BORROW TO BUY FARM AS INVESTMENT

Knightlegend

I AM LOOKING TO BUY A 95 ACRE DAIRY FARM IN MY AREA. THE OWNER IS RETIRING
I WILL BE HIRING A FARM MANAGER TO RUN THE ENTERPRISE AS I HAVE A FULL TIME JOB
MY PARTNER WILL USE 15/20 ACRES TO RUN HIS EQUINE ENTERPRISE
I PLAN TO BORROW THE FUNDS TO COMPLETE THE PURCHASE AT C1.5 MILLION
HOW REASONABLE IS IT TO EXPECT THE DAIRY INCOME TO FUND THE LOAN REPAYMENTS
I HAVE BACK UP OF OFF FARM INCOME TO COVER ANY REPAYMENTS IF EVER NEEDED
HOW MUCH OF A DEMAND IS THERE AMONGST A YOUNGER PERSON TO TAKE UP SUCH A ROLE AND RUN A PROFITABLE ENTERPRISE?
WHAT TERMS AND CONDITIONS WOULD IT TAKE TO MAKE A ROLE ATTRACTIVE TO A YOUNG FARMER
I WOULD BE INTERESTED IN HEARING THE THOUGHTS OF PEOPLE WHO HAVE EXPERIENCE IN THIS AND AS TO WHETHER OR NOT IT WOULD BE FEASIBLE

yosemitesam1

Sounds like a disaster in the making. Dont do it...

Waffletraktor

Land won’t buy and pay for its self, you need Previously earned money or subsidise from An existing farm business I would think. Would a dairy farm leave much after paying a manager at that scale never mind huge repayments.

Car99

1.5M repaid over 30 years about €84k per year to service the loan.
Then you have to buy a herd and pay a manager €€€€ .
If you can keep 70 cows on your 70 acres you still wont be able to service the land loan not to mind paying the manager.

Charolois 19

Car99 wrote: »

1.5M repaid over 30 years about €84k per year to service the loan.
Then you have to buy a herd and pay a manager €€€€ .
If you can keep 70 cows on your 70 acres you still wont be able to service the land loan not to mind paying the manager.

Not to mention mantinance and upkeep, upgrading facilities and machinery, insurance, misalainious expenses, accountants, contractors ect and seeing dairys putting schemes in place to cut production at peak time's, and talk of a glut to the market coming of dairy x calves which could have huge implications on the price regardless of what there making today

Donald Trump

Car99 wrote: »

1.5M repaid over 30 years about €84k per year to service the loan.
Then you have to buy a herd and pay a manager €€€€ .
If you can keep 70 cows on your 70 acres you still wont be able to service the land loan not to mind paying the manager.

Where are you getting the rates from? Are they residential house rates?

I asked for indicative quote for land loans a few months back and the best I was told was around 5.5% for a secured loan. And that was on a hypothetical of about 25% LTV

5.5% would be 82.5k interest per year on a loan of 1.5m. Not that they'd get a loan of 1.5m.

OP, don't forget your 112,500 up front for stamp duty as well. That is out of your pocket.


Plus a dairy farm is 7 days work. You're probably talking 1.5 normal "units" of labour if you are used to a 9-5 job.

Knightlegend

LOAN REPAYMENTS ON 1,200,000:8000 PER MONTH/ 96000 PER YEAR OVER 15 YEARS
80 COWS AT 1000 PROFIT PER COW PER ANNUM LEAVES A SHORTFALL 16000 EURO PER ANNUM
FIGURES FROM TEAGASC WEBSITE

Donald Trump

Knightlegend wrote: »

LOAN REPAYMENTS :10000 PER MONTH/ 120000 PER YEAR OVER 15 YEARS
90 COWS AT 1000 PROFIT PER COW PER ANNUM LEAVES A SHORTFALL 30000 EURO PER ANNUM WHICH CAN BE COVERED BY PARTNERS EQUINE ENTERPRISES

Sorry to have to be that person. But there is a key there called "Caps Lock". Will you give it an oul' press

Mooooo

Knightlegend wrote: »

LOAN REPAYMENTS ON 1,200,000:8000 PER MONTH/ 96000 PER YEAR OVER 15 YEARS
80 COWS AT 1000 PROFIT PER COW PER ANNUM LEAVES A SHORTFALL 16000 EURO PER ANNUM
FIGURES FROM TEAGASC WEBSITE

Paying someone fulltime wouldnt be in teagascs figures. Fluctuations in milk price could have "profit" down 400 a cow as well... tbh if you were serious about such a proposal you'd have the figures done and know yourself...

