Trying to finance a farm - Mortgage an Option

sob1467

I am from a farming background, grew up working the home farm. Between one thing and another I may move to another side of the country to buy a house & farm with wife.

I am really struggling to get any finance for it. A few year's ago it was easy to borrow money & buy a farm.

Before you say I know there is very little money & much heartache in farming but I stupidly have a stupid Grá for it.

We are in a relatively good financial position:
• Combined salary: €150k

• Deposit for farm: €200k

• Farm loans seem pretty expensive and cannot get them because they want at least two years accounts before they give any money.

• The going rate for farms in the area is €10,000 to €15,000 an acre, so a forty acre farm is €400,000 to €600,000. A house on top would be €200,000, bringing the total to €600,000 to €800,000.

The problem I keep encountering though is that banks will not lend money to someone who they do not see as a farmer. I do have a full-time job but always ran home farm on the side. Was never herd owner or anything like that, so can see where they are coming from.

Sorry a lot of background information there, so two questions:
Q1) Is the above a mad plan?
Q2) How best would you go about trying to finance this sort of property? Could you try to get it on a house mortgage? Or any other way?

endainoz

Its definitely a mad plan, but I'm sure you didn't start the thread for people to tell you not to go through with it, but surely that deposit is much better spent if it's kept for a house?

You probably don't have any paperwork to say you have any farming done, I'd suggest getting the green cert first. You might be considered as someone from a farming background then.

Could be also an option to go for a smaller homestead type property. Some smaller and far less risk. There seems to be a lot of them around the country, probably for mad prices like everything else though.

FintanMcluskey

It was never that easy to borrow for a farm from memory, in fact it was never done without a farm as security.

You are competing with cash buyers, it's not that they don't see you as a farmer, they see you as high risk with no security

Thegingerbear

Why don't you rent say 60 acres which would be a much smaller outlay and see how that goes for you.

StevenToast

Its a mad plan...you already know it…

You want to borrow 800k to run a hobby farm as a side business? That makes absolutely no sense....

No bank would touch you....and rightly so.

Just look for a farm relief worker part time job to scratch your "grà"...

sob1467

https://www.boards.ie/discussion/comment/122133905#Comment_122133905

I did the green cert about five years ago.

In fairness smaller farm does signify less risk, so that is an idea. Anything smaller is commanding crazy prices where we are looking. That derelict/old building grant was bad for any land with any kind of shack on it.

https://www.boards.ie/discussion/comment/122134504#Comment_122134504

Yeah you are correct, I am seen as risky out.

https://www.boards.ie/discussion/comment/122134638#Comment_122134638

This is actually very good advice, thank you & something I hadn't considered before. Less risk if it goes awry. I must check out if there are any in the locality.

sob1467

https://www.boards.ie/discussion/comment/122134677#Comment_122134677

Thank you for this perspective. To be honest if you put it like that and it is the truth it is a bit of a mad one.

In fairness €250k of it is for a house, but still borrowing around €500k for what is essentially a hobby farm. I did the sums and even with max grants alone, because can't rely on farming to turn a profit the return on investment is 2.7% per year, which is lower than the interest on the money borrowed.

The monthly mortgage on it is circa €2,000 and €3,000 per month, so will likely only put strain on the marriage too. Sorry thinking out loud here but I do appreciate these objective views on it.

The part of me wanting to go for it is because a lot of the newer builds are the guts of €450,000 so saying it is only another bit for some ground & privacy. Or maybe it is just the bull McCabe syndrome?

sob1467

Also should have made it clearer the money I am talking about is 30/40 acres and a house. Not just land.

lmk123

https://www.boards.ie/discussion/2058351526/trying-to-finance-a-farm-mortgage-an-option

yes it’s definitely mad to say the very least. I hate banks and everything to do with them normally, but on this occasion I think they’re doing you a huge favour. I’ve dealt with them for much smaller and lower risk loans over the last number of years and they broke my heart. Based on my own experience I don’t think you have a hope but I do think you’ll look back in time and be glad of it. Years ago my father tried to buy 3 nice fields right beside our farm, our neighbour out-bid him at the auction, they made absolutely stupid money at the time and he was like a dog. We were looking at them the weekend and I said to him how lucky he was that he was out bid that day and he agreed 100%. I love doing it too but wouldn’t buy land if I was getting it at half the market rate, you have less and less of a say on what you can do, the fun doesn’t be long getting sucked out of it at times. I’d say take off the rose tinted glasses, do farm relief work or rent a small place for a few years at most.

