Empowering the Next Generation of Farmers: A Guide to Selling Your Farm with a Land Contract

Dec 28, 2023

In the world of agriculture, the transition from one generation of farmers to the next is important to many landowners and a priority. However, many aspiring young farmers face significant hurdles when trying to secure financing to purchase their first farm. Traditional bank loans often come with hefty down payments, stringent credit requirements, and a need for substantial net worth. As a seasoned farmer or landowner looking to pass on your farm’s legacy, there’s a way to support the next generation while also benefiting yourself financially – through a land contract. In this blog post, we’ll explore the advantages of selling your farm with a land contract and how it can create a win-win situation for both parties involved.

The Basics of a Land Contract:

A land contract, also known as a contract for deed or installment sale agreement, is an alternative financing option that allows the buyer (in this case, the aspiring young beginner farmer) to make payments directly to the seller over time. Unlike traditional bank loans, land contracts typically do not require a substantial down payment, making them more accessible for those with limited capital. We have had clients in the past that have used this option and have had great success and even saved money! To the right is a photo from clients I helped with this exact method. View their land contract and successful sale here.

    how to sell to young beginner farmer land sale contract

    Advantages for the Young or Beginner Farmer:

    1. Reduced Financial Barriers:
      • By offering a land contract, you eliminate the need for a significant upfront payment, making it easier for young or beginner farmers to enter the industry.
    2. Flexible Terms:
      • Land contracts allow for flexibility in setting payment terms and interest rates. This flexibility enables you to tailor the agreement to the buyer’s financial situation and the specific needs of your farm especially with interest rates on the rise.
    3. Opportunity for Equity Building:
      • As the buyer makes payments, they begin building equity in the property, fostering a sense of ownership and long-term commitment.

    Advantages for You the Seller:

    1. Tax Benefits:
      • Do you have a farm you would like to sell but worried about how much you might owe in capital gains tax? Selling your farm with a land contract may provide tax advantages. While you still receive payments over time, you may spread the capital gains tax liability over the duration of the contract.
    2. Steady Income:
      • The seller receives a steady stream of income through the installment payments, providing financial security during the transition period.
    3. Passing on Knowledge:
      • By working closely with the buyer, you have the opportunity to pass on your knowledge and experience about your farm, ensuring a smooth transition and preserving the farming legacy.

    Steps to Creating a Successful Land Contract:

    1. Consult with Professionals:
      • We recommend seeking advice from a tax or financial professional when it comes to discussing capital gains taxes and how selling with a contract could be beneficial to you. As real estate and auction professionals we can help you find the right buyer and give examples of farmland sales we have conducted in the past with land contracts. View example here. 
    2. Establish Clear Terms:
      • One of the main advantages of this approach is that you, as the seller, have control over the terms of the contract, and they automatically become the terms of the sale. From setting the interest rate to structuring payments and determining the timeframe for payments, you hold the reins. This flexibility can be a powerful tool in tailoring the sale to your specific needs and financial goals. We have helped several clients establish their terms and complete the sale. 
    3. Attract the Right Buyer:
      • While this method might not attract 1031 buyers, it presents a unique opportunity to give younger or beginner farmers a chance they might not have had otherwise. By offering seller financing and setting favorable terms, you’re not just selling farmland – you’re fostering the growth of the next generation of farmers. It’s a legacy move that transcends a mere property transaction. 
    4. Provide Support:
      • Offer as much guidance and support to the young  or beginner farmer as they navigate the challenges of starting their own operation.

    Conclusion:

    Selling your farm with a land contract is a powerful way to empower the next generation of farmers while securing your financial future. By reducing financial barriers, providing flexibility, and fostering a collaborative spirit, you contribute to the sustainability and growth of the agricultural community. As you embark on this journey, remember that passing on your legacy is not just about selling a piece of land; it’s about nurturing the future stewards of the land and ensuring a thriving agricultural legacy for generations to come.

     

    Tom Bradley

    Tom Bradley

    Land Broker and Auctioneer

    Meet Tom Bradley, a Partner, Agricultural Auctioneer, and Land Broker, who serves as the Lead Auctioneer at DreamDirt. With a CAI designation and a real estate broker license, Tom has orchestrated over 1,500 auctions throughout his career. Specializing in the marketing and sale of farm assets, including farmland, ranch land, hunting land, and farm machinery, Tom has established himself as a trusted expert across Iowa, Nebraska, Missouri, Kansas, South Dakota, North Dakota, Illinois, and Indiana.

    Beyond the auctioneer podium, Tom is deeply involved in outdoor pursuits, engaging in deer hunting, ice fishing, and an annual wild hog hunting trip to Arkansas with his family. His dedication extends to his role as a father, with his three kids actively participating in pig shows, 4-H, FFA, wrestling, football, and baseball activities.

    Tom proudly considers himself a farmer, managing a herd of purebred Mini Herefords, overseeing hog feeding operations, and contributing to hay production. As a Board Member of the Madison County Pork Producers and a member of various associations, including the National Auctioneers Association, American Hereford Association, Iowa Hereford Association, and Iowa Mini Hereford Association, Tom actively volunteers his time and talents at County Fair Livestock Auctions.

    With a passion for both agriculture and family, Tom Bradley is not just an auctioneer—he’s a dedicated farmer, outdoorsman, and community advocate. Contact Tom today at 515-202-7687 or email [email protected]

    Request a Free Valuation for Your Farm or Land Property

    Whether you’re ready to start the selling process, or even remotely curious, we will gladly provide you with a FREE Market Analysis! If you are in a position to sell land in the Midwest, we want to help you achieve the top of the market on your sale.

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