Donald Trump

Knightlegend wrote: »

LOAN REPAYMENTS ON 1,200,000:8000 PER MONTH/ 96000 PER YEAR OVER 15 YEARS
80 COWS AT 1000 PROFIT PER COW PER ANNUM LEAVES A SHORTFALL 16000 EURO PER ANNUM
FIGURES FROM TEAGASC WEBSITE

At some stage over that 15 years the manager might want a few bob.


There have been years, or parts of years, within the last decade when milk prices were such that money received for milk was not covering the cost of production.



If you need a loan of 1.2m then you must be putting say 600k in up front yourself? There or thereabouts? Unless your 1.5m includes all assets and the herd? You could probably buy two houses with that and just pay tax out of the income.



You are also using a rate of 2.5%. That is not realistic. That's a residential owner-occupier mortgage rate. Not unless you have a house worth that that is paid for and you are going to remortgage it rather than the land. But then the bank will have a lien on your house.

lalababa

I personally wouldn't due to poor return on investment/risk.
I'd buy a place for the horses on it's own instead.

Donald Trump

Why do you want to buy it OP?
Is it family land? Do you have some already and are expanding?
Do you have any experience of farming at all? I'm not picking at you. You probably wouldn't jump into a 1.5m investment in a pub for example if you have never worked in one or ran one. Even though that might wash it's own face as an investment.

Knightlegend

Mooooo wrote: »

Paying someone fulltime wouldnt be in teagascs figures. Fluctuations in milk price could have "profit" down 400 a cow as well... tbh if you were serious about such a proposal you'd have the figures done and know yourself...

Thank you Moooo. I have the figures done. That is not to say I would still like to discuss what people think is and what isn't possible. I am open minded in relation to this and I have calculated what I can afford to cover in terms of repayments etc. I will not be basing my decision on a boards forum but I think people can still discuss the pros and cons involved in this.

Donald Trump

Knightlegend wrote: »

Thank you Moooo. I have the figures done. That is not to say I would still like to discuss what people think is and what isn't possible. I am open minded in relation to this and I have calculated what I can afford to cover in terms of repayments etc. I will not be basing my decision on a boards forum but I think people can still discuss the pros and cons involved in this.

Do you know how milk prices work? I'm not being smart.


The simplistic way it works, say for milk produced in January 2021, is that you invest in your cows, rear them, grow the feed during Spring/Summer 2020, feed them and milk them in January. Then a man comes with a tanker every 2 days and takes the milk away.

Then around the middle of February 2021, the processor decides what they are going to pay you for the milk you already sent to them in January.

Knightlegend

Donald Trump wrote: »

Do you know how milk prices work? I'm not being smart.


The simplistic way it works, say for milk produced in January 2021, is that you invest in your cows, rear them, grow the feed during Spring/Summer 2020, feed them and milk them in January. Then a man comes with a tanker every 2 days and takes the milk away.

Then around the middle of February 2021, the processor decides what they are going to pay you for the milk you already sent to them in January.

I understand this. Like most businesses payment is never immediate

Mooooo

Knightlegend wrote: »

Thank you Moooo. I have the figures done. That is not to say I would still like to discuss what people think is and what isn't possible. I am open minded in relation to this and I have calculated what I can afford to cover in terms of repayments etc. I will not be basing my decision on a boards forum but I think people can still discuss the pros and cons involved in this.

Fair enough, apologies didn't mean to be so dismissive. As said by waffletractor above, when buying land it doesn't pay for itself, itnis generally another existing block along with the new block that covers the repayments or an off farm income. In order to get finance you will have to get a realistic business plan up along with most likely a 30% deposit if no other security. After that then their would be facilities stock etc.
Someone managing a farm fulltime would prob be looking at 40 to 50k minimum with farm relief plus contractors for machinery work extra on top of it. To retain someone could be more or some other way of keeping them, share milking arrangements etc but at that scale it may be too small to be viable.
Perhaps finging someone with cows but no land may work but there would have to be a profit sharing arrangement there. Again scale will be the issue with fulltime wages and that level of repayments

Donald Trump

Knightlegend wrote: »

I understand this. Like most businesses payment is never immediate

The difference is that you have no control over the price. And that your production cannot really be switched on and off. You can't decide that the price isn't going to be high enough this week and so you can turn off the production lines until the following week.