amacca

https://www.boards.ie/discussion/comment/122135336#Comment_122135336

While I agree with probably everything thats been said here, your thinking in terms of it being not that much more to get a bit of ground and privacy might not be the worst idea..as long as its not in the complete arsehole of nowhere with no local services etc etc

If you can afford to have patience something might crop up....but a lot of people dpnt have the luxury of time to wait for better opportunities

Fwiw, the one thing I wouldnt do is overborrow or be rushed into buying something substandard for high money...

You can easily buy something this year you regret next year and watch a better property make not that much more in the grand scheme of things down the line..

and around here Ive seen 20 acres and a house go for not much more than than the cottage on the acre and a half a bit closer to town...the trouble is it can be years waiting

Kevhog1988

Hi OP,

In a similar situation to yourself. Moved away from home and bought i guess whats called a smallholding. We bought a House with 5 acres in Leitrim (During the pandemic we could only get mortgage approval based on my salary). I have 7.5 acres in Kildare that i bought previously . I use this to keep dry stock and then rent 20 more here beside me in Leitrim. I don't think its feasible to buy a bigger farm going through the bank without something to use as collateral but i think its feasible buy a cheaper house, pay it off quickly and then try and use that to buy land. It would be very hard to buy a big block in one hit though so you are probably looking at having a fragmented farm.

Some pros and cons of what weve done if its any help for you:

Pros:

*Were farming and its all in our own right. I could never afford to buy more land in Kildare and its the only feasible way for us to be honest.

*Am using the land in Kildare to fatten lambs etc. This seems to work well for us. We lamb down etc on the "poorer" ground and then finish on the better ground.

*Land is cheaper where we moved to (for a reason), so am hopeful that we can buy more land in the future.

Cons:

*Theres no real support network here other than the (significant) goodwill of new neighbours. Previously i could borrow a digger off my uncle etc but i need to hire everything now. If i have something to do that ideally takes two strong people i am forced to struggle on on my own. If going on holidays etc op this could be an issue for you. We try to only take very short breaks for that reason.

*I'm further away from my work now. a 2hr drive each way 2 to 3 days a week is a killer but i pass the other land so check the stock there on them days.

sob1467

https://www.boards.ie/discussion/comment/122135348#Comment_122135348

Yeah this is possible alright. And appreciate the anecdotal advice regarding the three fields. I suppose now really is not a good time to buy between record prices & recently higher interest rates. Farm relief may be an option, have never done any milking before. Was sucklers & drystock. Yeah renting has also not been ruled out.

https://www.boards.ie/discussion/comment/122136887#Comment_122136887

Thank you. This is interesting, well familiar with Leitrim land have good few family there. One thing I have noticed with Leitrim farmers is a good few rent land in Roscommon and commute up to it. That in itself sounds like torture and something I sort of want to avoid!

Yeah five acres with house may be an option & then incrementally buy more as more becomes available in the area.

Problem is the women is based in a place where land is expensive and dairy farmers are the problem. Maybe this isn't a farming problem, may have to reassess a few things with jobs, location etc.

Or just learn to do bit of relief milking and see if have any interest in it. Although it is nice to futter about in your own place and only have yourself to answer to!

Good advice too around having farming support network and holiday planning too. Always the challenge with moving somewhere new!

dmakc

I think when buying house + farm, you can nominate up to 3ac of farm at mortgage interest rate

Donald Trump

What rates are people getting quoted these days?

cute geoge

https://www.boards.ie/discussion/comment/122135336#Comment_122135336

You would need to be certified if starting from scratch taking out mortage to buy land .

there are plenty of options outlined above to practice your love for farming without risking your future with all eggs in the one basket of buying land .who knows in 10/15 years what options might open up for you to have your own place but compete crazy on your current situation and price of land

emaherx

@sob1467 you appear to be in a very good position financially, but your plan is "somewhat" mad.

