Loan vs Starting Small

Maura · #21 12/26/14, 03:35 PM

I know people who have used Farm Credit. Do your research, you may not like what it offers.

simi-steading · #22 12/26/14, 04:43 PM

Quote:

Originally Posted by Maura

I know people who have used Farm Credit. Do your research, you may not like what it offers.

What are you eluding to? I deal with Farm Credit, and they've been really good to us... They sure have treated us a lot better than national banks have..

We just went to a dinner they had for their local customers... We talked with a lot of other customers there.. We were all loving the two dividends checks we got back this past year... equaled over two free months of mortgage payments..

I sure can't tell stories like that about any other lending institution I've used..

Mike in Ohio · #23 12/26/14, 04:54 PM

We've used Farm Credit and they've played straight with us. They typically want 25% down on a farm/raw land.

There is nothing wrong with credit as long as you are careful with it. A loan on your home/land means there is a risk of losing it if you can't make the payments.

Mike

OzarkNick · #24 12/26/14, 05:52 PM

Quote:

Originally Posted by simi-steading

What are you eluding to? I deal with Farm Credit, and they've been really good to us... They sure have treated us a lot better than national banks have..

We just went to a dinner they had for their local customers... We talked with a lot of other customers there.. We were all loving the two dividends checks we got back this past year... equaled over two free months of mortgage payments..

I sure can't tell stories like that about any other lending institution I've used..

So I'm really new to loans so I must ask, what are the dividend checks that you recieved?

simi-steading · #25 12/26/14, 06:14 PM

Farm Credit is a Co-Op.. When you get a loan through them, you join the credit union... .

If they have big profits, they return them back to the members. Although, they normally aren't near as large as they were this past year.

OzarkNick · #26 12/26/14, 06:34 PM

Oh ok, thank you for the info. What was your loan ARP?

ArmyDoc · #27 12/26/14, 06:44 PM

Farm Credit can often be the only option for a farm sized parcel. Commercial banks frequently won't make a loan for acreage properties over 5-10 acres. If you can get a conventional mortgage, the rates will be considerably lower, but you will be limited to 10 acres max in most cases. I split my land into a 10 acre parcel and the larger one for that reason. The farm portion is through Farm Credit at about 5.25%. My adjustable home mortgage is only 2.25%

simi-steading · #28 12/26/14, 06:47 PM

We got our loan a few years ago when no one was loaning any money hardly... we had to put 20% down and pay 6.5%... but that was also for a land deal, not a residence...

It works out real nice too, since we do have a house on the land, and we don't have to carry homeowners for the mortgage... The land is the collateral.. not any of the buildings..

Because of the condition the house was in, and because of our heating, and because of no real water sources for fire, we'd pretty much have no real chance of getting insurance..

simi-steading · #29 12/26/14, 06:48 PM

Interesting about the 10 acre deal.. .Ours was 57.something... and they had no issue with what we were asking for and didn't want us to split it up..

Matter a fact, they kept trying to give us more money to fix the house, or buy equipment, or.....

OzarkNick · #30 12/26/14, 06:58 PM

So it sounds like I need to find a piece of land with a home on it and get a conventional loan. I have also read about young/new farmers loans. Has anyone any knowledge of these loans?

jbo9 · #31 12/26/14, 09:02 PM

Quote:

Originally Posted by OzarkNick

So it sounds like I need to find a piece of land with a home on it and get a conventional loan. I have also read about young/new farmers loans. Has anyone any knowledge of these loans?

That sounds like an FSA loan, Farm Service Agency. There are different parts to what they offer.

But, read the fine print. They might push you back into typical farming, such as crop insurance, and commodity crops (corn, oats, beans, wheat, etc). What you have described so far isn't exactly in the box thinking for most farmers.

K-9 · #32 12/26/14, 09:12 PM

There are pros and cons to getting a loan. Some people are of the school of thought that you should never borrow money for any reason that you should save up until you have the money to buy it. Others buy everything on credit. I fall somewhere in the middle, some times short term credit actually saves you money as opposed to saving up a paying as you go. For example if you are going to build a barn and it will take you 5 years to save enough to buy the barn. Well you can get micro loans for 1.9% or less to build the barn so you get this loan and pay it off in 5 years. I would feel real comfortable in saying that the barn will be considerably more expensive to build in 5 years than it is today probably offsetting what you paid in interest on the loan and plus you have gotten 5 years production from the barn in the mean time. On the other hand it is foolish to buy cloths/meals/etc. on a credit card unless you pay the balance off every month because generally the interest is high and you are looking at consumable goods.

am1too · #33 12/27/14, 09:26 AM

Quote:

Originally Posted by 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

I say absolutely no to financing of any kind. No cash no deal. You can buy lots of land with the finance charges. The finance charges could easily eat twice the purchase price plus if anything happens and you can not make the payment you lose everything and have no more money.

am1too · #34 12/27/14, 09:29 AM

Quote:

Originally Posted by 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.