Dairy has been doing well over the last while. But as a producer, you are just a taker.

Here is an example. In March 2021, these processors announced what they were going to pay people for milk already supplied in February.
https://www.independent.ie/business/farming/dairy/milk-prices/glanbia-and-lakeland-announce-milk-price-rises-40184934.html

Knightlegend

Donald Trump wrote: »

Why do you want to buy it OP?
Is it family land? Do you have some already and are expanding?
Do you have any experience of farming at all? I'm not picking at you. You probably wouldn't jump into a 1.5m investment in a pub for example if you have never worked in one or ran one. Even though that might wash it's own face as an investment.

The reasons are varied. I dont have one definite reason for this. I think my reasons are reasons that many people can relate to in different ways and it is not based solely on finances

It was previously family land so in someways a part emotional reason

I am from a farming background, but not dairy. My partner is involved in running a family dairy farm and I do work there on occasion so we both understand the in and outs.

I am not looking for this to make profit but if it can pay its way in some way by employing a full time manager to do alot of the grunt work that I do not have the time to do then it is a bonus.

Our main interest in horse breeding so looking for space to expand this enterprise.

Would see myself having more input/ use for the larger part of land in 10- 15 years when other commitments are not taking up as much time

Probably the worst idea I have ever read on the Internet.
Your giving yourself a life sentence for what?
Dairy is in a bubble at the moment and there's going to be a bang somewhere along the line.

Mooooo

Donald Trump wrote: »

The difference is that you have no control over the price. And that your production cannot really be switched on and off. You can't decide that the price isn't going to be high enough this week and so you can turn off the production lines until the following


Dairy has been doing well over the last while. But as a producer, you are just a taker.

2016 base price was 22/23 cent. They are the years you have to survive. 3 things always have to be paid on time, employees, tax and the bank. Cant save much on those

Knightlegend

Donald Trump wrote: »

At some stage over that 15 years the manager might want a few bob.


There have been years, or parts of years, within the last decade when milk prices were such that money received for milk was not covering the cost of production.



If you need a loan of 1.2m then you must be putting say 600k in up front yourself? There or thereabouts? Unless your 1.5m includes all assets and the herd? You could probably buy two houses with that and just pay tax out of the income.



You are also using a rate of 2.5%. That is not realistic. That's a residential owner-occupier mortgage rate. Not unless you have a house worth that that is paid for and you are going to remortgage it rather than the land. But then the bank will have a lien on your house.

1.5 to include all assets ; house, modern parlour and herd

Rate is 2.6 percent from KBC.

Of course you could buy two houses and become a landlord. It is not something that interests me at this time. As I say this is not completely a financial decision.

I enjoy farming as a past-time and change of scene from my day to day job.

I can see how unattractive it is for somebody to work 7 days a week , 52 weeks a year with all the stress that goes with finances, revenue etc.

NSAman

If it something you want then imho, go for it.

However, be absolutely sure you can afford it. Without the extra income from the horse expansion and the farm income, is it viable?

Leaving aside the family and sentimental attachments, what if it goes belly-up? What are you risking? Obviously the land etc. can be sold, how long would it take and how would you fund the sale period?

Personally, have only let emotion come into a purchase once and that was absolutely making sure I could afford it without the business element coming in. It worked out thankfully!

With large risk comes large rewards, but also large losses. Be practical in all of this, you obviously have other assets at stake should you decide to do this.

cosatron

Knightlegend wrote: »

1.5 to include all assets ; house, modern parlour and herd

Rate is 2.6 percent from KBC.

Of course you could buy two houses and become a landlord. It is not something that interests me at this time. As I say this is not completely a financial decision.

I enjoy farming as a past-time and change of scene from my day to day job.

I can see how unattractive it is for somebody to work 7 days a week , 52 weeks a year with all the stress that goes with finances, revenue etc.

Why dont you increase your land holding and number of breeding mares and see how you go. As a diary farmer, I wouldn't recommend anyone to go into it, margins are tight, foodstuff and fertiliser are getting dearer every year, nitrates is a disaster and co-op just dont want anymore milk but wont admit it and will bring back a type of back door quota to stem the flow.

