Loan vs Starting Small

[OzarkNick]

Hello everyone. I am about to start my adventure into homesteading and small farming. I will have about 50K cash in a few months from the sale of my house and would like to use it wisely. I am wondering what you guys think about using a loan to buy a property vs. buying with what I have. My thoughts are that if I get a loan, I can start with more land, more livestock and be able to invest a modest amount into supplies/tools/electric fence. With the loan (50k-75k) and a down payment of 10K I would have around 90K-115K. With the loan I could acquire 25-40 acres of decent, workable land, start MOB grazing 30-50 head of goats followed by a MOB of pasture raised chickens. I also plan either way to build a greenhouse and get a batch of blueberries (1200 plants) growing from seed. If I start with only my 50K I would get me around 10-20 acres of decent grown up farm land, MOB graze 20-25 head of goats to clear the land followed by the chicken MOB. Still going to build the greenhouse for the blueberries.

On both properties there are a few constants. MOB'bing the goats and chickens, blueberries that I plan on eventually turning into a U-pick/selling to local business and families, using electric fence.

My goal is to have a successful small farm that can supply me with enough income for farm expenses, fuel, feed and maybe a trip to town for a movie once a year.

What do yall think? Pointers? What would you do differently?

Thanks!
OzarkNick

[ArmyDoc]

Need to know a little more about your situation to give you good advice.
Do you have any prior experience farming?
Are you planning on having your farm provide all your income - or just sustain itself and not be a burden on another source of income?
Are you a salesman?

I am only a few years ahead of you on this journey. In my case, my goal is for the farm to support itself and it's improvements. I have another job that will support me. The calculation in this case involved what I can comfortably afford on my income, recognizing that that other job limits the amount of time I can spend working on the farm.

Farms are expensive - and there's always something coming up you didn't think about. People who make a living from their farms seem to fall into one of three categories - people with large farms that are paid for - they have low expenses and large production and sell to the general market. People who are very good salespeople, who can sell directly to the consumer with no middle man and at a premium. They find or create niche markets. Because they have a higher gross per item, it isn't as necessary for them to have large operations. The last category is people who are a bit of both - they may have started out as conventional farmers, but they are good at writing and/or sales. People like Joel Saltin - they have the best of both worlds.

Me, I neither have enough experience to make a living with conventional farming (not to mention not having a large paid off farm) nor am I a good enough salesman to support myself through selling what I can produce on a farm. So I doubt the farm will ever be my primary income source.

What I did was buy land at a price I could afford and built a house for myself on the land. (some people can make it work living in one place and going out to where their land is...I could not. Others are able to live out of a trailer, or other temporary housing before building a permanent house...my wife would not. Both are cheaper than getting the land and building a house on it, but they were not viable options for me) Now that I live here, I find I have a lot more time to start making progress on getting the land into production. The key for me was having my expenses for the home and land be not more than I could comfortably pay (and make extra payments on). I kept back a large chunk of cash (a bit more than you have now) and am using that for start up costs - fencing, land clearing, equipment, livestock etc. It's vanishing at an alarming rate. When it's gone, the land has to be producing. I don't plan on more large scale expenses (there may be some, but I hope not!) so I'll be limited by what the land generates for further improvements.

Priorities are: Water, Fencing, clearing and planting, animal shelter, and livestock purchases. In that order. (you more experienced hands feel free to chime in and tell me if my priorities are mis-ordered!) I already have an old tractor, bush hog, harrow and fence post auger. If you don't, you'll need those too.

Best of luck to you - It's one heck of an adventure.

[OzarkNick]

Thanks for your reply and great info. I was raised on a small family farm. It was called the Funny Farm, fainting goats gave it that name, but it wasn't much of the farm life. We had about 10 head of goats, 20 laying hens, 2 llamas, a donkey and a horse. I had a friend in high school that had tons of chicken houses and cattle so I got my fair share of fixing fences, birthing, scraping up chickens and feeding.

My income is where I'm stuck. Here is my situation; I can either hold off on buying anything and hit the pipeline for a few years to save up. I can buy now and try to scrape by working additional farm jobs around the area until I have my farm up and going. OR I can dive in head first and start small, keeping some in savings and slowly work toward financial sustainability from on the farm production. It's a slippery slope! Not sure how to navigate it.

I would say that I am an excellent salesman as long as I believe in what I'm selling. Luckily for me, and my future customers, I'm an honest person and would never sell anything I wouldn't buy. I believe in what I am trying to accomplish and truly believe in this lifestyle. I also have family in advertising so that helps!

