It is still possible to get some skin in the game of farm ownership if you are open minded to different options and have the patience to seek the right opportunity.
Rabobank national manager farm ownership options Brent Irving advises aspiring farm owners to develop skills, save money, build equity, network and keep your nose clean.
“New Zealand’s a small place. If you’ve got a good reputation in the district it’s easier to put a deal together,” Irving says.
He says there is no one recipe for entering into farm ownership, but most new entrants nowadays are doing so through some form of equity partnership.
“Land values are climbing and commodity prices are lifting, so you’ve got to look at different ways of getting into ownership.”
The amount of money needed to buy into an equity partnership varies depending on the equity arrangement, number of investors and the size of the property.
“Sometimes you make the mistake of thinking you haven’t got enough money.
“Sooner or later you’ve got to look if there are opportunities around you with the capital you’ve got.”
An equity manager could have a share in the business and be paid a salary to run the farm. Alternatively, they may opt for a lesser share, buying the livestock and plant and leasing the farm from the business.
Once you get a foot in the door, some smart forward thinking can help position you to take the next opportunity to grow the farming business.
“A block might come up for lease, so you can get going again with that. Then another block might come up for sale and you’ve already got the stock for it on your lease block.”
Different people handle debt better than others and Irving says that is a consideration for banks when making lending decisions.
“For the majority of people, to get ahead they’re got to have a certain amount of debt otherwise it just doesn’t work.
“That’s the good thing about equity partnerships. Generally it’s a formula for not borrowing as much.”
Irving says that to be a part of a successful equity partnership, it helps to be a good team player.
The business also needs to be set up to be able to ride through the highs and lows.
“There’s not much better investment than land, as long as you don’t have to sell in a low.”
Equity partners need to share a common goal, have an exit strategy in place and understand what will happen if someone wants out.
In these situations it can be beneficial having three of four equity partners.
“If someone wants out and it’s not too highly geared the other partners might be able to buy them out.”
Rabobank has equity specialists around the country helping to connect investors through equity arrangements.
Irving says there is huge interest from a range of people – including managers and young farming couples wanting to get ahead and achieve ownership, aging farm owners wanting to see their hard work continued but not ready to sell the farm yet and even people working in the corporate world who have an affinity with farming or grew up on a farm and want to invest in land.
Some farm managers enjoying a successful, well-paid career are choosing to continue their management roles, but invest their capital to become an equity partner in a farm.
“They’ve learnt a lot of good stuff around governance. They bring those skills, go on the board and make suggestions as to running the farm.
“That’s their retirement plan effectively.”
The way in
Investment scenario for entry into farm ownership:
- $200,000 equity in rental house
- $100,000 family investment
- Raise extra capital by borrowing $200,000 against your salary (equity manager’s salary and possibly your partner’s off-farm salary) and using the farm as security if equity partners are agreeable
- That gives you a total of $500,000 cash
- The farm borrows $1 million
- Partnership buys farm and plant for $3.3 million
- Your stake is 21.7% as an equity manager.