Donald Trump

Knightlegend wrote: »

1.5 to include all assets ; house, modern parlour and herd

Rate is 2.6 percent from KBC.

Of course you could buy two houses and become a landlord. It is not something that interests me at this time. As I say this is not completely a financial decision.

I enjoy farming as a past-time and change of scene from my day to day job.

I can see how unattractive it is for somebody to work 7 days a week , 52 weeks a year with all the stress that goes with finances, revenue etc.

I'm interested to know whether they quoted you that rate based on all information or whether you just looked it up on their website.


Because I was quoted around 5.5% and I didn't see anything for farmland loans from KBC. I'd be genuinely interested to know. If I could get 2.6% I might go back and have another look at the bit I was looking at before if it is available! I would have been looking for less than 25% of the purchase price but 5.5% for that wasn't making economic sense to me at the asking price.


Edit: Just to clarify, I wasn't quoted from KBC. I think I contacted UB and BofI. Maybe AIB but I can't remember for sure. There wasn't really any difference between them tbh. It was only a tentative inquiry at the time anyway

SuperTortoise

Donald Trump wrote: »

I'm interested to know whether they quoted you that rate based on all information or whether you just looked it up on their website.


Because I was quoted around 5.5% and I didn't see anything for farmland loans from KBC. I'd be genuinely interested to know. If I could get 2.6% I might go back and have another look at the bit I was looking at before if it is available! I would have been looking for less than 25% of the purchase price but 5.5% for that wasn't making economic sense to me at the asking price.


Edit: Just to clarify, I wasn't quoted from KBC. I think I contacted UB and BofI. Maybe AIB but I can't remember for sure. There wasn't really any difference between them tbh. It was only a tentative inquiry at the time anyway

If you were only borrowing 25% the difference in cost of the loan would'nt be huge, unless the land was massively overprised in the first place would it be worth a risk with an asset that is unlikely to devalue in the short/medium term?

SuperTortoise

As for the OP, i would say it would be very unlikely it will make a return on investment, any return would only be realised decades from now, and that's IF a lot of things go in your favour.

K.G.

This is a complete non runner.i have acess to the accounts for a similar size operation being run totally with hired labour and the profits over the last few years have varied between a profit of 10 k and a loss of maybe 5k.and the management is fairly good

Knightlegend

SuperTortoise wrote: »

As for the OP, i would say it would be very unlikely it will make a return on investment, any return would only be realised decades from now, and that's IF a lot of things go in your favour.

I am willing to take a long term view on this

Donald Trump

SuperTortoise wrote: »

If you were only borrowing 25% the difference in cost of the loan would'nt be huge, unless the land was massively overprised in the first place would it be worth a risk with an asset that is unlikely to devalue in the short/medium term?

Well I'd be putting in about 85% of the value up front and borrowing 25% (Yes, I can count ... I'm allowing for 10% for Stamp duty and other fees).


The 5.5% on the quarter probably wouldn't be a whole lot less than rental income on the 100%. I wouldn't have done a tax free lease because I'd be officially renting it to connected people i.e. family and you can't get the tax free lease on that. But you could write off the interest against it so not a major issue.


The 85% would be a fair chunk of money to lock up in an illiquid asset too. I mean I'd be buying with the intention of keeping but nobody knows what the future might bring.



But all the above hinged on the max that I'd be willing to pay for it ... which was about 10-15% less than the actual current asking at the time ... Is it overpriced ... I think a little. It's about 40% more per acre than another place close to it went about 5 years ago

Knightlegend

K.G. wrote: »

This is a complete non runner

Thank you KG. Would you be willing to expand on your outlook

Knightlegend

K.G. wrote: »

This is a complete non runner.i have acess to the accounts for a similar size operation being run totally with hired labour and the profits over the last few years have varied between a profit of 10 k and a loss of maybe 5k.and the management is fairly good

Management is key in all situations. If there is not a sustainable , competent management structure in place then yes it is a complete nonrunner. I agree. does the similiar size operation that you have access to rely on bank repayments to operate? Or is it management of a family owned farm? A loss of 5k per annum every year over the next 15 years would not be a deterrent if that involved loan repayments.

Pinsnbushings

I don't think this plan will pay for itself, unless maybe op is willing to fund it from other income as well.