Banks will probably only allow 2-3 acres on the mortgage with the house, but if you have 200K saved and use the minimum deposit for the house mortgage that will still leave you with a good chunk towards the land. Scale back your ambition a bit and try and get a house with around 10 Acres and rent another block of land. The 10 acres will leave you with a site to develop a yard with some grazing around it.

Even with your good deposit not having 3+ years of accounts will still go against you but a good income and large deposit already saved should still be in your favour with the scaled back plan.

I was in a similar situation myself and wanted to do the same, I am glad I didn't for many reasons including I'd still be working the old full time day job to pay for it. In the end I ended up with the home farm which is small in acres, but well equipped with sheds, I rent 3 other blocks which are all larger than my own bit. I quit the old full time day job nearly 3 years ago, I now work 9-2 from home in an agri related role and do a bit of work with a couple of neighboring farms during the silage season too. We cut out the need for child minding as I can work around the school runs and she has cut her hours back to a 4 day week too. I honestly think we dodged a bullet in some ways, as I now have far more time for farming and a better grá for it than I ever would have if we had bought at that time just to be landowners. Over all I think I've a better quality of life with more time to spend with the kids and more time to do things on farm at a pace where they can be involved safely.

K.G.

First of all you are in a great financial position, not a bad place to be.secondly I can't see any house building for below 300 k unless you are in the trade.thirdly land seems to have become an asset fir the wealthy that looking to diversify investment s and have the cash ready to go.lastly the banks regard agriculture as a dead duck and don't want to lend to it.they might say one thing but the lending process has become very cumbersome and a common feature is they are not proactive in the process. They hope you will go somewhere else if they drag their feet enough.

I would look at your situation as a 2 step process.first get your house built and take some steps to enter farming probably through renting.then as you build experience and the assets required for farming(stock ,machinery, entitlements) you keep an eye out for a property that may suit.one thing to bear in mind is we are only here for a bit and try and have some outline of a plan for passing on assets.

LLastly what do intend to do with the land to generate income

pg141

Forwhat's its worth you should talk to a mortgage broker, it's there job to get you over the line, the bank needs a certain amount of box ticking and these lads in fairness can do rhat or at least tell you outright no you can't do it!

older by the day

https://www.boards.ie/discussion/comment/122136887#Comment_122136887

That's a good honest post. It's not every woman will put up with this lifestyle. It's hard work with out some support around you.

When it comes to buying land with a mortgage I think you are mad. But as my father told me, all his cows got taken with TB in the mid seventies, and every one told him that to get a job in whiddy oil terminal who were hiring at the time, instead of buying heifers. Lucky he didn't.

So who knows. But there is easier hobbys out there than try to buy and farm land

pureza

Take the 200,000 and put it into a savings account like N2'6's on demand at 4% and earn 6 grand interest a year net

Contact the nearest farm relief service and make yourself and your skills available,its not great money but say 30 hours a week will net you 2000 a month,more if you relief milk

Use your grá for farming that way

Let your grá make money for you,not haemorage money away from you

sob1467

https://www.boards.ie/discussion/comment/122139398#Comment_122139398

Thank you useful information.

https://www.boards.ie/discussion/comment/122139680#Comment_122139680

Mortgage rates that I have been looking at are between 3.6% and 6%. Anything towards the lower end of that are green mortgages on very energy efficient houses though.

Avant are surprisingly offering 3.8% fixed for the duration of the mortgage in one of their products.

https://www.boards.ie/discussion/comment/122139777#Comment_122139777

Sorry what do you mean by certified?

sob1467

https://www.boards.ie/discussion/comment/122139836#Comment_122139836

Thanks appreciate your perspective, there is a strong consensus across people I trust on this to do this and go for smaller plot beside the house and rent the remainder. Maybe the climate at the minute between high land prices and high interest rates makes my original plan will sort of put my money situation from favorable to poor after making this financial decision.

