Win The Powerball? Be Smart, Buy Farmland.

Jan 12, 2016 | Farmland Prices, Land Auctions

Jason Smith

Jason Smith

Auctioneer, Land Broker, Appraiser

Jason is a farm real esate processional in Iowa licensed as a broker and auctioneer.  The Iowa Farmland Prices Report is an aggregation of farmland sales across the entire state of Iowa.  DreamDirt has offices in Mason City, Des Moines, Onawa and Storm Lake.

Email: | Phone: (515) 537-6633

Land is a Fantastic Investment

We are smack in the middle of Powerball Lotto Mania in the US right now and I’ve been following the conversation on Facebook as the Powerball jackpot breaks $1 Billion dollars for the first time in history.  In social media many are sharing photos of their tickets offering to split the proceeds with anybody that likes, shares or comments on their ticket photo as a sign of their unyielding generosity.  Perhaps it makes people feel as if having good intentions might find them good favor with the Lottery Gods and increase their odds?  There is probably a better way to affect more people while building on your wealth than just giving it away.

Its hard not to wonder how it would change your life and how you could do an awful lot of good with a prize that would make you wealthier than most people in the world and wealthier than most wealthy people.  If you were the lucky winner of the Powerball Lotto what exactly would you do with that much money?  Would you take the lump sum, would you take the annuity?  The annuity of course is sort of a forced savings account that allows you to collect your jackpot over the course of time which allows a larger sum because you are collecting the interest.  I’ve read a lot of advice that say “take the annuity, not the lump sum”  Is that a good idea?

Nobody but you can answer what’s best for you and only time can tell if you were right but having put my own thoughts into it, I can say I would take the lump sum payment and invest it in agriculture where I am likely to make a larger return than if I took the longer term payout with the annuity.  With a major investment in tillable farmland and pasture lands over a diverse geographic area would generate additional expenses for ownership but it would also create an annual income as well as tax advantage you can not get from other investments and much like the annuity option I skipped, this is a forced savings account in the sense farmland can be converted back to cash quickly in 30-90 days if capital is needed or the asset does not perform. Rolling the annual income back into farmland and agricultural assets would help you continue to build a larger portfolio of farm assets that would continue to grow.  Not taking the lump sum would limit the ability to grow and take advantage of farmland at today’s prices, and I know some will scoff at that idea because they feel today’s land prices are high.  They are higher than they have ever been, but where will they be in 20 years, 30 years when you collect your final payments?  They will be much higher than they are today.  I often hear stories about people that turned down opportunities to purchase farms for $500 an acre 30 years ago and today those farms are selling for $6000 an acre.  Buying farmland is best done sooner than later.  While it may reduce in value small amounts for consecutive years, its still more economical to purchase now and hold it long term.  Thats how farmland ownership works.

How much farmland could you purchase?  Well, first you would not want to spend all of your money on farmland and then wonder whats next.  Are you going to farm?  Be a landlord?  Share crop?  Hire a custom farmer?  Being a landlord only allows you to buy more land investments and hold back less for ownership and operational costs but who doesn’t at least want to farm some?  For me thats what it would be, a small manageable farm close to me where I can operate myself and the rest I would be strictly a landlord.  With average farmland prices in Iowa averaging near $8000 per acre just buying $500,000,000 worth of farmland would put you around 62,500 acres in Iowa.  Diversifying that over a larger geographic area and including other Midwestern or Plains states would likely send that acreage figure over 100,000 acres.  If you rented every one of those acres for $250 per acre you would realize a gross income just from cash rents of $25,000,000 per year.

So if you go out and gobble up farmland with your winnings are you hurting farmers?  Can you have that much money and still be a generous person and help people?  I absolutely believe you can and I absolutely know farm operations that would welcome the opportunity to save their money and rent from a landlord versus having to put the capital forward to purchase the farm.  This allows them to concentrate their capital in places where it can benefit them more including many of the new technologies available to agriculture today.  Many farms today use an investor as a part of their operation just for this reason, it allows them to farm more.  Imagine the number of farmers and ranchers you could touch?  Many of them have hired hands with families that depend on the farms profitability to continue to be employed.  On top of those points agriculture is pretty serious business and feeding a world population over 7 Billion people is a pretty noble investment if you ask me.

With the drawing 24 hours off I wish you all the best of luck and in the famous words of Mark Twain “Buy land, they’re not making it anymore”  Whether you win the Lotto or not, remember us at DreamDirt when its time for you to buy a farm!

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Jason is an Auctioneer and Land Broker and the founder of DreamDirt, He is a lead farm real estate professional in the Midwest and nearly 2 decades of experience assisting family farms in the successful sale of farmland.  Email: | Phone: (515)...

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