I made a tentative enquiry into a very similar sized farm recently, fully operational dairy farm with house. I was willing to sell about half the acreage of my own land to go towards purchase. The problems I had with the bank were absence of bridging loans and it's all about repayment capacity, so you need either significant off farm income or an existing farm business running very well. They didn't seem too keen on projected income but others may have different experience. As said above 5.5% interest over 15years.
Anyway I couldn't make it work and farm is sold now. I'd be interested to hear opinions on whether that size farm would pay for itself and an average industrial wage if borrowing 50% of purchase price..eg5-600k.

1373

I think it would be very difficult to pay a farm manager and service a loan off 95 acres , plus buying cows . But if you have the money then why not, you might enjoy the setup

FromADistance

Realistically, unless you have the capacity to subsidise the cost of this land purchase through your own means (as in substantial income outside this purchase), this is a non runner. A good farm manager would cost the gut of 30 - 45k per annum and even at that he or she can't be there 7 days a week, so you will obviously need out of hours assistance. The max the bank will provide is 70% of the asset cost, max term 15 to 20 yrs. Rates are likely to be in the order or 3 to 4%. You're looking at monthly repayments of anywhere between 5 to 7k p.m. Even taking a profit of 1k a cow, you're already looking at subsidising this purchase. There's also the matter of maintenance of farm buildings etc. Holdings of this size don't tend to make large profits, they just about wash their face and don't lend themselves to high levels of debt.

Knightlegend

1373 wrote: »

I think it would be very difficult to pay a farm manager and service a loan off 95 acres , plus buying cows . But if you have the money then why not, you might enjoy the setup

I do enjoy the setup and a farming / rural way of life. However I can sympathise with farmers/business owners that have to work 100 hours plus a week to cover operating/expansion costs etc with . This is not the aim of this project. It is an aim to have a balance between a hobby farm/ breeding operation and an enterprise that will contribute in a financial way.I am involved in a setup at the moment where I can do farm work when it suits and I can walk away when I need to spend time elsewhere. It allows the best of both worlds. THis is only possible with a go ahead manager and I am realistic enough to know they are not easy come by

Toetohand

Knightlegend wrote: »

I AM LOOKING TO BUY A 95 ACRE DAIRY FARM IN MY AREA. THE OWNER IS RETIRING
I WILL BE HIRING A FARM MANAGER TO RUN THE ENTERPRISE AS I HAVE A FULL TIME JOB
MY PARTNER WILL USE 15/20 ACRES TO RUN HIS EQUINE ENTERPRISE
I PLAN TO BORROW THE FUNDS TO COMPLETE THE PURCHASE AT C1.5 MILLION
HOW REASONABLE IS IT TO EXPECT THE DAIRY INCOME TO FUND THE LOAN REPAYMENTS
I HAVE BACK UP OF OFF FARM INCOME TO COVER ANY REPAYMENTS IF EVER NEEDED
HOW MUCH OF A DEMAND IS THERE AMONGST A YOUNGER PERSON TO TAKE UP SUCH A ROLE AND RUN A PROFITABLE ENTERPRISE?
WHAT TERMS AND CONDITIONS WOULD IT TAKE TO MAKE A ROLE ATTRACTIVE TO A YOUNG FARMER
I WOULD BE INTERESTED IN HEARING THE THOUGHTS OF PEOPLE WHO HAVE EXPERIENCE IN THIS AND AS TO WHETHER OR NOT IT WOULD BE FEASIBLE

Knight would the equine business be able to assist in servicing some of the loan repayments or would it solely be on the dairy enterprise? The fluctuation on dairy profitability going forward is the reason I’d ask this.
Management would as pointed out be key to ensuring profitability. I would feel that to engage and retain the type of manager you seek there would have to be some type of performance bonus in the T and C. Based on production profitability or quality to try and gain as high a milk price as possible.
I think your a bit high at eighty cows on seventy acres without knowing land type and how replacements would potentially be managed ( retained on this block or out block or sought outside herd).
It could work but I’d be concerned about how much you may have to dip into you’re own savings to service this debt and how frequently this would occur.
Are there other unforeseen expenses that may occur during the duration of the loan repayment that you and your partner may not have factored in? ( kids I’m thinking here!)
Wish you the best of luck in your venture...

Knightlegend

Pinsnbushings wrote: »

I don't think this plan will pay for itself, unless maybe op is willing to fund it from other income as well.