[1shotwade]

Seems to me every time I invest a lot of money into a project it just takes all the fun out of it. It becomes another thing to worry about. I'm a son and a husband and a father and a grandfather so I think i've got enough thing,very important things, to worry about. I don't need anymore.
To me it depends on whether you want a "hobby" or another "job"!


Wade

[idigbeets]

LAnd must be cheap where you are to buy 40ac w/ 100k and still have enough left for infrastructure...

If you are still working, I'd do the loan. If you plan to retire or make your sole income off the new farm... I'd go w/ what you can afford and still have a bit of a savings left.

[thestartupman]

Ozarknick, I have a few thoughts I will thow out there. Trust me I am not trying to discourage you, I just want to make sure you are thinking things through. I went through some of the same questions a few years ago. I assume youare planning on raising meat goats, you can correct me if I am wrong. You will have to have good fencing in place. If it is meat chickens you are planning to raise, do you plan on processing them yourself? Have you really run the numbers to see if you can truly make a profit with them. I know from experience that they can eat up your profits pretty fast. I also know that trying to process them your self takes a lot more time than you might think. You really have to think about predators with any kind of chickens. I know one neighbor that had 120 birds, and know only has 20. He said he lost most of them to hawks, and eagles. My other neighbor lost all but one of his chickens in one evening. He got home a little late to close them up for the night, and the coyotes got them. I am still thinking about mob graizing chickens on my place. I want them mainly for the fertilizer they would give to my fields. I would have to have my LGD's running with them though. The only way I know it would work for me, would be to have electric netting around them and the dogs. I would probably have to have at least 6 lengths of the netting so the area would be big enough for the dogs. These type of dogs don't do the greatest at staying home, so I can't just let them run the whole property. these are just some thoughts of problems I have been thinking about for myself.

[geo in mi]

Most blueberries are propagated from cuttings, not seed. Blueberries from seed, like apples, do not produce fruit or bushes that are true to the parents. They also need to be adapted to your own region, requiring the correct number of winter chilling hours. Maine lowbush blueberries will be most true, but you don't live in Maine, and for commercial success you need the best, largest, sweetest berries you can get--and the results rrom seed will be an unknown quantity and quality, plus you will have to care for them and wait for about five years until you find out.

If I were your banker, I wouldn't float your loan unless you had a good business plan which includes demonstrated experience in growing whatever you intend to grow....

geo

[ArmyDoc]

Originally Posted by OzarkNick

Thanks for your reply and great info. I was raised on a small family farm. It was called the Funny Farm, fainting goats gave it that name, but it wasn't much of the farm life. We had about 10 head of goats, 20 laying hens, 2 llamas, a donkey and a horse. I had a friend in high school that had tons of chicken houses and cattle so I got my fair share of fixing fences, birthing, scraping up chickens and feeding.

My income is where I'm stuck. Here is my situation; I can either hold off on buying anything and hit the pipeline for a few years to save up. I can buy now and try to scrape by working additional farm jobs around the area until I have my farm up and going. OR I can dive in head first and start small, keeping some in savings and slowly work toward financial sustainability from on the farm production. It's a slippery slope! Not sure how to navigate it.

I would say that I am an excellent salesman as long as I believe in what I'm selling. Luckily for me, and my future customers, I'm an honest person and would never sell anything I wouldn't buy. I believe in what I am trying to accomplish and truly believe in this lifestyle. I also have family in advertising so that helps!

May I ask, how old are you, and do you have a family to support?

You mention working the pipeline, are you a welder or a pipe fitter? If you are, are there any jobs in the town where you are thinking of buying land? If not, you might consider buying where there are. Here in the CSRA, they are building Plant Vogtle, and there will be work for certified welders /pipe fitters for the next 5 years at least. Land around here - especially south of here is relatively inexpensive... Consider relocating?

I know it's tempting to jump in. And there are some good arguements for it too. But I suspect it will bevery difficult to support yourself on 20-40 acres. The only guy I know of who has done it recently was a guy who came down from up north 5-10 years ago and bought ~70 acres outside Atlanta. I can't remember the name of his outfit right now. But he seems to be doing ok with direct sales of "naturally raised" animals and artisan cheeses. But coming from the north, I suspect he bought his land out right and had enough left over for capital improvements.

[Ozarks Tom]

Too many variables to give what I'd consider to be good advice, but one thing that doesn't vary is that debt is a cruel master. Nobody knows the future, and injury or illness can wash away an investment quickly if that investment is tied to debt.

