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EC SD | A couple key points missed in this analysis:
1) If the opportunity cost of 5% is based on current CD rates, it is likely these rates will be back to 3% again in a year. Also when CDs or Treasuries mature, you need to roll/renew them and that is a taxable event.
2) Land owner is expecting land to continue higher as it has for a long time now, just like alternative investment opportunities. So add 5% annual capital gain on the land and that adds $750 to your -$380 for a very nice annual gain. Now the farmer and the operating entity are both making money! Also this increase in land value is not a taxable event. Pass it on to your heirs and they get stepped up basis, so the tax on years of gains is never due.
It is not that different from buying stocks. Why buy AAPL when it only pays a 0.52% dividend instead of a 5% CD? | |
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Farmland ownership ROI