I made a tentative enquiry into a very similar sized farm recently, fully operational dairy farm with house. I was willing to sell about half the acreage of my own land to go towards purchase. The problems I had with the bank were absence of bridging loans and it's all about repayment capacity, so you need either significant off farm income or an existing farm business running very well. They didn't seem too keen on projected income but others may have different experience. As said above 5.5% interest over 15years.
Anyway I couldn't make it work and farm is sold now. I'd be interested to hear opinions on whether that size farm would pay for itself and an average industrial wage if borrowing 50% of purchase price..eg5-600k.

I am to an extent willing to fund this from other income in the likelihood that at year 15 I would have an asset that has been paid for and would also be my primary family residence.

Bridging loan would not be an issue for me in this instance. However in contrast to your experience my bank contact was not interested in my ability to cover repayments from outside sources. They want figures on how I propose to cover repayments only from generated farm income. They totally discounted outside income

jd_12345

Knightlegend wrote: »

I do enjoy the setup and a farming / rural way of life. However I can sympathise with farmers/business owners that have to work 100 hours plus a week to cover operating/expansion costs etc with . This is not the aim of this project. It is an aim to have a balance between a hobby farm/ breeding operation and an enterprise that will contribute in a financial way.I am involved in a setup at the moment where I can do farm work when it suits and I can walk away when I need to spend time elsewhere. It allows the best of both worlds. THis is only possible with a go ahead manager and I am realistic enough to know they are not easy come by

From what I can make out this isn’t a goer as an “investment”. If this is something you’re interested in maybe look at share farming. If you want to get involved in farming but not at constant welly level and have some sort of guaranteed return I think this is your best bet. You’re dependant on getting a top notch farm manager and your proposal would only maintain 70 ish cows max with buying in some silage and replacements which is cash flow draining.
Have a look at this. https://www.teagasc.ie/media/website/publications/2020/An-Analysis-of-the-Irish-Dairy-Sector-Post-Quota.pdf. Imo the costs in this are conservative.
By the sounds of it you’re buying very good ground if it is €15k per acre. It’d want to be well set up with buildings parlour etc. If you want to do something with your cash buy a bit of ground for your partners horses but unless you’re willing to put in 2/3 hours every night/morning before or after work forget about it. Sorry to be harsh.

Edit : meant to add you won’t attract top quality managers with 70 cows unless you’re paying 50k+ A good manager pays for themselves but you need everything on your side when you’re not experienced.

Pinsnbushings

Knightlegend wrote: »

I am to an extent willing to fund this from other income in the likelihood that at year 15 I would have an asset that has been paid for and would also be my primary family residence.

Bridging loan would not be an issue for me in this instance. However in contrast to your experience my bank contact was not interested in my ability to cover repayments from outside sources. They want figures on how I propose to cover repayments only from generated farm income. They totally discounted outside income

I don't think the idea is totally mad, if you were putting 15-20k of your own income into it per year over the 15 years to end up with an asset worth 1.5million plus capital appreciation, but I think you will be subsidizing the dairy end by a lot more than that especially if there is only 70 acres dedicated to the cows..will there be other owned land to support this new block to supply silage etc.?
Edit..I think jd summed it up better than I could.

jaymla627

Knightlegend wrote: »

I am to an extent willing to fund this from other income in the likelihood that at year 15 I would have an asset that has been paid for and would also be my primary family residence.

Bridging loan would not be an issue for me in this instance. However in contrast to your experience my bank contact was not interested in my ability to cover repayments from outside sources. They want figures on how I propose to cover repayments only from generated farm income. They totally discounted outside income

Have you accounted for capital repayments after interest is paid coming out of your taxable profit, our are you going company structure

Knightlegend

jaymla627 wrote: »

Have you accounted for capital repayments after interest is paid coming out of your taxable profit, our are you going company structure

It will be a company structure

kk.man

Best of luck with the venture;

My advice, apart from the financial aspect(figures just don't add up).
1. The world and his mother are milking cows watch the bubble burst.
2. Farm managers are very hard to come by. They are actually in the driving seat because they know if they up and leave the s@&+t will hit fan.
3. Farm manager won't be able or legally entitled to work 24/7 who is going to do the work then? Cows need experience milkers.
4. You are leaving it l too tight, alot has to go right for it to be a success and that rarely happ in farming. Green field farm in kilkenny proved alot.

