Land to buy or walk away

salmonorcod

Hi all,

Theres a fairly big plot of land for sale locally (not joining our farm). We are in sucklers, dairy will never be an option due to fragmentation of land. There are 3 of us farming part time and working off farm full time. The other 2 are mad to buy this land but I'm not too sure myself as it still will leave us part time farming in my mind and at the minute we are stretched enough calving etc.

Also I'm geared towards a mortgage with herself at the minute. My only means of raising my third would be a long term loan and using up the mortgage deposit saved. I would imagine I would have to have most of the loan cleared before being mortgage approved which adds a nice few years on to me. I'm renting a house at the moment so between that and the loan repayments I'm afraid I would be snookered.

Looking for advice on where to look for long term loans for land purchase and also if anyone has been through applying for a mortgage with existing long term loan in their name.

Thanks in advance

893bet

You would be mad IMHO to be buying a block of land and further fragmenting your already fragmented farm when you are only into sucklers, especially given that your home life is renting and you are trying to buy a house. An existing long term loan is no problem for a mortgage aslong as you have the salary to support that, plus the mortgage on top, plus stress test etc.

It also sound like you would struggle to build back up house deposit as you would have rent plus this new loan to pay off and then try and save.

With three of you involved as it stands, what salary do you pull from the farm?

salmonorcod

I'm taking away zero as it stands. But I'm being left land so I dont look for anything. I'm a young farmer so we would set up partnership next year probably to get a few Bob that way.

Yeah I would struggle to build back deposit, rent and loan. We are both working but I'd fear bank would run when they see it on mortgage application. Also the increased help to buy/build is available this year which may be lower again from next year so its not a bad time to be starting a new build.

Calahonda52

You need to look at the cash flows you have at the moment.
You need to look at what you are paying in rent vs what your expected mortgage would cost.
The extra land will create extra work so will you need to hire some part-time labour.
Any lender will look at your total debt and ability to repay as well as asset values.
The three way ownership means that you cant use any of the land to support any loan application in your own name.
If you do buy the land, the paper work will be biased toward the lender so you need to make sure you are only liable for your third of the debt.

.
In a word, walk

salmonorcod

If I was to buy the land 3 ways and get a site into my own name would it stand to me?

The loan I'm taking out would be in my own right the other 2 are going to raise their shares in different ways, sales of assets etc

blue5000

Is selling off some of your smaller, further away land parcels an option? Beef farmer here and that's the only way I'd look at it. 10-20 acres might attract 2 or 3 people joining it, rather than 100 acres in one block.

jimmy G M

Buying land to engage in suckler farming probably does not make sense in most people's eyes, but lots of people do not make rational decision around about buying land..... you will prob get loads of comments here later on about the merits or otherwise of this. I am not going to get into this discussion.

Looking at the land purchase getting into a deal with 2 other parties be it family or otherwise to buy land could be problematic. You would need to have very clear rules / agreement written down beforehand.

To me it makes no sense for everyone to be cashing in their chips to raise cash to buy the land. You should be making use of the value of the land to raise a loan against it. Banks would typically lend 70 to 80% of the value of the land, so you would each only have to contribute say 10% plus costs to get financed. Put the loan over the longest term possible to keep repayments low initially. You can always pay back faster down the line.

The bank should look favourably on the loan application as they would have 3 (presumably based on your savings and siblings shares etc) solid borrowers to repay the loan. You will be jointly an d severally liable ie you each are responsible for your own portion of the loan and for the entire loan if others dont pay.

Looking at you own mortgage situation, if you still have a chunk of cash left over after your 10% towards the land and between you and your partner have the repayment capacity then a Bank should lend. You should go talk to a financial adviser / few lending institutions to get a feel for what they think about the land and mortgage situation.

Ultimately, a mortgage is probably your priority and if the land interferes too much with this tell your siblings to work away.

Can you give us any idea of the acerage and price of land involved here. Just to give a better context. €150 - €200k / 3 might be doable but €600k definitely not.

K.G.

