Are you a ready, willing, and able buyer? The experts that led our workshop on land purchasing preparedness for beginning farmers, held at Convention last month, said you need to be just that before buying land for the first time! Missed it? That’s ok; we have you covered.
Here’s how to be a ready, willing, and able buyer...
1. Start early
Figure out what you can afford, and be realistic. Overstate expenses, and understate income. What can you afford? How much savings or additional equity do you have for a down-payment? What is the most you can do for a loan-to-value ratio on a new purchase? What additional collateral could you pledge? Will a family member be co-signing or guaranteeing a certain portion of the loan? These are all questions you will have to answer before taking out a loan.
2. Build relationships
- Form a relationship with a lender, prior to asking them for money. Share your vision. Lenders are far more likely to lend to someone they have met and trust. Some banks may not be able to offer you the deal others can, so introduce yourself to multiple lenders.
- Find a mentor. Navigating the unknown territory of purchasing land for the first time and beginning your farm or ranch can be overwhelming. Let someone lead you in the right direction.
3. Educate yourself
There are many programs that are designed specifically for young farmers and ranchers, but they won’t find you. Do a little research, and make sure you have explored all of your options and opportunities.
- FSA
http://agr.mt.gov/I-Want-To/Apply-For/Grants-Loans/Beginning-Farm-Ranch-Loan
- Northwest Farm Credit
https://www.northwestfcs.com/en/Services/young-beginning-producers
- MT Department of Agriculture
http://agr.mt.gov/I-Want-To/Apply-For/Grants-Loans/Beginning-Farm-Ranch-Loan
4. Meet with your banker
Have three years of financials – tax returns, bank statements, and balance sheets – available. Calculate projected cash flows and debt service coverage with the new land purchase. Create a business plan and request a letter of intent from your lender.
Shop all of your options, though. If declined by your local banker, ask your banker if they can do a participation with another bank or Northwest Farm Credit Services. Is there an opportunity for you to do a loan privately through an individual lender? Are there other banks you haven’t considered?
5. Speak to a buyer-broker
Have a “pre-approval” (letter of intent) ready from your bank for a broker. They need to know that you are legitimate and to be taken seriously. From the plan built by you and the bank, relay detailed and specific info to buyer-broker. How many acres are you looking for? Irrigated? What’s your budget?
Make sure you sign a buyer-broker agreement so that their fiduciary and agency responsibility lies only with you. Then, build your strategy and negotiating plan – contingencies, closing date, initial offer, counter offer, closing costs, etc…
6. Don’t marry the land
There will always be another; no farm, ranch or parcel is so unique that it cannot be passed up, even if it borders your family’s property on three sides. Keep it business, factual and analytical. You do not have to take a deal, simply because it is within your budget. Have a vision, and budget for that vision. Ready and able buyers have negotiating power, and aren’t willing until every piece falls into place.
7. Be patient
This process rarely takes less than 100 days, and requires your patience. However, a head start and your due-diligence could very well streamline this time span.
Buying land is exciting and terrifying all at the same time. Knowing what's expected and being prepared with this information will help you confidently and comfortable navigate this next big step!
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