My priority would be soil health. Without that everything except living quarters is worthless.

Water is very important. Healthy soil retains enough water for most things to grow without having to irrigate.

Brush hog the place and large amounts of compost.

am1too · #35 12/27/14, 09:39 AM

Quote:

Originally Posted by 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.

Here the locals will only buy from the store. I am talking about an elderly community. If it is free, you take it to them they will sometimes scarf it up. If I do anything for profit (income) I will have to take it to town and sell at the farmers market.

Maura · #36 12/27/14, 01:41 PM

Quote:

Originally Posted by simi-steading

What are you eluding to? I deal with Farm Credit, and they've been really good to us... They sure have treated us a lot better than national banks have..

We just went to a dinner they had for their local customers... We talked with a lot of other customers there.. We were all loving the two dividends checks we got back this past year... equaled over two free months of mortgage payments..

I sure can't tell stories like that about any other lending institution I've used..

It depends on your present and future needs. It is the best thing for some people, but not others. Don’t just assume because it worked out well for some that it would work out well for you. I do know bad stories. Won’t go into it, as with anything else, make sure it is going to work for you.

jwal10 · #37 12/27/14, 02:02 PM

Start small, learn the ropes and find out what will work out for you. Add as you can. No real way of knowing, may have to make several changes to find what works for you. Whole hog and you may lose it all. Several smaller projects may work out better than a couple bigger ones. Keep trying different things until it works out. IF it is what you really want to do, go for it. You may not have as much cash but you can live a lot cheaper when you are there to do everything rather than buying even half. Live off what you are raising, you know your product. Each project supports the others, cheaper. Plus you are there for your Son. As he gets older you become a team. A lot cheaper than a baby sitter, you save, he learns for a lifetime. Bring Mom into it too....James

big rockpile · #38 12/27/14, 07:12 PM

You might consider Rent Leasing with Option to Buy, I did this on 300 acres one time found problems before Lease was up that changed my mind as far as buying.

big rockpile

okiemom · #39 12/28/14, 08:45 AM

losses are high in the beginning so do not count your chicks before they hatch and mother nature and predators can wipe everything out in one day. I include deer in that as well. What works for the guy down the road may not work for you even with the same set up. Start small and work up but have 6 months to a year of savings as padding and always keep it topped off.

stanb999 · #40 12/28/14, 09:56 AM

Borrow money for a business if...
You can turn a profit from it.
You can pay it back if the business fails.

Going "slow", paying cash, being anti loan has almost no place in the modern agricultural business. Farming today requires huge capital outlays. Your take home pay will be a percentage of the capital invested divided by the risk potential. More risk more reward. If you want to make a good wage you will have to have invested large amounts of capital, or have very risky but high profit ventures, or be just plain lucky... Some people do in fact just get lucky. I have found that for me hard work is rewarded time and again. Relying on schemes and luck rarely work out in the long run.

Want to farm chickens? You need to borrow about 800 thousand to earn about 80 thousand at the end of the year. Chickens are risky in that if you have an issue they all die. So the profits are on the higher end of the scale. Your true final profit is approx. 10% of the capital outlay. Things like range cattle or growing corn in Iowa may only pencil out to 5% profit after expenses. But the risk is lower. The other thing that can drive profits is labor cost. Your being paid a premium to manage labor. For instance per acre berry production looks very profitable. Until you realize that growing the berries is 10% of the business. 80% of your profit will be made at managing your labor resources at picking time. Do it well and you can turn a tidy profit, do it poorly you will be losing money quickly. Selling your produce in niche/specialty markets, directly to customers, etc. Profit can be made buy selling produce at retail. But retail sales are not farm production profit. It is profiting by keeping store, not unlike the local grocer. When you pencil out your potential profits be sure to use wholesale prices in your calculations. If you have time to sell your produce retail by all means do so. But keeping store isn't farming.

For the best profit potential find a business that is tailored to your area.
When you pencil out other farming ventures expect profits in the same range. It doesn't much matter what the actual product is, it's a (capital * (risk+management))= profit equation no more, no less. If in your search you find something that shows 25% profit... redo the math. If it still shows that level of profit. Be very skeptical and invest only high risk capital you can easily afford to lose. Farmer's as a rule don't get rich quick.

What to farm as a business?
Find a profitable way to utilize and manage about 1 million in capital.... You will earn a safe steady income of about 60K for your efforts.