Make Money Leasing Farmland

Buying and then leasing farmland to farmers is an investment you may not have ever considered. What are the advantages? Management is easier than with residential rentals, and you can simultaneously speculate on the land value for an eventual large profit. The disadvantage? It may be hard to find a new tenant if you lose one.

This is how Warren Buffet started, long before Berkshire Hathaway. When he was just a teenager, he parlayed his newspaper route earnings into the purchase of farmland, which he leased out.

This kind of investing has its appeal to those who want a simple investment. Tenants can't totally destroy your property like renters of a house can. They won't be calling you to fix a broken sink either. Other than to collect the rent, you may not have any contact with the property or the renters for years once you have a good lease in place.

Of course, farmland has the same problems as commercial real estate. It can take some time to find a renter, and you have no income during these long vacancies. On the other hand, your expenses may be relatively low with land - just property taxes if you paid cash.

Some research is called for here. How much is farmland in the area renting for? What kind of farming is your land suitable for? If you know nothing about what makes good farmland, this can be a risky investment. Is there a way to reduce that risk?

There is. You can learn more about farmland. There is also another way to keep the risk to a minimum, while increasing your chance to make a decent profit.

Find farmland that is near the edges of a growing city or town. Ideally, you want land that is likely to be developed into a new residential subdivision in the near future, but is still priced as farmland. If you can find land like this, you can likely rent it out to a farmer at a decent return, plus have the opportunity to sell it to a developer five years later - possibly for a large profit.

Even if the town has not grown as fast as anticipated, and there is no huge increase in value, you are safer this way. If you lose your renter, but the land can also be used for residential purposes, you have a second market to sell your property in. Farmers - or other investors in farmland - may buy it, or a developer may buy it, or you could possibly develop it into lots and sell these yourself. Having other options make buying and leasing farmland a safer investment.