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| Principal payments are sort of like paying yourself. As long as you never have to sell the land or give it up it will eventually be worth more than you paid. But this is logic that only farmers use because that doesn't account for the time value of money. A 20 dollar bill today will be worth a buck by the time you get the land paid off. So the land is more a "store of value" than an investment. This is why true investors hate land, they would rather buy apartments or commercial real estate, stocks or bonds. But as farmers we have an advantage as we don't need to look for a renter and it provides us with a living.
I bought some land that was advertised in the paper in 2019, interest rates were extremely low. Sentiment was the lowest possible as we had been rock bottom in crop prices for several years. I had just got turned down renting the ground across the road. Because of the extremely low interest rates and the way I structured the loan the payments P&I are about what the rent was on the ground I lost out on. Anyone could have done it.
In this higher interest environment if I didn't have enough cash to work the interest down I'd feel a little uneasy about the interest portion being $100+ over going cash rent. You are tying up that money, slowing the rest of your operation down. But everyone has their reasons right or wrong of what they are or aren't willing to do. As long as you can afford it there really isn't a wrong answer. | |
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Land payments
