| ▲ | dismalaf 4 days ago |
| 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). |
|
| ▲ | jldugger 4 days ago | parent | next [-] |
| Okay, but as mentioned, 5 million also buys 20 year treasuries that yield 4.90%, or about 245k a year. I probably wouldn't buy them on margin tho. |
| |
| ▲ | dismalaf 4 days ago | parent | next [-] | | > I probably wouldn't buy them on margin tho. 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. | | |
| ▲ | skeezyboy 3 days ago | parent | next [-] | | You say you only calculate rate of return on the "capital you put down"...Im not following here, do you think because youre spending profit from the farming operation that loan for the farm is paying for itself? The tbills pay for themself.... you have to work the farm for 20 years to pay back that 5 million. Its an apples and oranges comparison there. | | |
| ▲ | dismalaf 3 days ago | parent [-] | | You're right, it's not an apples to apples comparison, just like running any business will yield more than straight investments. 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. | | |
| ▲ | skeezyboy 2 days ago | parent [-] | | he could spend 90% on tbills, 10% on a small farm, and then each year take the 2.5% the tbills generate and buy more farm fields, working the farm as it grows, or something like that, a mix of finance and farming | | |
| ▲ | dismalaf a day ago | parent [-] | | If $1 million in cash means you can get a $4 million plot of land, spending 90% on T-bills means you have only $900k in bonds and a measly $400k farm (25% down). So you have 1/10th of the land and your bonds are yielding $22,500... 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. |
|
|
| |
| ▲ | jldugger 3 days ago | parent | prev | next [-] | | I mean, you _can_ buy 20 year bonds on margin. Reg T just limits you to 50% in most (all?) cases. And it doesn't buy you a job or a demand mountain of insurance contracts! | |
| ▲ | smeeger 4 days ago | parent | prev [-] | | thank you |
| |
| ▲ | elzbardico 4 days ago | parent | prev [-] | | After The inevitable collapse good luck eating worthless T-bills! Ehehe |
|
|
| ▲ | beambot 4 days ago | parent | prev | next [-] |
| > that's steady income forever after Let me tell you about farming... this isn't true. |
| |
|
| ▲ | lotsofpulp 4 days ago | parent | prev [-] |
| Land can’t be financed, businesses can be financed. Businesses that own land are much more easily financed, with the lowest interest rates. 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. |
| |
| ▲ | dismalaf 4 days ago | parent | next [-] | | You've got it backwards. Hard assets like land, buildings (aka. your house), machinery (a tractor or your car) are all much easier to finance than businesses. A simple Google search gives a wealth of resources for someone looking to finance (aka. mortgage) land and/or property for a farm. 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... | | |
| ▲ | lotsofpulp 3 days ago | parent [-] | | My point is those hard assets have to be used for a business, not for price speculation (as far as I know). Your second link says: >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? | | |
| ▲ | dismalaf 3 days ago | parent [-] | | > My point is those hard assets have to be used for a business, not for price speculation (as far as I know). Your second link says: 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. |
|
| |
| ▲ | rob 4 days ago | parent | prev | next [-] | | > Land can’t be financed Doesn't seem accurate. See: https://agamerica.com/land-loans/real-estate-loans/ https://www.farmcrediteast.com/en/FINANCING/Land-Loans | |
| ▲ | toomuchtodo 4 days ago | parent | prev [-] | | This is factually inaccurate. The land is the collateral. If you don’t service the debt, they take back the land. 75-85% loan to value, 2-4% interest over treasury rates. Underwriting guidelines for the loan will differ if this is for speculation, development into housing, or agriculture. | | |
| ▲ | potato3732842 4 days ago | parent [-] | | You're being pedantic. 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". | | |
| ▲ | toomuchtodo 4 days ago | parent [-] | | This is simply not true based on the interest rates and underwriting guidelines, and I own raw ag land that has been financed with nothing else besides a down payment and the land as collateral. Words mean things my dude. These are not hard money rates, these are credit products specifically for land with no business, cash flow, or other income stream at time of transfer. Being ignorant or unsophisticated is a choice. | | |
| ▲ | potato3732842 4 days ago | parent [-] | | "Ag" is the keyword there and I suspect it roughtly translates to "somehow tax subsidized by the rest of us". Go try and get a loan on residential/industrial or otherwise non-ag land and get back to me. Everyone looks (i.e. does their due diligence) and nobody ever goes for it because the rates or terms are always laughable. 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. | | |
| ▲ | toomuchtodo 4 days ago | parent [-] | | I can have a wholesale originator (UWM) extend me credit for those use cases in ~15 minutes up to almost $1M at 7% (conforming, ready for sale into the ABS market), which is very reasonable imho. I can get up to $5M within a few days if it’s commercial through one of the commercial banks I work with (Wintrust). 80% LTV, most of the time. 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). | | |
| ▲ | lotsofpulp 3 days ago | parent | next [-] | | This is news to me. Are you saying you can borrow money with the stated intention to speculate on future sale price, from the government no less? 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. | | |
| ▲ | toomuchtodo 3 days ago | parent [-] | | One example: 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. |
| |
| ▲ | potato3732842 4 days ago | parent | prev [-] | | What does "conforming" mean here? Because I suspect there will be a reference in there that is a pointer to something involving government subsidy. Everything ag related is rife with that. | | |
| ▲ | toomuchtodo 4 days ago | parent [-] | | https://en.wikipedia.org/wiki/Conforming_loan 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... | | |
| ▲ | potato3732842 3 days ago | parent [-] | | >I love government subsidies through implicit and explicit loan guarantees 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. | | |
|
|
|
|
|
|
|
|
