Creative Financing Helps Keep Farmland Deals Moving
Farmland markets, like most things in life, go through changes. And according to one land agent who works primarily in central Iowa, one of the biggest shifts he's seeing has less to do with land values and more to do with financing.
Jake Sickels with Peoples Company believes structuring farmland deals requires more creativity in today's market.
“Whether that is a financing component or getting a buyer to participate in purchasing a property, there can be a lot more logistics, creative thinking, and planning required to get deals done,” he said.
Sickels said this is something he's had to adapt to in recent years as he's watched the land market evolve.
“Three years ago, when the market was basically frictionless, buyers wanted to buy and sellers wanted to sell,” he said. “Now, people still want to participate, but they have to go through different processes to actually capitalize.”
How to Attract Buyers for Farmland
For Sickels, that can mean putting in more work to help buyers get in a position to participate in land sales.
“You are not only talking to buyers and encouraging them to participate. But the question now is, what can I do, what can we do to get you to participate?” he said.
That might mean helping a buyer sell another piece of land to free up cash or consulting with them and guiding them through the process of securing alternative financing.
“Looking at everything from top to bottom so that we can encourage as many buyers as possible and help people who assume they can't participate,” Sickels said.
What Financing Options Help Farmland Buyers?
Most recently, that has meant helping clients utilize financing through the USDA Farm Service Agency (FSA) for all or part of a potential farmland purchase.
Sickels said three transactions he's been involved in over the past few weeks have utilized FSA financing. While the process can require additional paperwork, he said the interest rate advantages can be significant.
Working with buyers who use a combination of FSA and traditional bank financing can require additional coordination.
“To get those deals done, you are working with two lenders under two different terms and working in tandem to get a deal to the finish line,” he said.
During periods of greater market uncertainty and change, Sickels said creativity, consultation, and coaching become increasingly important.
He continues to see clients use 1031 exchanges to defer capital gains taxes when selling investment property and purchasing replacement property. Staying up to date on tax code changes and new programs is another important part of helping clients navigate the market.
“There are new programs coming out all the time,” he added.
One example is a federal tax provision that allows qualifying retiring farmers to sell farmland to eligible beginning farmers and defer capital gains taxes over a four-year period.
Flexibility Benefits Farmland Sellers
Sickels believes buyers aren't the only ones who can benefit from a little creativity. Sellers who are willing to be flexible and consider different deal structures may attract more interest from potential buyers.
“Markets are evolving, and so are the ways in which we get a deal done,” he said. “Creative financing, flexibility on both sides, and thoughtful deal structure are helping keep the market moving.”
