Introduction to who can buy agricultural land in the USA: What is agricultural land?: Agricultural land generally allows for raising livestock and crops to grow and harvest. Agriculture is a major industry in the United States, a net exporter of food. In the United States, the agriculture sector is highly mechanized, with an average of only one farmer or farm laborer per square kilometer of farmland required for agricultural production. In many US regions, this has resulted in extremely easy agricultural landscapes. Growing evidence points to the negative effects of this simplicity on the long-term provision of essential ecosystem services for agriculture and beyond. However, the transition to alternative systems is often small-scale rather than systemic.
A guide on who can buy agricultural land in the USA, the cost of agricultural land in the US, can foreigners buy agriculture land in the USA, and how to buy agricultual/fam land in the USA
According to the US Department of Agriculture (USDA), the United States has approximately 911 million acres of agricultural land. That’s the equivalent of 50 Central Parks in each of the 19,000+ cities in the United States. It covers a lot of land. Farmers and cultivators own most of this land. Usually, owners transfer farmland to family members. However, the USDA’s 2017 report expects that 10% of farming will be separated from their families, meaning that 21 million acres of land will be sold to a relative.
Benefits for buying agricultural land
- Buying agricultural land can be a great business venture for both farmers and investors. Owning agricultural land can open the door to many great tax benefits, business growth strategies, and investment returns.
- A farmer who owns the land on which he cultivates has many advantages which the tenant farmers cannot get. One example is greater control of decision-making.
- Buying land gives the farmer more control over the land when making administrative decisions that include conservation strategies, crop rotation, farm methods, equipment, and building improvements.
- Buying land can also help build equity, making it easier for existing farmers to borrow.
- For many farm families, building equity is one of the primary business goals. This is because equity can open the door to many other opportunities, including future income generation, retirement income, or the ability to have resources that can be passed on to future generations.
- Family farmers can use the proceeds to invest in additional land that is not used for living expenses and income tax. On the other hand, it may be a good idea to use this income to reduce existing debt. Talk to an experienced farm management professional for advice on what works best for your situation.
Farmers who buy land can also ensure that they can expand their work and build a strong business that sets themselves and their families in a safer future. A common example is tax deductions for depreciation. Many farms have tools and improvements that depreciate over time. This may include grain storage, irrigation pivots, shops, warehouses, and other buildings or equipment. Certain crops, such as fruit or nut trees, may also be eligible for tax deduction benefits.
In addition, interest on farm mortgages – in most cases – can be deducted. Be sure to contact a tax professional to discuss all the tax benefits you may have. Investing in agriculture comes with many different tax benefits. Eligibility for these benefits often depends on what type of crop is being grown and how the investment agreement is being formed.
An example of a common tax benefit is a better property tax rate for agricultural land. Each state generally levies a tax on farmland as opposed to other lands such as residential or commercial. The process of claiming these benefits varies from state to state. For the most part, states determine whether a farm is eligible for a property tax deduction based on its size and income.
Can Indians buy agricultural land in the USA?
Legally, foreigners are allowed to buy land anywhere in the United States. In the United States, almost anyone can buy a farm anywhere, except for the six states that have laws banning foreign ownership of farms. Those six states are Mississippi, Hawaii, Oklahoma, North Dakota, Iowa, and Minnesota.
Agricultural land types in the USA
Cropland – The USDA defines cropland as an area that is used to produce crops suitable for a crop. It recognizes two subdivisions of cropland;
- Cultivated land contains row crops and other cultivated crops.
- Non-cultivable cropland includes permanent grassland and horticultural crops.
These crops produce most of the food, fiber, and exports to the United States.
Pastureland – Pastures cover a variety of native forage species used for grazing livestock.
These lands are renovated from time to time. Pastures consist of a mixture of grass, beans, shrubs, or plants. Pasture is found in every American state. These lands cover about 6% or 119 million acres of the total land area of the United States.
Urban Farms – Urban agriculture is a concept that is gaining momentum in the United States. Many of these urban farms are used for growing fresh and healthy produce. These farms provide access to fresh, healthy food in areas where grocery stores are scarce.
How can foreigners buy land in the United States?
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According to the US Department of Agriculture (USDA), there are approximately 911 million acres of farmland in the United States. Usually, farmers and ranchers own about 61% of the land they use, leasing the rest to third-party landowners. While other operators own 8% of the land, investor groups (including retired farmers) occupy the remaining 31% of US farms, with 21% owned by non-operating individuals or partners and 10% by corporations, trusts, or other owners.
