Did you know that the price of land has quadrupled in last 10 years, while the household income has the same?
Current low interest rates are only making the problem worse. With escalating land prices is it even possible to buy a piece of land to call your own?
Land access is the modern world’s single biggest challenge for the new generation of farmers. This obstacle is, I believe, a fundamental barrier to the success of the next farming generation.
I can understand that you would like to become an independent, self-employed and profitable farmer but the land is so expensive, making your venture so much harder.
Unless you inherited or somehow been given a piece of land, the biggest question of them all is how to get that desired land and use it as leverage to live the life you deserve.
I won’t claim I have all the answers; it all depends on your personal circumstances. I’ll just outline the possible solutions and how to go about them.
Here are your options:
- Buying with mortgage
- Going down the mortgage free route
- Leasing the land
- Cooperative finance option
Sounds boring I know, but it’s crucial to have an understanding of these things if you want to farm. Let’s take a closer look.
Buying a farm with a loan
This is what Mark Shepard recommends. When he was asked about how a young person could gain land access, he answered: “This can be done anywhere in the country in less than one year. The systems are in place. Anyone who doesn’t believe so is either unaware of the systems in place or is unwilling to ‘play the game’ as it is currently rigged. If people really want land and really want to get into agriculture especially Permaculture designed agriculture, financing is available. It is how the current economic system works.”
Doing it the Mark Shepard way involves getting into debt. Although people will say that farming and debt simply don’t mix, Mark has proved that it can be done even with a burden of debt. I am sure there are a number of people now reading who will want to try a venture like this, but to do this you will need to build your credit rating, learn how to ‘exercise’ your credit, then borrow the money and buy a farm. It’s going to be impossible if you have a bad credit rating and no savings. Then the loans are almost impossible to obtain.
So, first you have to prove to the bank that you are worthy of being loaned money by paying your existing debt, building your credit rating slowly over time and piling up savings for a bigger down payment to secure a better deal on a loan. It seems that the problem is not whether you can borrow money, the real problem kicks in once you start your farming business and, on top of that, you have the burden of repayment. This makes everything much harder and there is not much room for mistakes. The startup phase is critical.
If you do decide to go down the loan route there are certain measures you can take to help your farm survive and thrive.
Reduce start up and operational costs
Look no further than the example of Jean-Martin Fortier the market gardener. He got a loan with a 10% interest rate but still managed to pull it off because of low startup costs. Keeping capital and operational costs down reduces financial pressure. Excessive costs can kill any business quickly – the smaller the costs, the greater the ability to withstand the additional financial burden of the mortgage.
Get additional funding
For certain of projects there will be government grants available. These grants can bring you additional capital for your business operation. The best example of getting the government funding is Grant Schutz from Versaland, he managed to get about $200000 for his setting up his agroforestry operation. However to get any of the grants in the first place you’ll need a good business plan, one that clearly shows how you plan to spend the money. Here is an example of a business plan that Jean-Martin Fortier used to secure government funding.
Focus on investing in income generating assets
If you are investing into a farm, the trick is to choose assets with the highest return on investment. Meaning, you always want to invest into something that can get you 10 times more value than the money invested. A real life example would be building a small cabin or granny flat and then renting it. Eventually that investment pays for itself and starts providing income that you reinvest into the farm.
Pay off your mortgage aggressively
If you want to buy your freedom then you need to pay off your mortgage aggressively. Here is why: with a $50,000 loan and 10% interest rate, the total amount paid back in 30 years is $157,964.40, in 25 years, it’s $136,308, and, in 20 years, it’s $115,804.80. Remember that the loan was only for $50,000 in the first place. This is why making the largest payments you can afford and prepaying principal are the best strategies you can employ if, indeed, a loan is absolutely necessary.
I wrote an extensive blog post on starting out on a profitable permaculture farm venture, check it out for more tips.
Going down the mortgage free route
Housing costs, whether by way of rent or mortgage, are the single largest after-tax expenditure for most people. When utilities and maintenance are added in, shelter cost is often around 50% of income for “home owners”. If you are repaying a mortgage the reality is that over 30 years you’ll pay almost three times the original loan.
So the question is how to get mortgage free and avoid paying so much interest?
Mortgage freedom can come in three different ways. First, you can slog through the 20 or 30 years of the death pledge (from the Old French mort gage, literally “death pledge”), tied to your salary and your monthly payments, until the long-awaited day of the mortgage-burning party.