[OzarkNick]

ArmyDoc, I have a great family willing to help. I'm have no trade in the pipeline but I'm a quick learner and have many friends that can get me on. Relocating isn't really in the plan. The Ozarks are home and that's the only place I have family.

I am currently 23 and physically able to do anything on the farm. I have always been in great shape and continue to improve.

Another income I forgot to mention is my son and I both receive survivor benefits. His Mama passed away when he was born so together we get about $1100 a month. It's not much but that could pay for food, cell phone, utilities and fuel for a month. Might even have a little left.

I spoke to my family quite a bit over the past couple days about all of this and have decided it's probably better to get a loan and go to work. Mom has agreed to watch and oversee the far while I'm gone working in exchange for housing, food and a small amount of cash for gas while she is there. This upkeep would mainly involve mowing, rotating a small MOB of goats and chickens, tending to the garden and watering the greenhouse.

Land in the Ozarks can be acquired relatively cheap. It's all about who you know and who's in a tight spot. I found 20 acres of grown up pasture land with an 850sqft cabin, 2 1/1 cabins for guests/seasonal workers, a barn with milking stations, a couple sheds and completely fenced for 125K. That's the asking price. There are truly some good finds out there.

I don't personally know of anyone supporting themselves on this kind of acreage but have read a lot of articles with some great advice in them on small acreage farming. The first property I intend to buy will be more of an investment property that will let me get some good experience and knowledge while also building up a small heard and system. Once I have the property paid off, I plan on selling and moving into a bigger pastured property for larger animals than just goats.

My end goal in all of this would be to own 100-150 acres, build my own house, workshop and barns, and raise a small MOB heard of beef cattle with a few milkers, pork, chicken, goats, turkey and still have room for a nice sized orchard that I plan on using as a you-pick and for local farmers market produce. This is my end goal mind you. I don't think I will be able to do this for some time but hey, I can dream!

Hope that helps a little. Sorry for the brain dump guys. I have too many ideas and variables for this to be anything but confusing.

[farmerDale]

If you are going into business, and that business is going to provide revenue that will cover the loan payments, go for it. Debt for a return on investment is not something to be afraid of.

I am conservative with loans, ( I was raised that debt is evil in any form), and it has held me back as I look back on my life of farming. Growing a business from your own cash reserves is slow, and often still needs subsidization from somewhere else. If you can get something up and running, and paying it's own way, the business can be the subsidizing entity, not the other way around.

You sound like you are willing to go for it and work hard at it. Do it!!!

[Maura]

You probably won’t be able to get a loan for bare land. If it has buildings on it, you may be able to. So, consider buying property that has a house or house and outbuildings on it and use your cash as a down payment. Not all of it, but at least 20% of the price.

[Cookie2]

We've been fortunate to buy with a loan and to buy with cash. Both processes are interesting.

With this house we were new to the state so not completely familiar with local laws. We decided to buy with a mortgage then pay it off immediately. We did this because the mortgage company put a lot of requirements on the sellers that we normally wouldn't have. This made us feel a little bit more secure in what we were buying. On the other hand, the mortgage company caused huge delays in the process and were a major headache to work with. They also put a lot of requirements on us (we can't cut our trees, move dirt, etc). I was so happy to get them out of our lives.

I recommend whenever possible you own your property out-right. It is hard enough to just pay the property taxes in order to keep possession of the property on top of all your other expenses of running a business.

[simi-steading]

Originally Posted by Maura

You probably won’t be able to get a loan for bare land. If it has buildings on it, you may be able to. So, consider buying property that has a house or house and outbuildings on it and use your cash as a down payment. Not all of it, but at least 20% of the price.

Farm Credit loans on land with no buildings.. It's what their business is... Investing in farmers, and the farmers investing in Farm Credit.. You pay a little higher interest, but it's well worth it if you want just land..

[johng]

Put your $50K into a piece of property big enough to live on and get you started with what ever kind of farming you want to do. Borrow a little bit if you have to. This will give you a place to live with a small mortgage. Work the pipe line job. This should give you some disposable income since you will have a small mortgage. Having disposable income will allow you to get your home stead fixed up and going in the direction you want. Remember this doesn't have to be your dream homestead. Just what you can afford now hopefully in 5-6years once you have improved the place you can sell it and come closer to buying your dream place. Whatever you do don't let the $50K get away from you invest in a place to live and as long as you don't over pay for a place you should get it back plus appreciation when you sell. Then you can roll both over into a nicer place. I sold twice over a 10yr period before I bought the place I have now. And it's pretty close to my dream place. I would plan on working a off the farm job at least for a while. I can't think of a faster way to loose all your money than to try and make a living off the farm right out of the gate. $50K may sound like a lot of money and it is but, if you start using it to live off of for everyday expenses it will be gone before you know it. Use it to invest in a place to live and you will always have a roof over your head you only get a lump sum of money a few times in your life some may never. Use it wisely.