You may want to pay special attention to some points;
- Utility access
- Land geography
- Road access
- Property tax
- Easem*nts and restrictions
- Land type
Investors who buy land to invest in farming have several options, each with advantages and disadvantages;
Buying an existing agricultural farm through a sales leaseback transaction, where the existing farmer continues to work on the farm and pays rent to the new owner. Sales leaseback transactions are likely to be the least risky and inefficient way to invest directly in farmland. In return, however, an investor may need to pay more for the land and therefore earn less cash.
Buying agricultural land and leasing it to a new tenant. This option could potentially generate higher returns for an investor. However, finding the right tenant for the farm may require more work than ever before.
Acquiring land that is not used for agriculture purposes and converting it into a farm, pasture, or urban farm. Agricultural land conversion has the potential to be the most profitable because an investor can buy land at a potentially low price and, therefore, earn more cash and potentially increase the value of the land. But can benefit. This requires the most work as an investor will need to convert the land into farm use and find the right crops and tenants for the location.
Tips for buying agricultural land in the USA
Buying and selling farms are easier than ever. When more agricultural land is needed for higher income and to help reduce costs, it seems impossible to stick to the budget. With the increase in production year after year, fertile agriculture soon pays off itself with a positive return on investment. However, in our current agrarian economy, many farmers ask how it is possible to buy or sell their land.
Farms for Sale – Whether a family member has returned home to help run a family farm, or your own family is growing, purchasing agricultural land creates the ability to maintain and run large family farms. If you want to buy or sell land, a farm auction in the Midwest is one of the best ways to find, buy and sell. Maintaining a positive ROI (return on investment) is crucial in getting bidders to auction off their farms. With a positive return on investment, farm sales across the Midwest have been strong over the past few years.
Farmland Market – Farmers are asking how the prices of agricultural land and the cost is high when commodity prices do not reflect land prices. Farmers need to keep in mind that money is made in margins, ranging from multi-ethnic investments to farmers using the average cost of dollars.
Farms for rent – Buying farmland for rent may not always be the right option. Leasing may be the next best option. When finding farmland for lease and concluding an agreement, both parties to the agreement need to reach a fair agreement so that it can work successfully. One of the most important things is to get everything in writing because most land deals are done with a single handshake. Listing agreements and obligations on paper help to verify and break any issues before they arise.
When it comes to leasing, it depends on the landlord’s request for arrangements, whether it’s cash rent, flexible rent, crop sharing, and more. Cash rent is one of the most used and easy rental arrangements. However, it is not always easy to calculate due to the prices and needs of the tenants and landlords.
Terms and definitions from agricultural lands in the USA
Farm – The USDA defines a form as any establishment that sells agricultural products.
Farm property value – The value of all land used for agricultural production, including dwellings.
Price of cropland – Price of land used for growing crops and field vegetables or harvested for hay.
Cost of irrigated cropland – Cost of cropland that has access to artificial water. Irrigated cropland usually consists of land that has access to irrigation.
Price of the non-irrigated crop – Price of irrigated cropland only.
The value of pasture, pasture, and grassland – The value of land that is usually grazed by livestock.
Conditions for foreigners buying agricultural land in the United States
It is very easy for any foreigner to buy land in the United States and this is the same process as buying land in the United States for any American citizen.
- Find some agricultural land you want to buy.
- Contact the seller or agent.
- Buy it
- Most states in the USA have no restrictions.
The cost of buying agricultural land in the USA
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The best and most obvious way to buy agricultural land in the United States is to buy it directly. You can buy usable pastures or farms, which can then be rented out to a rancher or farmer. However, this method requires a large amount of investment, as the buyer will have to buy a large portion of the land to get a good return on investment. The average price of arable land was $ 4,130 per acre, whereas pasture land was sold for $ 1,390 per acre according to the USDA. However, the agriculture/farmland price in the USA varies from state to state, from time to time, and also depends on the location of the site.
The best way to buy agricultural land in the Midwestern United States
Twelve Midwest States are mostly farming in the United States and these farming states are Minnesota, Missouri, Nebraska, North Dakota, Ohio, Iowa, Indiana, Illinois, Kansas, Michigan, South Dakota, and Wisconsin. Farmland auctions are reportedly the best way to buy land in the Midwest. These lands can then be leased to farmers and ranchers for use.
