Rising real estate taxes and reduced cash rents are causing farm earnings to drop to levels that are creating serious cash flow problems for many landowners. Often retired landowners rely on their net farm income for a major portion of their retirement living. When that shrinks to critical levels, it causes real concerns. Often times today, the net income to the landowner is only about 2 – 2 ½ percent based upon today’s market value for that farmland.
Your first reaction is well, I cannot sell the farm because I have a low cost basis and the capital gains taxes are not an acceptable outcome.
Don’t despair! There is a solution. A farm owner can sell and exchange that equity into other investment grade real estate and receive double the net earnings achieved today from the farmland. Your first reaction is probably, well, I don’t know anything about investing in commercial or investment grade real estate and I don’t have the management skills or enough equity to select good replacement property.
Again, there is an answer for those concerns. There are reputable companies that do all of that for you. Those companies research and acquire several different types of investment grade properties that throw off good earnings. Those properties are professionally leased and managed. They are acquired in a trust entity.
Simply put, you can exchange the equity in your farm for a beneficial interest in one of those trusts tax free, and receive a 5 – 5 ½ percent return currently. Those beneficial interests in such a trust are eligible for a “stepped up basis” upon the death of the owner, just like your farmland. They are liquid, can be bought and sold as the owner needs change.
If you would like to explore possibly doubling the cash earnings for the equity in you farmland, please give us a call today! We will be happy to share this concept with you.
By: Roger Heller, Accredited Farm Manager and Accredited Land Consultant