Second, you can live frugally until you can afford to buy a home without a mortgage. While difficult, this is not impossible, and it will require the adoption of a conserver lifestyle (as opposed to consumer).
Or, third, you can become owner builder and build your own house. The advantages of doing this are huge; owner-built homes are often constructed on a pay-as-you-go basis. There is also a substantial saving due to the elimination of labor costs and proportional amount of bank interest.
In his book Mortgage Free Rob Roy lays out the steps he feels will get anyone mortgage free:
1. Accumulate significant savings
You can boost your ability to build savings by keeping your day job, putting money aside, reducing expenditure and letting go of a consumer lifestyle. Saving money is a big task and this phase will be different for everyone because what some people find a necessity, others can do without. For a better understanding of how you could save a large portion of your income read “Early Retirement Extreme”.
2. Find land
The cost of the land may be the single greatest expense you’ll incur in your mortgage-free home. It’s important to have a list of priorities, a well-planned budget, and know how much work you are willing to do to “reclaim” marginal land. Rob recommends obtaining the land at the earliest possible date. It’s the best hedge against escalating real estate prices and land values rise at least as fast as inflation.
3. Build a temporary shelter
This involves building a small, low-cost structure on the land and living there while you build your permanent house. Later on this structure can be converted for an alternative use like a shed, smoke house etc. When this has been constructed, you can move to the land and get to know it, even if you’re not yet actually living there. Temporary shelters are not limited to built structures. You can live for several months in tents, tepees, vans, yurts, and small house trailers while building your permanent dwelling.
4. Build your low cost home
The key is to build what you can afford without debt and expand as your needs and budget allow. You need some DIY knowledge to conserve costs. The Add-on House Strategy is one of the most popular and successful strategies open to you – to build a small, affordable core and then to build affordable additions as required. If you took PDC you know how house design is important, so you are better off building it yourself and making it fit your lifestyle and your needs.
In summary, his strategy is to save the money for the land (or at least a substantial down payment), to move onto the land and build a temporary shelter, and then to build the permanent house on a pay-as-you-go basis. Rob claims that the total cycle from starting with zero savings to owning your own land and home can range from three to six years, depending on your personal situation and goals.
Buying land is not always the best option. A lease, either short or long-term can give you access to land without the cost and potential liability involved in actually owning it. Having access to land and being able to draw profit from that land does not necessarily imply land ownership.
Land is tremendously over-priced. As long as people keep paying for over-priced land it will continue to stay that way. Meanwhile, renting land is under-priced because all these land owners need to pay interest and taxes and can’t afford to leave the land unused.
In the early stages it’s probably better if you are not the landowner. You will have enough to learn without also having to think about making the mortgage payments. If you start with this insight, you won’t waste valuable time and get headaches over the fact that you don’t own land.
Let’s look at the models that don’t require land ownership:
Joel Salatin portable farm model
Joel’s model of farming is portable and can be replicated anywhere on rented land. Even Joel rents and makes good money doing it. These portable systems (portable electric fencing, chicken tractors, hoop structures…) are low cost, low capital infrastructure.
Here the real value lies in the knowledge you have and that is something that you can take onto any land you may go to.
The “portable farming model” is a good way to get started without taking on debt when a young farming enterprise is at its most fragile.
Greg Judy ‘no risk ranching’ model
After being forced to liquidate his herd to pay off debts, grazier Greg Judy tried a different approach — custom grazing on leased land.
In the US at least, many land owners get a tax concession for agricultural production, so they lease land cheaply to someone to create a product thus reducing their taxes significantly. This is exactly what Greg is doing, and, by leasing land and cattle, he went from 40 stockers to over 1100 head and was able to pay off his farm and home loans within three years. Today he has 12 farms totaling more than 1560 acres.
In his book No Risk Ranching: Custom Grazing on Leased Land, he describes how he used leased land to graze other people’s cattle. The book also has examples of the numbers and lease contracts. Based on his personal experience, Greg Judy shows how to make a living from the land without owning it. He describes his successes as well as his mistakes to in order to help others on the road to profit.
High intensity market garden model
Market gardening involves growing high yielding vegetable crops for restaurants, farmer markets and CSA. The best examples are Jean Martin-Fourtier (that I already wrote about) and Curtis Stone’s SPIN gardening model.