Land buyers in the United States have a wide range of options, some of which are listed below;
Sale-leaseback transaction – This involves buying an existing farm where the farmer who was previously leased by the previous owner has leased the land continues to work on the farm and pay rent to the new owner. This transaction is less risky with less cash yield because the initial purchase price is higher.
Buy new land, lease to a new tenant – You can buy existing farm or agricultural land for higher yields and then lease the land to a new tenant. This will require working to find a reliable tenant.
Farmland conversion – If the land is not used for agricultural purposes and then it is converted into a farm, pasture, or urban farm. This option promises higher yields at a lower cost, but it takes a lot of work to convert land for agricultural use.
Tips for finding the perfect agricultural land
Finding the perfect agricultural land for sale seems like a difficult task.
Learn about the land’s previous use – You want to use agricultural land as a farm, field, vineyard, or orchard. Past use of land can affect whether you want to buy a property. Many nutrients may not remain for your crops in the land that has not been used for decades. An area that was used for industrial purposes, however, may contain toxic chemicals in the dirt and water. Investigate past land use so you can avoid hazards and focus on finding farms with healthy soil.
Check soil nutrients and acidity – Remember that the soil has the right nutrients and acids to grow preferred crops before buying agricultural land.
Nutrients you should learn about include;
- Phosphorus
- Potassium
- Calcium
- Magnesium
- Sulfur
- Aluminum
- Lead
Observe the farmland’s soil drainage – Most crops prefer soil that loosens quickly after rain. Well-drained soil helps protect plants from diseases such as stem rot, root rot, blight, and mold. Standing water provides a breeding ground for pests, including mosquitoes, aphids, and beetles that eat the leaves. Make sure, you can improve farm drainage by adding perlite, sand, fertilizer, mulch, or vermiculite to the soil. Again, soil modification will require time and money. If you want to start farming right away, buy a farm for sale that already drains quickly.
Analyze the topology of agricultural land – In agriculture, topology plays an important role in the success of the farm. Most farmers avoid steep hillsides as water can wash away essential nutrients under the slopes. If you want to buy land for sale in a barren area, it probably doesn’t make much difference to the topology.
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Research access to resources – Most of the farming is in rural areas. You may not have access to resources such as water, electricity, and natural gas, depending on the selected location of the agricultural land. Some features can give you a leg up when resources are needed. A large pond farm, for example, can give you access to all the water you need for your crops. If you cannot connect to the electrical grid or natural gas, however, you will have difficulty using some machinery, controlling the airflow through the tunnels, and growing crops in the hothouses during the winter. You can extend water and natural gas lines from municipal sources to your farm in some cases. Although the project can cost a lot of money.
Find out if the existing infrastructure meets your needs – Agricultural land is more involved than healthy soil. You need farm infrastructure to help you grow and sell the crop. You can break down the important types of infrastructure into 4 types;
- Roads
- Buildings
- Irrigation
- Electricity
Buildings should provide a safe place to store your equipment and crops. Think beyond having a good warehouse that protects the grass from rain. You could need to find buildings that keep producing fresh. Irrigation infrastructure can range from drip irrigation systems to overhead systems that run along rows of crops that spray crops automatically. Before buying a farm, make sure it has an efficient irrigation system that will provide the right amount of water to your crops.
Why do foreigners buy agricultural land in the USA?
The United States is currently making progress. People all over the world can see the fast-growing stock market and the growing real estate market and want to take advantage. The US has a stable real estate market with clear property laws. Many countries around the world do not have this.
If some foreigners have done well in business or their careers, they may want to diversify in a great country like the USA or they may want some stability in their currency by keeping some assets in USD. Of course, some large foreign parties and companies want to buy land in the United States to expand their work or agriculture in the United States.
Are foreigners allowed to buy American land?
The United States, unlike other countries, does not have to be a citizen to buy land. There are no restrictions on who can buy land in the United States.
For example, federal law does not bar you from buying land, but it does prevent you from buying land from the following;
- Cooperatives
- Condominium Associations
- Community Associations
These associations are usually companies or organizations that impose certain rules on a community. For example, these associations may not allow you to build a building of a certain height that would damage the appeal of the neighborhood. And these associations have a lot of power in terms of who is allowed to be part of the association.
