Drought affected farms?

Discussion in 'Commercial Property' started by spludgey, 10th Aug, 2018.

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  1. spludgey

    spludgey Well-Known Member

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    One person's misfortune another's fortune?

    Has anyone looked into the price changes of farms now that they're drought affected? What are your views as to whether it might be a profitable idea to buy one, wait till the drought breaks and then sell it on?

    I'm not saying that you should try and make a buck off those already struggling, but investors buying farms would very slightly help farmers, if anything, not further hurt them.
     
  2. Cousinit

    Cousinit Well-Known Member

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    I'm looking at deals on farms all the time . Not drought affected nsw though , but SW Victoria . It's actually the total opposite down there at the moment with a very wet July gone and August looking much the same .

    Certainly a buyers market and I see value everywhere . Looking for subdivision potential and potential for change to the land use . Securing finance has been relatively straightforward. Even have some from the bank of Barnaby with a current rate of 2.69% .
     
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  3. Paul@PAS

    Paul@PAS Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    You cant just buy a farm and leave it dormant. Fences need work etc. When rain comes so does weed. Dams and pumps. Fertiliser, seed etc....And so out come the roos, wombats and rabbits and foxes. Grasses need a lot of work after a drought so the bad gear is killed off and only the fodder stuff grows. Not all grass is edible and what grows after rain wont all be good. Not uncommon after drought for burrs and all sorts of things to grow. Otherwise its almost useless for agistment and feed. And when the rain comes it could even washout some farms and fences.

    Mate of mine bought a property that was poorly maintained and got it for under 50% and that was in good times...Has spend $100K and two years so its only now OK. Nobody with knowledge will buy it and even a year after nobody has cash reserves back. Its like buying a run down dump with asbestos fibre walls and holes in every panel. Its worth less than the cleared land.

    Buying a farm and allowing share farming isnt like earning rent. Its more a partnership.
     
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  4. Cousinit

    Cousinit Well-Known Member

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    That's a very negative view you have there Paul .

    I've been buying farm land most of my working life and I can assure you there is plenty of money to be made if you are smart about it . There are plenty of farming people who go quietly about their business and do very well indeed .
     
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  5. Scott No Mates

    Scott No Mates Well-Known Member

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    But very honest too. You don't lock up productive land and let it go to rack and ruin. You have obligations to control noxious weeds, minimise soil erosion, prevent the escape of animals etc from the land.

    It may be cheap but the upkeep isn't .
     
  6. Cousinit

    Cousinit Well-Known Member

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    These comments seem naive to me and although commercial type investments all have plenty of risk attached and lots of things to think about , I don't see a big deal in these problems etc .

    I'm not familiar with drought affected NSW however . In fact outside of Sydney I've seen none of it , never been there . A lot of the farmland that I have has the opposite problems. Especially right now.
     
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  7. Willy

    Willy Well-Known Member

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    Good luck finding cheap farmland at the moment, drought or no drought.

    Farmland in some of the worse drought areas is selling for record prices, thousands of dollars an acre more than just a couple of years ago in some cases.
    Why?? Because it's different this time. Most commodity prices are at near record highs. Up until this dry spell, (and so far that's all it is in a lot of areas) farmers were making the most money they've ever made. Commodities at record highs, good season and low interest rates which boosted confidence and pushed land values up.

    This is the worst possible time to buy farmland. Your buying the land at the top of the cycle, paying top dollar to stock it and then having to step straight into feeding in drought conditions.

    Usually a drought can be a good time to buy. You get to see the country at it's worst (which is more beneficial than seeing it at it's best )and property prices and stock prices are usually low. Then it's just a matter of waiting until it rains.
    The circumstances surrounding this drought are very different to normal, which is what I was explaining in the other drought thread.

    Willy
     
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  8. Cousinit

    Cousinit Well-Known Member

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    From an investors point of view , arable land seems the easiest in many ways . You draw up a lease with the relevant conditions to protect your interests and time is your friend .

    Something like dairy is quite a bit more tricky and requires skilled management in all areas .
     
  9. bob shovel

    bob shovel Well-Known Member

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    wonder how quick the media circus will get bored of the drought? How long can they be interested in it? if it doesnt rain in the next couple of months the reporters will be hanging up their akubras and get their raincoats and countdown timers out for cyclone season:p sick *******s ....on to the next flavour of the month unfortunately
     
  10. willair

    willair Well-Known Member Premium Member

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    They should be able to play it out till the cyclones and floods start again in a few months..
     
