No, not that buy the farm. Should we buy a physical farm???
I know what you’re thinking:
To us, though, it’s not. See, my husband’s parents live on a farm that has been in the family for about 75 years. It’s not a working farm anymore, but for tax purposes, it qualifies as a farm. It is 80 acres of beautiful land, including a lake, recreational acreage, as well as tillable farmland. The Big Guy moved there when he was 13, so he has strong ties to it.
In a perfect world, I would love to have unlimited resources to clean up the farm and make it just beautiful land for my viewing pleasure. I would love to build a house overlooking the lake, maybe rent out the tillable land, and just enjoy owning 80 acres. I really have no desire for it to be a working farm. But, there are many things to consider:
What it’s worth
Right now, Zillow says the farm is worth $151,000. I realize you shouldn’t have too much confidence in Zillow estimates, but I find them interesting and we haven’t had a formal appraisal done yet. But, The Big Guy’s parents owe $165,00 on it right now (to family, but I’ll explain that in a minute).
Even knowing that, you have to realize that this farm is one of the last undeveloped pieces of land in the area. The school district is great, the areas around it are booming, and I really think that it’s worth more than what the Zillow estimate is and what my in-laws owe on it right now.
But with that being said, my father in law thinks that it’s worth half a million. That’s right, he thinks that Zillow is off by $345,000 and it’s worth $500,000. Feelings aside, I’m not willing to pay more than market value for the land. Sorry, but that’s just how it is!
It’s current state
The current state of the farm is also of concern both when we’re thinking about living there, what it would mean for our finances, as well as the current value.
It’s in shambles.
I’m being perfectly blunt here, and that’s tough to do with family, but it’s true. The house isn’t falling apart or anything – actually the house is beautiful – but it’s filled with junk. So is the property. And the barns too, which coincidentally, ARE falling apart. Everything there is very fixable with a few dumpsters, a burn pile, and some 2×4’s, but it would require some serious work.
And the state of the property definitely drags down the value.
The family mess
And then there’s this: my in-laws bought the farm from my husband’s great grandparents who are long gone now. All of the ownership paperwork is in their name, but they are still making payments (just like a 30-year mortgage) to the family members that inherited the farm (or the payments for it). However, I’m an not willing to get into loans with family.
Put mildly, my in-laws paid way too much for the farm. Besides family giving them a brutal interest rate, they’ve been paying on it for 18 years and still owe $165,000. Way, way, way too much money, not to mention the family tends to be nasty and rude about payments.
And I’m not getting into that
Assuming we can make it work, we will be going to a physical bank and getting a loan, not making payments to family.
What it would mean for our finances
Obviously, there’s the mortgage payment. There has been some talk of us just paying what the in-laws owe on the farm, $165,000, which would give us a mortgage payment of $787.74 (assuming 4% interest rate and no down payment). But, there is more to consider.
First, we would probably need a down payment of $33,000. That’s a lot, and maybe we could utilize a special program for first-time farm buyers, or even an FHA loan. However, with the FHA loan there is obviously PMI, and I’m not sure if there’s anything like PMI with a first-time farm buyer’s loan
On top of that, we have to consider taxes and insurance. Taxes most recently were $2,200 per year, or $183.33 per month. I actually have no idea what insurance would be, so I got a rough estimate from USAA (my insurance provider of choice) and they told me it would run us about $95.00 a month.
We can also count on some sort of income coming from the farm, either from renting out the tillable land, renting out pasture, or doing hay ourselves. I’ve included that in my calculations as well.
Based on our debt level (hopefully by then) current income level, rental income and some other things, this is what we’re looking at:
There are a couple of assumptions I have to point out here.
1) I will be making 75K per year. This is in the works now, but quite frankly if I’m not making that at my current job by then I will leave for a better one :-) I’ll have the experience and an accounting degree to land a job that pays that much.
2) I included $300 of blog income in this as well. This is a modest estimate seeing as I’m already making that, but who knows what could happen?
3) Rental Income is rough, but is based on my best estimate.
4) Farm income is also very rough, but I tried to estimate a very low number, knowing that it could only go up. This is from either renting pasture, farmland, or growing and selling hay.
5) Utilities and everything else are either our current number, or increased because I know they will be more :-)
Our savings will be $2,700 per month, put toward retirement, which will actually put us just over $650,000 by the time we turn 40, which was our goal. That would give us $26,000 per year to live on. If, however, we managed to save $2,900 per month, we would end up with $27,500 to live on, which is much more comfortable when you consider the additional $4,800 per year coming in from the rental :-)
So I guess I can make retiring by 40 happen while owning the farm, but the question is: Can we get the down payment together within the 2-3 year timeline?
…but I have dream
I would really like to build a home someday. I would also love to have a large piece of land to call my own. Problem is, I’m not sure I can both retire by 40 and make my dream happen.
So I have 3 options:
1. Reduce expenses enough to make both retiring by 40 and buying the farm happen
2. Increase my income enough to make both happen
3. Give up on of the goals
….And you know I don’t take “no” for an answer.
What do you think? Is sentiment a good reason to buy this farm? Could we make the down payment happen??
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