Farmers & Ranchers

Should You Sell the Farm? Five Options to Consider

Written by Inland Securities Corporation | Aug 11, 2022 4:00:00 PM

The decision to sell your family farm is likely draped in a lifetime of memories and emotions. Your farm may have been in the family for generations, and you have faithfully kept stewardship over your land from the moment you inherited it.

 

If you are at the stage where you are thinking about selling your farm, you have options to consider. This discussion highlights five of the most common choices farmers often evaluate, including:

 

  1. Keep the Farm and Keep Farming

It may sound counterintuitive when discussing your options to sell your farm, but deciding not to sell is worth consideration. As mentioned, the emotional ties to a family farm can be strong, and there are undoubtedly many farmers who chose to sell and later regretted the decision.

 

Yes, you might be reaching the age where you feel you cannot keep up with all the work farm ownership demands. But you may have more than a few retired friends who miss the routine, challenges, serenity, and satisfaction of farming and wish they hadn’t sold their farms too early.

 

  1. Sell the Farm to Your Heirs

The option of selling your farm to your heir(s) who want to continue the family tradition of farming your land is compelling for many reasons:

 

  • It accommodates your heir’s desire to continue farming while also reassuring you your farm’s legacy will extend to another generation.
  • It can allow you to ease into retirement over an extended period, enabling a gradual operational transition to your heirs.
  • Depending on the circumstances, it may allow you (and your family) to remain in your home located on the farmland.
  • The sale can take place through installment payments which can provide you with a significant source of retirement income.

 

  1. Keep Your Farm and Rent It

Retaining ownership of your farm and renting to a tenant farmer is more popular than you might think. Renting is an excellent way to create consistent, passive retirement income while keeping your family farm’s legacy intact.

 

Farmland has steadily increased in value over the last thirteen years1, and the rental market comprises a significant portion of the farming marketplace. According to the research firm, Tillable,

 

“The farmland rental market is vast and thriving. There are nearly 3 million farmland owners in the US: 50% of farmland owners farm their own land. 40% of all farmland is rented.” - tillable.com 2

  1. Sell the Farm

The steady increase in farm valuations over the past decade is a reason to consider selling your farm. According to Farm & Ranch Plains Edition,

 

“An already strong farm real estate market gained momentum in the last half of 2021, supported by improved profitability, historically low interest rates, and greater demand for all types of agricultural land. Year-end values in Iowa, Nebraska, and South Dakota reached all-time highs in the latest benchmark farmland study from Farm Credit Services of America.” - farmandranchnetwork 3

Source: agupdate.com/farmandranchnetwork

 

Many farmers ready to retire may see the current market as an optimal time to sell. Of course, there are many moving parts to be aware of to maximize your sales proceeds. Research firm Tillable4, suggests you concentrate on these areas in preparation of selling your farm:

 

  • Understand Your Cash Position
  • Research Local Land Values
  • Check For Existing Liens / Leases
  • Consider Your Ownership
  • Build Your Team (Real Estate Agent, Lawyer, Tax Professional, etc.)
  • Determine Your Method of Sales
  • Select a Buyer

 

The critical point to know is that you will need experts at your side to sell your farmland. So take your time and choose your team of professionals carefully.

 

  1. Exchange the Farm

If you missed our previous posts, we introduced the concept of selling a farm using a 1031 exchange to minimize tax obligations. Section 1031 of the Internal Revenue Code allows you to defer capital gains tax on your farm sale by reinvesting the proceeds in “like-kind” property or properties of equal or greater value.

 

The “like-kind” property definition is broad and covers many different income-producing property types. For example, you could sell your farm and invest in an apartment complex or a self-storage facility. These properties could generate passive income for you, helping provide the financial support you may need throughout your retirement.

Many farmers who sell their farms using a 1031 exchange leverage the Delaware statutory trust (DST) structure for their transaction. The DST provides several advantages, including the ability to receive passive income by owning fractional shares in a DST that owns and manages institutional-quality property. We will revisit the DST option in future posts because of its growing popularity, and you may be hearing more about it from the professional team you assemble to sell your farm.

If you would like to learn more about how Inland Private Capital Corporation works with financial professionals to help farmers explore the 1031 exchange option, fill out the form on the contact us page. A representative will call you within 24-48 hours.

 

1https://www.nass.usda.gov/Publications/Todays_Reports/reports/land0821.pdf

2https://tillable.com/blog/thinking-about-selling-your-farmland-a-few-things-to-consider/

3https://www.agupdate.com/farmandranchnetwork/news/state-and-regional/optimism-for-u-s-agriculture-carries-cropland-values-to-all-time-highs/article_709aca72-7e23-11ec-ab3f-330d7712ea86.html

4https://thinkrealty.com/guide-to-selling-farmland/