Knightlegend

Toetohand wrote: »

Knight would the equine business be able to assist in servicing some of the loan repayments or would it solely be on the dairy enterprise? The fluctuation on dairy profitability going forward is the reason I’d ask this.
Management would as pointed out be key to ensuring profitability. I would feel that to engage and retain the type of manager you seek there would have to be some type of performance bonus in the T and C. Based on production profitability or quality to try and gain as high a milk price as possible.
I think your a bit high at eighty cows on seventy acres without knowing land type and how replacements would potentially be managed ( retained on this block or out block or sought outside herd).
It could work but I’d be concerned about how much you may have to dip into you’re own savings to service this debt and how frequently this would occur.
Are there other unforeseen expenses that may occur during the duration of the loan repayment that you and your partner may not have factored in? ( kids I’m thinking here!)
Wish you the best of luck in your venture...

Profitability of the equine enterprise can fluctuate alot more wildly than dairy prices!!

jd_12345

Knightlegend wrote: »

Profitability of the equine enterprise can fluctuate alot more wildly than dairy prices!!

Greenfield where closest thing to true costs of production were taken in account! 37c/L! https://www.agriland.ie/farming-news/pics-behind-the-scenes-on-teagascs-greenfield-dairy-farm/

Donald Trump

Knightlegend wrote: »

Profitability of the equine enterprise can fluctuate alot more wildly than dairy prices!!

You will need to take company tax into account too.


If your net profit before interest is 80k, and you pay 2.6% interest on the 1.2m, then you will also need to pay 6.1k company tax I think on that profit. (I don't have experience of this - it is just my understanding).



So that reduces the money available to pay interest and principal to 73.9k. To get you up to the 96k then you need to top up with 22.1k rather than 16k.



(I don't think you can write land purchases off against your tax even with a company structure...open to correction though)

K.G.

Knightlegend wrote: »

Management is key in all situations. If there is not a sustainable , competent management structure in place then yes it is a complete nonrunner. I agree. does the similiar size operation that you have access to rely on bank repayments to operate? Or is it management of a family owned farm? A loss of 5k per annum every year over the next 15 years would not be a deterrent if that involved loan repayments.

Not family operation and has no repayments and has relatively small capital requirements just repairs and maintenance on building s and machinery. As i ve regularly said on here the margin in milk is decreasing and will continue to do so.

Donald Trump

The other thing as well is, if you are using money from another part of the company (the equine bit) you will also have had to pay the 12.5% on that. Much better than personal income tax rates, but you still have to pay it.

So to have that 22.1k, that needs to be 25.25k clear profit before tax over in that part of the business.

If the businesses were separate, I don't know how you'd do it.....If he had to draw it out as income and then give it to you, then he'd be stung on personal income tax.


So making that 96k repayment after an otherwise profit of 80k from the "dairy side", needs 25.5k clear profit on the equine side rather than 16k.


Someone can correct me if I'm wrong!

blackbox

Waffletraktor wrote: »

Land won’t buy and pay for its self, you need Previously earned money or subsidise from An existing farm business I would think. Would a dairy farm leave much after paying a manager at that scale never mind huge repayments.

If this is true, and I don't doubt that it is, you have to ask why is farm land so expensive.

Nobody in any other business would invest in an asset where the returns aren't enough to make a decent profit.

...and why would anyone lend money for this?


.

Donald Trump

blackbox wrote: »

If this is true, and I don't doubt that it is, you have to ask why is farm land so expensive.

Nobody in any other business would invest in an asset where the returns aren't enough to make a decent profit.

...and why would anyone lend money for this?


.

It's the same as any other "bubble". People are willing to pay more for the asset than it is intrinsically worth for other, possibly emotional, reasons. As long as that inflated value continues, the asset will trade above its intrinsic value

Waffletraktor

blackbox wrote: »

If this is true, and I don't doubt that it is, you have to ask why is farm land so expensive.

Nobody in any other business would invest in an asset where the returns aren't enough to make a decent profit.

...and why would anyone lend money for this?


.

Veg or highvalue industrial/ medical raw material are the only thing and neither are do able starting from a standing start imo.
I know in the uk there’s farms with a big block of ground with good privacy available grow poppies, a farm that grows the herbs to give The mint flavour for wrigleys chewing gum etc...
James dysons farm at the base carrington are putting up a lot of green housing for strawberries but aren’t going to grow fruits.

Donald Trump

Speaking of buying through a company structure, what are the downsides on the back end?