What to know about buying a farm

Are you yearning for a wide open space to call your own, with chickens, horses, and a never-ending supply of fresh vegetables? Has a documentary like “The Biggest Little Farm” on Hulu drawn you into a visually stunning dream of agricultural life?

You might be great at growing tomatoes, but buying a working farm and keeping it solvent takes significant capital, long hours and deep knowledge of agricultural science. Here’s everything you need to know before cultivating farm ownership.

Why buy a farm?

Before buying a farm, you need to ask yourself what your goals are. If it’s just for investment, you may want to reconsider your plans. “Farms don’t generate much cash until they’re paid for. Even then, the return on investment is low compared to more traditional investments,” warns Brian Hawk, a senior lender with Bank Iowa, one of the leading independent Agricultural banks.

In fact, “there typically isn’t enough profit margin to allow for a manager,” adds Hawk. Other options like raw land you can lease out for grazing or timber may be a better alternative if you’d still like to invest in acreage.

If you’d like to buy a farm to live on, you’ll need to decide what size and type of property you’d like to have. Orchards and vineyards work best in certain areas of the country, while apiaries and dairy farms are best suited to others. Then there are hobby farms, which can be operated almost anywhere.

Different types of farms

Hobby farms: A hobby farm does not view making a profit as the primary goal. The main purpose of a hobby farm is enjoyment, and it usually actively costs the owner money to maintain. Hobby farms can produce fruit and vegetables, eggs, milk and meat for the families that own them but typically don’t turn a profit or employ workers.

Working farms: Working farms with a specific limited scope may be easier to pick up for a novice than a full commercial farm. Established orchards and vineyards will already have crops in place, and your only job will be to maintain them. They’ll typically have experienced staff that can show you the ropes slowly over time, and you’ll only have to learn how to manage one type of crop. Similarly, apiaries and dairy farms may be easier to start in, especially if you can learn the process from the existing staff.

Where to buy a farm

Before you start looking for a farm, you need to narrow down the “geography, terrain, and soil types you’ll need to consider,” says Garrett Ruple, owner of Ruple Properties, a rural properties brokerage based in San Antonio, Texas. Certain crops thrive in sandier soils, whereas others prefer heavier, more nutrient-dense soils.

“Certain native grasses produce the best grazing habitat and only occur in some regions. Average rainfall, water, and mineral rights are important factors when choosing a region to start a farm in,” adds Ruple. If you have no idea what you want to grow, contacting your state’s agricultural extension office and enrolling in some classes is a great place to start.

Once you’ve narrowed down a region, find a local rural real estate agent to guide you through the process. Working farms don’t come on the market as often as houses do. You may find yourself waiting years for the perfect property in the ideal area to go on the market in your price range.

A small hobby farm may be the perfect starter for a complete novice. A good hobby farm will have a “house in relatively good shape [on] around 5 to 10 acres,” a size that will allow a beginner “to have a couple of animals and not get way over their head,” says Al Wisnefske, managing partner with the Land & Legacy Group in West Bend, Wisconsin, which sells rural properties. Hobby farmers primarily will “be working a regular job, but then on the weekends and at night, they’ll be taking care of their smaller farm,” adds Wisnefske.

Questions to ask before buying a farm

Before buying a farm, there are several questions you should ask. Chief among them is how much time and money are you willing to sink into your farm and whether you will have income outside of the farm to support yourself and your family.

Once you’ve picked out a farm, you’ll need to find out the following information about the property:

• Acreage
• Water rights
• Irrigation systems
• Soil analysis
• Drainage systems
• Crop history
• Grazing history
• Pesticide usage
• Blight/disease history
• What equipment comes with the farm
• Age and condition of buildings

In addition, you’ll want to get a sense of the condition of the farmhouse, the way you’d commission a home inspection for any house you’re considering buying. If there’s none, you need to verify that the local zoning law allows a farmhouse to be built if you intend to live on the property.

If you’re purchasing a currently operating farm, you’ll want to have an accountant look at its financial statements for the past several years — the same way you’d evaluate the balance sheet of a business you might buy. You also need to ascertain the number of employees, both permanent and seasonal, the property requires to operate.

Purchasing and financing a farm

Farms typically have significantly larger purchase prices than most homes and are available from fewer lenders. The best option to finance a farm is through the USDA’s Farm Service Agency Farm Loan Programs. The USDA has numerous programs for beginners, women, minorities and Native American farmers and ranchers.

If you can’t qualify for one of the USDA programs, you’ll have to go through a private lender focused on agricultural enterprises. “Farms are complex businesses. Farm loans must be underwritten carefully with income and expense projections into the future,” says Hawk. If you’ve never worked in the agricultural sector, you may have difficulty proving your future earning potential and qualifying for a loan.

Once your deal is closed, you’ll want to have as much money in reserve as possible. Compared to owning a home, repair and maintenance costs for a farm are astronomical: According to data from the National Agricultural Statistics Service, the average per farm expenditures were $196,087 in 2021. And there’s a long list of incidents and accidents that aren’t always covered by regular homeowners insurance. You will certainly need to get a special farm owners insurance policy, a hybrid form of coverage meant to protect you both personally and commercially. Even so, that protection often has limitations, especially when it comes to crops and fences.