Property value increases can have a dramatic affect on property taxes after title transfers too, especially in development heavy areas. Here's how I think the math would look for a person purchasing a small farm near me.
Buying a $1,000,000 farm with a mortgage at current rates in my township today would translate to paying approximately $3,000,000 in total principle, interest, and property taxes over the first 30 years of ownership. That's assuming taxable value is 1/2 purchase price and mortgage is in 6% range. The purchased property would basically have to generate $100,000 a year in free cash flow on average just to satisfy the bank and local government.
After those two monsters are fed, farming the place will also add the IRS, State income tax, utility providers, and insurance companies to the line of entities waiting for payments. Plus there will be ongoing needs for seed, feed, equipment, fuel, vehicles, maintenance and repairs of equipment and buildings. Plus some funding for food, clothes, and recreation for the family would be nice too.
In my county a $1,000,000 could get an 80 acre farm at best right now. So mathematically, each acre would probably need to yield around $3000 in annual gross revenue to cover anticipated farming costs and to pay for itself within 30 years.
Corn is the predominant crop nearby and it's currently around $4.20/bu. Making 200/acre (- drying and trucking costs) would gross around $800 per acre. Planting 70 acres in corn would =$56,000 annually if a 200 average can be attained. Soybeans may be closer to $900/acre for $63,000 annually with 70 acres at the current price. 70 acres of wheat might gross $35,000.
Livestock and the necessary infrastructure can be expensive to start and take a couple years to generate revenue. Poultry or egg production may be an option, but in my case a use permit is required and the township supervisor lives down wind. Things like that can slow the process way down.
Uh Oh! None of the normal farm activities would seem to cover the mortgage payments alone.
Owning the 80 acres without farming looks even worse in my township. They are a charter township now with a master plan that promotes development and suburban lifestyle living. Taxes are on a steady rise and would be hitting the new owner of this fictitious place for upwards of $20,000 by the 3rd year of ownership, with no revenue coming in to offset taxes. The one thing that could help with property taxes is another real estate crash. In a crash the owner would be upside down on a farm that couldn't be refinanced because the LTV ratio would no longer conform. But the upside would be a valid position to argue for lower taxes.
So, that's a revisit of the math behind why I never bought a farm. The first time I did a similar exercise was the end of the 80's when interest rates were higher, commodity prices were low, I was broke, and we were waiting for the trickle-down and peace in the middle east.