[ArmyDoc]

Originally Posted by johng

Put your $50K into a piece of property big enough to live on and get you started with what ever kind of farming you want to do. Borrow a little bit if you have to. This will give you a place to live with a small mortgage. Work the pipe line job. This should give you some disposable income since you will have a small mortgage. Having disposable income will allow you to get your home stead fixed up and going in the direction you want. Remember this doesn't have to be your dream homestead. Just what you can afford now hopefully in 5-6years once you have improved the place you can sell it and come closer to buying your dream place. Whatever you do don't let the $50K get away from you invest in a place to live and as long as you don't over pay for a place you should get it back plus appreciation when you sell. Then you can roll both over into a nicer place. I sold twice over a 10yr period before I bought the place I have now. And it's pretty close to my dream place. I would plan on working a off the farm job at least for a while. I can't think of a faster way to loose all your money than to try and make a living off the farm right out of the gate. $50K may sound like a lot of money and it is but, if you start using it to live off of for everyday expenses it will be gone before you know it. Use it to invest in a place to live and you will always have a roof over your head you only get a lump sum of money a few times in your life some may never. Use it wisely.

This is good advice, but I would hold back about 6 months earnings in cash plus a bit more for capital improvements. It's always a good idea to have a cushion.

A 50k farm loan at 5.5% with a 15 year term would be about $410 a month not counting taxes. Wouldn't need PMI if you you put more than 20% down.

Do you think you could find a place like you described with 10 acres and a small house instead of a larger piece for around $75k? Don't know what you make, but if your earning an extra $1500 a month take home you could make extra payments - an extra 200 a month would let you pay it off in under 10 years and be in a position to step up to a larger place.

[haypoint]

Often times, going slowly, growing as you can afford it locks you into a perpetual Hobby that never becomes your dream.
Conversely, many of the farm practices you envision put you in competition with others that have advantages you lack. Lots of people raise goats as a hobby and have no problem selling for less that it cost them. Commercial blueberry operations benefit from the economy of scale. They can mechanically pick at far lower cost than you can toil in your patch. They require specialized climate and naturally low soil ph.
A pick your own anything is full of pitfalls. Too many people for the current readiness of the blueberries discourages pickers from ever returning. Cold or wet weather when the crop is ready, results in insufficient pickers. People say they'll pay more for organic, but in reality, most buy the cheapest. The small amount of organic produce in the stores prove this. People will pick just the largest berries, bypassing smaller berries that may represent half of your crop.
Accentuate your positives. If you live near a huge, underserved, Middle Eastern population, you may be able to earn more for goats than those that try in regions that don't eat a lot of goat.
It all takes more than a good plan and endless hard work. Marketing is key. Finding buyers and selling at a profit is key.
The small productive family farms we dream about, were operated by people that didn't have TV, cable, internet, cell phones, newer cars, nice clothes or vacations.

[jbo9]

What sort of loan repayment capacity do you have based on your production plan? What are the historical market prices for goats, chickens or eggs? What will you be producing that will stand out in the market? You'll need to resharpen your pencil several times before you take a plan into a banker and ask for a loan.

Even if you spend your own money, answering the same questions will help you with both a short range plan and long range goals.

[ET1 SS]

I have tried, as much as possible to avoid debt-load.

We saved and invested as much as we could for a long time. Then with $100k, we bought 150 acres of forest land and we have been able to build a house / farm.

[OzarkNick]

So much good info. I could efficiently handle a $600 a month debt load even at my lowest income times of the year. That being when I'm not on a pipeline, oil rig or other jobs. I do however plan on living extremely frugal for a few years. Most of my check will go straight to loan then principle. At even $60 a day (low) per diem would rack up to $1800 a month. My family currently is eating about $450-$500 of food a month. Now I'm down to $1300. Minus insurance $80, cell phone $120, a month of utilities $200ish, I'm still at $900. I am also receiving social security so that now puts me back up to $1450-$2000 ahead of the game. I believe that with an off the farm job I'd be able to pay the loan, bills, put food on the table and expand slowly and develop the farm over a few years.