Off-farm property investment proving fruitful
Investing in assets away from your farming operation can prove a worthwhile and fruitful strategy for diversifying risk.
Consistently hefty harvest yields and high livestock prices have resulted in an increase in urban real estate activity by primary producers.
Now with residential interest rates so low, we’re finding many are exploring the added value of finding assets beyond their agribusiness.
Family and operational situations are unique and often complex, so it’s crucial to make sure investing in property as a wealth creation tool actually suits your circumstances.
The majority of farming families tend to have most of their assets tied up in agricultural land and the farming business, so investing off-farm can diversify income sources and increase capital returns.
Choosing the best strategy to expand farm business wealth requires careful consideration to reduce exposure to factors such as market fluctuations, commodity prices and weather. And many farming businesses have complex ownership arrangements, so it is vital to understand what entities operate inside and outside your agribusiness structure.
Primarily farmers need to establish why they are looking for opportunities off-farm. Will this strategy aid your family’s succession planning? Or if there’s no future farming generation, will an expansion of the agribusiness fund your retirement? Or perhaps you’re concerned about the risks in agriculture and believe diversifying off-farm will help mitigate them?
We even have farmers who create an off-farm property portfolio to help provide for their children’s education and family’s off-season lifestyle.
Once you’ve established the reason for your off-farm asset pursuit, you should consider the cash flow implications for your family and the farm. A strategic investment can greatly improve your cash performance, but it’s vital you pay attention to the consequences. And don’t forget, any non-farm income can affect your Farm Household Allowance (FHA).
Diverting some of your farm income to a property investment, such as a rental property (residential, industrial or commercial) can also have positive taxation implications such as write-off deductions to capital expenditure.
Location, age, style of building, zoning and property asset class exposure should all be discussed with an experienced real estate agent and property management expert.
It’s these early discussions that will make a big difference to your bottom line.