With an association, you cannot be discriminated against because you are a foreigner. The error that these associations use is that there will be a foreign absentee owner. If you are an absentee owner, the association will not be allowed to impose rules and regulations on you. Though, the association is not allowed to operate as you are an absentee owner that means they can stop you from buying land. Thankfully, this is usually the case when someone is buying a foreign property. A house, a condominium, or some other structure.
Process for foreigners to buy land in the United States
Most people buy land with cash, which is why buying land in the United States is so easy. It is difficult to raise funds to buy land for the reasons discussed in previous posts (for both US citizens and foreigners).
If you are buying a home, however, and you need to secure a mortgage, there will be some more difficult ways to jump from banks to secure financial aid for foreigners. When buying land as a foreigner, you can ask if the owner’s financial support is available. It is up to the landowner to decide whether he wants to deal with the foreigners or not.
If you are in this situation as a foreign buyer, it is always a good idea to arrange a call with the owner and explain your situation and try to establish trust and relationship. The owner’s financial situation is based on mutual trust. Most sellers are just trying to make sure they are paid without any hassle. You may be advised to pay early in the month or make a higher down payment or a higher monthly payment to sweeten the deal for the seller and make your offer more attractive.
If you can pay in cash and want to go through the title company and escrow then you should have no problem. The seller will know that the title company has cleared the funds before closing the deal, so both parties are safe here.
Requirements for foreigners buying land in the United States
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According to the law, every person who owns the land has to pay property tax. They may be taxed annually or quarterly by the county and you must be able to receive statements in your home country. If for any reason you can’t receive statements in the post or your mail service is unreliable, you can always call the county treasurer, ask what taxes are due, and pay by phone. If you do not pay your property taxes, fines, and interest, you may eventually lose your land altogether.
How do foreigners buying land in the United States get the title?
If you go through the title company, the title company will record a new deed with your details in the county and provide you with a copy. If you deal directly with the seller, once they have received the final payment for the land, they will record the deed in your name in the county and provide you with a copy. And, it can be posted to you, emailed to you, or both.
Why invest in agricultural land?
The main reason for more investors turning to Farmland as an investment opportunity is that it has a long history of generating solid returns. That return comes in two forms;
- The rise in agricultural land prices.
- Crop production or cash rental payments.
Over the past 50 years, the value of American agricultural land has increased by about 6.1% per year, a decrease of only five years. Increased cash rent yields and investor returns have been even more impressive. According to the USDA, since 1991, farmland has produced a positive return each year, averaging 11.5% annually. To keep this return in perspective, it has outperformed all asset classes except the Dow Jones REIT index during this time frame.
In addition to the average total return potential on farm property, it offers investors several other benefits;
Less volatility – The return on farmland has historically been less volatile than other asset classes, including 10-year US Treasury bonds, and Dow Jones REIT index.
Less correlation – Farmland returns do not usually go in the direction of the stock market. Over the years, Farmland has made a positive return in one year.
Inflationary hedge – Farmland is a real asset that produces commodities like maize and grains. Thus, it takes advantage of inflation as it will not only increase the prices of the area but also increase the crop income. Because of this, some people call agricultural land an investment like gold with production.
What should foreigners do when buying agricultural land?
Buying land is usually a simple process. You need to have the finances available, and if you plan to buy a home you will need to get adequate financing from the mortgage company. Many foreigners who buy with cash do not have to deal with the strict rules that banks force foreigners to do.
Instead, you only need to provide your basic information;
- First and last name
- Proof of identity
- And, proof of residency in the country of origin
You must also remember that you are subject to United States law to pay property taxes. These taxes must be paid, and you must be able to receive your returns in your home country. If property tax is not paid, you will either have to pay a fine, or you may lose the house/land altogether. Buyers looking for a mortgage will be required;
- Provide a minimum down payment of about 30%.
- Provide income documents.
- Provide bank statement and reference letter.
- Provide two forms of identification.
The lender will need to understand where your money comes from and will make a thorough assessment before granting the loan. It is important that, if you are buying a home, you have all this information available.
Buyers who can pay in cash will not have to go through such a rigorous review of their finances. That’s why buying land is especially popular in the United States. Depending on your nationality, you need the below;
- B-1 visa
- B-2 visa
You must be able to provide your passport. It is best to work with a lawyer who has experience helping foreign buyers purchase agricultural land in the United States.
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