  11. Fargo

    Fargo Well-Known Member

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    So what ! you cant own any property and leave it dormant. Most farms pull fences down, with machinery that can cover 150 acres an hour, fences are a liability,, little time is needed to contol weeds, even drones can do it. there is minimal work maintaimg fences a contractor can fix fences !, it is usually the leasees responsibilty to maintain fences, control weeds etc. Many farms have reticulatedwater from pipes and dont even have dams. Land is much easier and less time consuming than houses too manage than houses which need much more maintenence. It can be set and forget. There can be no difference between a sharefarming ageement or lease other than when and what the payments are, a less you can get payment in advance. Of course it just depends on the terms of the lease I agree your comments are very negetative and very naive.
     
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  12. Fargo

    Fargo Well-Known Member

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    You dont buy a farm and hope to sell for a quick profit, You would need to look at holding for a min of 5 years, how do you know there wont be 3 more years of drought. Also with very high grain lamb and wool prices those who do manage to produce a little or near average production will be very cashed up with surpluss cash to invest. Buy a farm for yeild not a quick profit. If you want to invest in farmland and get a good yeild do it with an REIT such as RFF, if you dont know what your doing let the experts do it. Also the drought will make the ground you want to own,more expensive as it will increase the demand for the drought resistant soils,( sands and loamy sand that will produce if they get 10mm for germination) I saw where Telopia Downs sold for $ 71m desirable land now with modern techniques, 25 years ago they where almost giving it away (100s of 1000s not tens of millions) when I tried to buy it, but has I had already bought I couldnt get finance and was stretched to the limit.
     
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  13. Cousinit

    Cousinit Well-Known Member

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    There is a huge difference between a share farm agreement and a lease . I'm involved with both as well as employing managers .

    The way I see it a sharefarm arrangement is effectively a business partnership in many ways as you are tied in to the business risk . They are very common in the dairy industry .

    With the properties that my wife and I own we are finding more people want to lease than sharefarm . The underlying thought is they don't want to share revenue with us , which is fine . Both work well for us .
     
  14. Fargo

    Fargo Well-Known Member

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    Yes of course with share farming you do take some production risk and also have potential high returns, having sat on 2 years of grain my returns have effectively trippled in the last 6 months. But if you want a sharefarming agreement that is similiar to a leases you can do so. Some agreements you can share inputs and labour. Others most of the management is hands off, maybe a stipulation on the minimum amount of fertilizer used or types of chemical used but that is no different to a lease agreement . You can still have a say with a lease agreement on management practices. The main difference with share farming agreement is that you can control your cash flow , when you realize profits, you can delay receivimg profits and manage taxation more effectively. With a lease you can bring forward cashflow. With sharefarming, if it is a high enough % of income, you may be able use FMDs, which can now be used like an offset account and not pay tax. Differnt methods will suit different parties at different times. Sometimes the leasors will be offering lease payments in advance to get a tax deduction for the lease. Leasing is more tax and cash flow effective than buying. If things are tight and to reduce risk and expense a share agreement may be prefered. 25% of production is common for a hands off agreement in grain production with no involvement of production imputs. Sometimes 30-33%. If a higher % is wanted than you would have a say in input and buisiness decisions. Somtimes input and production decision are out sourced to an agronomist for about $2 acre.
     
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  15. Cousinit

    Cousinit Well-Known Member

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    It's interesting that more banks are now offering offsets with an FMD .

    It's a very useful product
     
  16. Cousinit

    Cousinit Well-Known Member

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    Just reading through this old thread and I sure have to smile as the growth in good farmland has been huge. In fact I have to wonder why I've even bothered to invest in residential at all!

    Did you end up taking any action Spludgey?
     
  17. Cousinit

    Cousinit Well-Known Member

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    Totally agree.
     
  18. spludgey

    spludgey Well-Known Member

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    Unfortunately, I've been hamstrung by APRA for the past 5 years and not able to make any moves.

    What sort of gains have you seen?
     
  19. Cousinit

    Cousinit Well-Known Member

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    It's a sellers market for sure. Well developed dairy land is now selling between $7000 and $15000 per acre and more in some circumstances depending on the infrastructure and whether there is irrigation or not which may provide change of land use opportunities down the track. I'm only really familiar with Victoria and specifically the southern areas but proportionally some of the grazing and cropping land not too far to the north of me has grown in value significantly more.

    The issue of wind farms has been contentious but farmers who have them erected on their land have been doing very nicely and will have good annual cashflow just for having them as well. I'm referring to the Western districts of Victoria. Some of this land was probably only worth $1500 an acre just a few years ago.

    Trees don't grow into the sky and the market will have to stabilise and plateau as IMO it has got to the ridiculous level.
     
  20. Ruby Tuesday

    Ruby Tuesday Well-Known Member

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    The only reason I invest in residential is ease of financing. It is because of harsh servicing requirements for farmland and you the large deposits needed. This can sometimes be overcome with some vendor finance and terms and conditions. When you cant get get finance for commercial than you need to to buy high cashflow residential. When the banks with there wisdom wont lend money for high performance profitable investing you have to invest in poor performing finance draining metropolitian property.