In both models you can grow on rented land. Startup costs for such a venture can be very low, and there is no debt or land capitalization needed.
It can be a great way to get business cash flow and you don’t have to leave your day to start farming.
Co-operative financing option
Most people want to go it alone because a loan allows them to do so. However, this leads to a ‘lone ranger in rural area’ type of situation with isolated pockets of permaculture farms nestling amongst conventional farms with huge fields of monoculture crops.
David Holmgren and Bill Mollison realized that an integrated farm needs a lot of people specializing in different areas, because one person or family can’t do all that alone. The integrated farm can be achieved by forming intentional communities. This is where the biggest potential for permaculture lies. Because of their cooperative structure, they are the key to implementing permaculture on larger scale and the most strategic way of gaining access to land.
For example let’s look at the Atamai ecovillage development, which could be a model for forming intentional communities with alternative land access methods.
Atamai Village is designed to provide an enduring community for at least 200 people. They have been going 8 years now; have about 20 families in residence, with 9 houses built and lived in, and quite a number of budding enterprises. Villagers live in privately owned homes, and enjoy the benefits of a large common area jointly managed to enhance physical and social resilience.
The Atamai model involves both freehold titles (at market rates) and shared commons. The common lands are paid for by what would otherwise be the “developer’s profit” – instead of going into a developer’s pocket, any profit from the development goes to the community.
To gain access to land at Atamai, there are several options available:
This is the usual option involving either taking on a mortgage or going the mortgage-free route if you have the cash. The blocks are around $200,000 and buying one can be out of reach for too many people, but that is the reality of market driven prices in NZ. This option is also available as a cooperative buy-in into a freehold title. This allows two families to purchase a title together, and then share the space however they decide.
A genuine village needs social and financial diversity, and for that there needs to be people with enough money to buy titles and help make things happen. One of the things they anticipate is that many families that purchase a title will also build a minor unit or granny flat, which can then be made available to other villagers on a long-term lease. I saw this situation happening while visiting Fryers Forest eco-village founded by David Holmgren.
Cohousing around the world takes many forms, but most consist of small individual dwellings clustered around a common house. Each dwelling is complete except for those amenities that can be shared, such as laundry and storage facilities, office space and workshops, which are usually accommodated in the common house along with a large kitchen and dining room.
In a shared arrangement such as this, costs are greatly reduced, but home ownership is still not necessarily affordable for everyone. To make cohousing truly affordable, they are establishing a cooperative home ownership programme (CoHOP) to build the homes, and residents will be able to buy shares in their home to the extent that they can afford.
These opportunities could bring you better terms when seeking land access in an intentional communities like Atamai. Within the Atamai village several jobs have been created, and they need people willing to take over several roles. The person taking over the role would have some support – this could range from financial support, to free lease of land for a period, to commitments to purchase, etc. Currently, they have a farm operation and need someone to take over the veggie production and distribution. If there is someone out there eager to take on such a project to provide a livelihood for themselves, and get some support to make it happen, contact Jack on firstname.lastname@example.org
No single option will work for everyone, in every situation. Individual situations and local prices will be different depending on whether you live in Europe , the USA or Australia. It also depends on whether you are 20 or 40, your level of risk tolerance and if you’re willing to endure some short term ‘pain’ for long term gain.
If you have no experience and want to try farming, then leasing land enables you to start low financial risk farming operations, where you can learn without the dread of mortgage and gives the opportunity to gain knowledge for your future farm.
If you really want ownership of the land it seems that the best thing to do is to avoid getting into the debt. That means saving enough so you can buy the land debt free. If you really want to own land and make it work, go down mortgage-free route. In some cases, it may very well be that it takes over a decade to buy land debt-free and not everybody can be so self-disciplined and committed.
Intentional communities are the icing on the cake when it comes to gaining access to a land and a community of like-minded people. The only problem I can see is the sheer complexity of the relationships between so many people. This is why people usually opt out for ‘lone ranger in a rural area’ mentality.
If you’ve truly exhausted all those other options then maybe it’s time to bite the bullet and get a loan. But be realistic about the level of debt you can handle. Debt is not necessarily a bad thing, but it does tie your hands while you have it. And it’s even worse if you are overly optimistic about the level you can manage.
So what is your current situation? Do you have a mortgage or community?
Let me know in the comments!