At the minute with rental land prices following nitrates, don't think that is at all feasible. Ground is going for €400 to €500 in many places and same ground was €200 to €250 just a few years ago. So renting in current market also is not feasible neither.

Again your anecdotal situation does sort of hit home, with kids possibly on way down the line. In some ways this plan for land above all else may cause more trouble than it is worth.

https://www.boards.ie/discussion/comment/122140238#Comment_122140238

You are right on houses, even old dodgy houses are going for €250k and no not in trade.

Maybe should refocus and go two step with 1) House and 2) Land - Be it renting nearby or incrementally buying bits of ground.

Good question at the end, what do I intend to do to generate income? Grew up on suckler farm & it converted to finishing bulls. This is the problem with beef cattle, I can't feasibly give an answer that will definitely yield a return. I know that is insane rational to go in with when borrowing for an asset that won't yield any clear return.

I would have the standard grants on place, young farmer & acres too but again, did sums on this and that in itself is yielding about 2.5% per year.

Donald Trump

https://www.boards.ie/discussion/comment/122151657#Comment_122151657

You'd want to be asking about those rates before you go making plans. Those are likely residential mortgage rates. Not for loans secured against land.

sob1467

https://www.boards.ie/discussion/comment/122142775#Comment_122142775

I have arranged for this meeting to occur next week. I want to see a) if whole thing is a runner b) what the interest rates & repayments will be

With this information, I will have to really have think about the whole thing.

https://www.boards.ie/discussion/comment/122148243#Comment_122148243

That is important point on the woman there and not something to forget about or exclude from this whole discussion.

Yeah buying the farm is just the start of it, then you have to try to a) repay it b) make money from it.

https://www.boards.ie/discussion/comment/122151061#Comment_122151061

This may be good advice. I've been fortunate up to this point on a few things, to have that deposit and have been investing to get here. As with a lot of investment things a lot of outside luck outside my control.

Well if I did farm relief, it would only be part-time because I already have a full-time job.

sob1467

https://www.boards.ie/discussion/comment/122151702#Comment_122151702

Oh yeah 100% residential, sorry that is what I thought that guy was asking about.

I am going to a broker next week, I will post back with what he says anyway.

Donald Trump

https://www.boards.ie/discussion/comment/122139777#Comment_122139777

I think the current price of land only makes sense in two circumstances

1. Investors making a geared play on inflation
2. Wealthy individuals trying to bypass CAT for their successors when passing on their wealth

I inquired about a block near to me lately. A nice block of land alright, but the ballpark they are looking at is 20k per acre

sob1467

I have went into a tangent here but have been looking at average price per acre, average Irish salary and average mortgage rates and below are the findings.

When you read into the findings the price per acre of average land in Ireland has been consistently around 20% to 30% of the average earner's wage in the country from 2000 to 2022 (with exception of the Celtic Tiger madness):

Year	Average Price per Acre (€)	Average Salary (€)	Mortgage Rate (%)	Land Price to Salary Ratio (%)
1980	1,441	23,094	16.25	6
1981	1,445	22,331	16.00	6
1982	1,305	22,065	15.75	6
1983	1,548	22,571	15.50	7
1984	1,546	22,931	15.25	7
1985	1,565	23,418	15.00	7
1986	1,780	24,280	14.75	7
1987	2,003	24,640	14.50	8
1988	2,275	25,368	14.25	9
1989	2,786	25,317	14.00	11
1990	2,914	25,496	13.75	11
1991	2,841	25,811	13.50	11
1992	2,927	25,992	13.25	11
1993	3,170	27,072	13.00	12
1994	3,390	27,182	12.75	12
1995	3,510	27,684	12.50	13
1996	3,680	27,892	12.25	13
1997	3,841	28,363	12.00	14
1998	4,327	28,890	11.75	15
1999	4,794	30,017	11.50	16
2000	6,400	30,305	11.25	21
2001	7,200	31,200	11.00	23
2002	8,300	31,752	10.75	26
2003	9,000	32,778	10.50	27
2004	9,700	33,572	10.25	28
2005	10,000	33,951	10.00	28
2006	20,000	33,807	9.75	59
2007	15,000	33,286	9.50	45
2008	12,500	33,388	9.25	37
2009	10,000	34,531	9.00	29
2010	8,700	33,433	8.75	26
2011	8,500	32,034	8.50	27
2012	9,400	32,147	8.25	29
2013	9,700	32,640	8.00	30
2014	10,000	35,246	7.75	28
2015	9,500	35,648	7.50	27
2016	8,700	33,982	7.25	26
2017	9,600	34,611	7.00	28
2018	9,346	35,615	6.75	26
2019	8,823	36,910	6.50	24
2020	9,381	38,846	6.25	24
2021	10,050	40,569	6.00	25
2022	8,368	41,482	5.75	20

