6 ms·

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

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).

lotsofpulp 1y ago
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 1y ago
  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 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-ownership-loans 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 1y ago
    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 1y ago
      > 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 1y ago
  > Land can’t be financed Doesn't seem accurate. See: https://agamerica.com/land-loans/real-estate-loans/ https://agamerica.com/land-loans/real-estate-loans/ https://www.farmcrediteast.com/en/FINANCING/Land-Loans https://www.farmcrediteast.com/en/FINANCING/Land-Loans
- toomuchtodo 1y ago
  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 1y ago
    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 1y ago
      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 1y ago
        "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 1y ago
        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).
jldugger 1y ago
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 1y ago
  > 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.
  - smeeger 1y ago
    thank you
  - skeezyboy 1y ago
    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 1y ago
      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.
beambot 1y ago
> that's steady income forever after Let me tell you about farming... this isn't true.
- dismalaf 1y ago
  Hah fair. Year to year is crazy but long term it smooths out.

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).

lotsofpulp 1y ago

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 1y ago
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 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-ownership-loans 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 1y ago
  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 1y ago
    > 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 1y ago
> Land can’t be financed Doesn't seem accurate. See: https://agamerica.com/land-loans/real-estate-loans/ https://agamerica.com/land-loans/real-estate-loans/ https://www.farmcrediteast.com/en/FINANCING/Land-Loans https://www.farmcrediteast.com/en/FINANCING/Land-Loans
toomuchtodo 1y ago
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 1y ago
  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 1y ago
    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 1y ago
      "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 1y ago
        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).

jldugger 1y ago

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 1y ago
> 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.
- smeeger 1y ago
  thank you
- skeezyboy 1y ago
  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 1y ago
    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.

beambot 1y ago

> that's steady income forever after Let me tell you about farming... this isn't true.

dismalaf 1y ago
Hah fair. Year to year is crazy but long term it smooths out.