual (successful) business activity yields more than investments, which is why they reinvest in themselves over stock markets.
Let me tell you about farming... this isn't true.
When you buy land to develop, you have to pony up cash for it. I have never heard of a lender lending without a cash flow producing asset as collateral.
https://www.farmcreditil.com/Products/farm-loans
There's even government grants and loans to help:
https://www.fsa.usda.gov/resources/farm-loan-programs/farm-o...
Edit - we're on HN. If you'd ever tried to get a business loan you'd know it's near impossible for a new business without 100% collateral, which is why the entire venture capital business, and HN, even exists...
>Farm Ownership Loans offer up to 100 percent financing and are a valuable resource to help farmers and ranchers purchase or enlarge family farms, improve and expand current operations, increase agricultural productivity, and assist with land tenure to save farmland for future generations.
What is "assist with land tenure to save farmland for future generations"? Is that speculating for future price increase?
Banks will let you finance any land if you have a way to pay for it. They'll let you mortgage some plot of land in the middle of nowhere if you have the income to pay for it.
A farm is income. A future farm is a business plan. But if you want to speculate on land from the city and work an office job, yeah, they'll give you a loan for that too.
> What is "assist with land tenure to save farmland for future generations"? Is that speculating for future price increase?
Pretty much yeah.
Doesn't seem accurate. See:
Land not occupied by some money making asset also being financed or used as collateral in the deal cannot be financed at rates that are not the lending equivalent of a "we really don't want this job so we're bidding high".
Since you're an expert link poster why don't you cherry pick us all up some of those underwriting guidelines you cite?
I look forward to learning about ag specific loan products.
Guidelines are openly available at Fannie Mae, Freddie Mac, and USDA websites (unless there are specific overlays a bank is using, which is typically proprietary).
I have no experience with farmland, but for other purposes such as building hotels/retail/etc, you can't just get a loan for the land, you buy the land with cash and then get a construction loan to start development. I assumed you would have to at least need to have a plan to operate a farm to get a loan.
https://www.fsa.usda.gov/resources/farm-loan-programs/farm-o...
100% financing government backed:
> Farm Ownership Loans offer up to 100 percent financing and are a valuable resource to help farmers and ranchers purchase or enlarge family farms, improve and expand current operations, increase agricultural productivity, and assist with land tenure to save farmland for future generations. With a maximum loan amount of $600,000 ($300,150 for Beginning Farmer Down Payment), all FSA Direct Farm Ownership Loans are financed and serviced by the Agency through local Farm Loan Officers and Farm Loan Managers. The funding comes from Congressional appropriations as part of the USDA budget.
As long as your intent was in good faith at time of origination, you’ve met the burden.
I love government subsidies through implicit and explicit loan guarantees. It’s the reason a 30 year mortgage exists. It’s the reason one can default on an FHA mortgage with almost no consequences (while being almost impossible to default on student loan debt).
To your point this is “subsidized by the rest of us,” the bottom 50% of American earners only pay 2.3% of total federal income tax collected, with the top 50% paying the rest. The poor folks are not on the hook for subsidies when they come out of general federal gov revenue (FHA loans charge an upfront and monthly mortgage insurance premium, and there are similar costs for USDA and VA loans but lesser so; we can consider those costs “cost recovery” for the purpose of evaluating self funded vs subsidies via transfer from the general fund).
https://taxfoundation.org/data/all/federal/latest-federal-in...
Like student loans?
>It’s the reason a 30 year mortgage exists.
Which is a large part of the reason houses cost what they do.
>the bottom 50% of American earners only pay 2.3% of total federal income tax collected,
"Well the poors aren't paying for it, you are" isn't the endorsement you think it is. And the poors still get kicked in the dick by spending driven inflation same as the rest of us anyway.