The average salaries are from the CSO, average land prices IPAV & Teagasc & interest rate averages from CEIC data.

Kevhog1988

Tell me your an accountant without telling me your an accountant 🤣🤣

sob1467

https://www.boards.ie/discussion/comment/122152428#Comment_122152428

🤣 may be guilty of that.

I was just surprised that over the past 25 odd years that land prices have basically remained consistent with average wages. I thought for some reason & the narrative you generally hear is that land prices have went up way higher than wages.

Jim2007

https://www.boards.ie/discussion/comment/122151912#Comment_122151912

Mortgage rates are irrelevant because you can't finance the purchase of a farm with a house mortgage - in fact it would be illegal to attempt to do so. Once the bank are aware that you are seeking to finance a business, any type of business, then you will end up with some kind of composite rate and the commercial factors driving those rates are not included in your model, so at best your conclusions are suspect at best.

amacca

https://www.boards.ie/discussion/comment/122152680#Comment_122152680

Maybe its just around here and I admit its not a broad enough sample...but in my experence going to auctions/attending online and private treaty...

The price appears to have jumped significantly in recent years...while what you could hope to make out of it farming hasnt gone up (remained static or probably dropped - even renting the 400+/ac aint easy got and then you have the worry of how sustainable it is)..you cant even hope to sell the odd site or possibly develop a bit nowadays

I could be totally wrong and no one has a crystal ball but it seems overpriced to me...if you are a farmer anyway

josephsoap

is there any financial companies that do commercial mortgages that could fund such a proposal?

sob1467

https://www.boards.ie/discussion/comment/122157296#Comment_122157296

Funny my perception was the same from doing similar to yourself around here last few years.

Has profit per acre increased? Nope don't think so other than the usual cyclical stuff, like sheep had good year there a while back. Beef are same as ever and milk was very good now not as good.

Some of the government/EU policies are messing up land prices too. Like only reason a lot of land been rented at €400/500 an acre is Dairy men that need more land to get under nitrates directive. Also with some of the money going to Young Farmers they are putting a lot of money on rented land to get the subs.

Silverdream

I'd be weary of buying land at inflated prices, a change in government policy like a change to the Agricultural relief inheritance tax could see a dramatic drop.

But Land is funny as theres always someone wishing and wanting it.

sob1467

https://www.boards.ie/discussion/comment/122159567#Comment_122159567

This is a good point but agricultural relief has been around since CAT was introduced in the late seventies. Land could also fall into business relief that is similar and that has been around since the mid-nineties.

You are correct though with potential change of political guard, you never know and farmer's are seen as rich guys by some….

Silverdream

True, our new popular party has been signalling that they intend to "reform" Inheritance rules, along with adding certain wealth taxes

K.G.

If income tax was reduced for farmers but a basic land tax was introduced instead ,what effect would it have on the country

amacca

https://www.boards.ie/discussion/comment/122160117#Comment_122160117

I dont know but I cant imagine it would go down well....what sort of tax do you put on a part time famer already at 40% in off farm employment etc

Put a tax on the food below the cost of production (never mind with a margin on top) and forward that on to the farmer squeezed at the bottom!

Kevhog1988

An interesting listen albeit from a UK perspective

https://spotify.link/GbnaEeoDOJb