Owning a farm or ranch can be a rewarding experience. Fresh air and rural living are extremely appealing. However, there are pitfalls awaiting the unsuspecting buyer. These can turn the rural living experience into a nightmare! This guide is designed to make buyers aware of potential problems before buying property.
How many animals will the property support?
Pitfall: Land buyers frequently overestimate the "carrying capacity" of the land.
Sellers often exaggerate the number of animals the land has historically supported.
Solution: Information about production potential of land within most counties is available at local Natural Resources Conservation Service (USDA) offices. With knowledge of soil type, precipitation, vegetation and forage condition, a professional can accurately predict production potential.
How much of my time will be required?
Pitfall: People often think that things will "take care of themselves." Cattle require significant care. People often buy small ranches only to discover that all of their free time is now devoted to management activities. Also, they fail to consider commuting time to and from the property, or time spent commuting to a job.
More than 20 hours of labor per week may be needed on small ranches. If you cannot provide the time and labor, you will have to hire someone. This will increase cost and diminish the potential for profits.
Solution: Plan ahead. Carefully consider the time required for care of animals and ranch maintenance (fences, water, etc.). Also consider how living in the country will affect your social life and that of your family.
Where will I buy livestock?
How much should I pay? Pitfalls: Buyers often either pay too much for livestock, buy poor quality livestock, or both. They frequently buy genetically inferior bulls and as a result produce an inferior product.
Solution: Research in advance. Develop a support network. Find people you can trust. Talk to trained professionals.
Will I realize tax savings from my agricultural endeavors?
Pitfalls: People often think significant tax savings accrue to agricultural production. Often, poor management decisions are made in an effort to save on taxes.
Solution: Review plans with an experienced agricultural tax practitioner before making purchases.
What and who will I need to know?
Pitfall: Buyers often grossly underestimate the technical difficulties of farming and ranching. People mistakenly think, "Anybody can do it." This is far from true. Ranchers need to know about growing forages (fertilization, grazing management), managing cattle (nutrition, health, genetics), marketing, and general business management (accounting, taxes). Furthermore, ranchers need reliable sources of information. Landowners often get advice from the wrong people. Many people offer assistance under the guise of selling something or taking advantage of the inexperienced person.
Solution: Carefully research before buying. Ranchers should educate themselves. Attend educational meetings (such as Cooperative Extension programs) before properties are purchased. Become acquainted with professionals who can help.
How much gross income can I expect?
Pitfall: Landowners frequently overestimate the value of annual production.
Cattle are an agricultural commodity. Prices fluctuate based on national or world-wide supply and demand. As a result, gross income varies greatly. Typically, a calf at weaning is worth $250 to $400. If you take into account breeding failure, calf mortality, and herd replacement, the owner will gross $190 to $340 per breeding cow annually.
Solution: Be conservative when projecting gross income potential. Contact professionals.
How much net income can be expected?
Pitfall: Net income is frequently overestimated.
If land prices are high, it is unlikely that potential for net profit exists. Typical annual gross income per cow is $190 to $340. Annual costs per cow are $300 to $400. Thus, little profit margin exists. Only the most efficient producers have a chance to realize profits each year. Small operators lack economies of scale and are often producing at a loss when all costs are assessed.
Where will I buy livestock? How much should I pay?
Pitfalls: Buyers often either pay too much for livestock, buy poor quality livestock, or both. They frequently buy genetically inferior bulls and as a result produce an inferior product.
Solution: Research in advance. Develop a support network. Find people you can trust. Talk to trained professionals.
Will I realize tax savings from my agricultural endeavors?
Pitfalls: People often think significant tax savings accrue to agricultural production. Often, poor management decisions are made in an effort to save on taxes.
What else (besides land and livestock) will I need to buy?
Pitfalls: Buyers often purchase either too much or the wrong type of equipment. They think it necessary to own a new pickup, trailer, tractor, ATV, etc. These vastly increase the cost of production and eliminate potential for profit. Owners also tend to overlook the cost of hired labor. (see example 1)
Example 1
Solution: Carefully consider every purchase. Make sure it is really needed. If it is, can it be rented or borrowed instead of bought? Be frugal.
How much will I spend per year?
Pitfall: Owners almost always underestimate costs. Bills are paid throughout the year, but sales usually occur only once or twice. (see example 2)
Example 2
The total cost per breeding female varies greatly. If there is no land debt and the producer is efficient, annual cost per breeding female may be as low as $200. However, it is much more likely for total cost per cow to be $300 to $400 annually.
Solution: Plan for the worst. Develop a realistic budget. Contact knowledgeable professionals.
Other items to consider when purchasing property:
- Access to property (such as crossing another person's property, quality of roads).
- Wetlands or archeological sites.
- Zoning and other land use restrictions (pesti- cide use, burning, etc.).
- Existing easements.
- Flood potential and drainage.
- Old dumpsites on or around property that may contain hazardous waste.
- Groundwater contamination.
- Population growth potential.
- Uncontrolled hunting and fishing.
- Low pH, high salt content, or low organic matter in soils.
Solution: Review plans with an experienced agricultural tax practitioner before making purchases.
Where to go for information:
- Oklahoma Cooperative Extension Service
- Texas Agricultural Extension Service
- Noble Research Institute
- Natural Resources Conservation Service (U.S. Department of Agriculture)