Buying between the 3 of ye is madness but the 3 of ye paying for it makes perfect sense.i would only consider this as part of family settlement type agreement where one party would move there and make it their own.

GrasstoMilk

Farming family of 4 brothers here locally buy all there land together, the guy with the lowest acres gets the next piece of land that comes up and so on. They all help pay for it then.
They have all the newest gear, all in tillage, not young men either and only one has family

I presume its you, your brother and your father in this set up?
As KG says, 3 ppl paying for it is fine, but who ever is going to get it is who's name it should be put into

Means of paying for it would be my issue, the farm should be capable of carrying it, I wouldn't let it put your own personal finances under pressure

Deeec

I have a few questions for you salmonorcod to help clarify the situation as its not clear:

1. How much would you need to borrow?
2. Who are you farming with - father, brothers, friends - What relationship are they to you?
3. Is the land you will inherit separate to the land you will be buying or will this land you are buying be part of your inheritance?
4. How much is your off farm income?

salmonorcod

3 way split would be approx 125k each.
2 brothers and father
The purchased land would be part of a new farm partnership to be set up but I think would be going in 2 brothers names only. Nothing decided on that part. I think fathers idea is that it would be our place and hes helping it along. Hence why I think in his head he wants us to bring in our own share of it each.
Rest of farm would be up to him to decide on inheritance etc .
I'm on 34k.

I'd be happy to take my own loan and put my share in but I'd also like to be in a position to build a house within a reasonable time frame too. Also as mentioned earlier I'm having doubts about another fragmented piece of land (the other 2 dont seem to consider it a disadvantage)

No I dont think selling a smaller piece against the new block is a runner

cute geoge

I cant get my head around the partnership on fragmented land ,fair enough if it was one block that you would be slow splitting up .Would it not make sense to sort who is getting what piece of land .I would go along with buying this block of land only if I got sole ownership of this block or other similar sized block or it could all end up in one big mess.Parents often favour one sibling over another so tread carefully

J.O. Farmer

salmonorcod wrote: »

3 way split would be approx 125k each.
2 brothers and father
The purchased land would be part of a new farm partnership to be set up but I think would be going in 2 brothers names only. Nothing decided on that part. I think fathers idea is that it would be our place and hes helping it along. Hence why I think in his head he wants us to bring in our own share of it each.
Rest of farm would be up to him to decide on inheritance etc .
I'm on 34k.

I'd be happy to take my own loan and put my share in but I'd also like to be in a position to build a house within a reasonable time frame too. Also as mentioned earlier I'm having doubts about another fragmented piece of land (the other 2 dont seem to consider it a disadvantage)

No I dont think selling a smaller piece against the new block is a runner

Firstly on the face of it your dad seems to be trying to do his best to set you both up which makes a nice change from the usual disputes.

The merits of buying land for anything other than dairy doesn't make sense financially but you're already farming so you're not just in it for the money.

If you're dad is putting up a third that covers the deposit and the bank would lend 2 thirds if there's repayment capacity. You're brother would need to join you in the loan. The other thing is 34k looks low for a mortgage of 125k never mind a land loan.

If there's a site on it you wouldn't need a mortgage deposit as the site would cover that. Hoewever you won't be able to get planning permission for a site before buying without driving up the price so a gamble.

It's your decision on whether to buy or not but you also need your partner to be happy to proceed. Happy wife, happy life.

Deeec

salmonorcod wrote: »

3 way split would be approx 125k each.
2 brothers and father
The purchased land would be part of a new farm partnership to be set up but I think would be going in 2 brothers names only. Nothing decided on that part. I think fathers idea is that it would be our place and hes helping it along. Hence why I think in his head he wants us to bring in our own share of it each.
Rest of farm would be up to him to decide on inheritance etc .
I'm on 34k.

I'd be happy to take my own loan and put my share in but I'd also like to be in a position to build a house within a reasonable time frame too. Also as mentioned earlier I'm having doubts about another fragmented piece of land (the other 2 dont seem to consider it a disadvantage)

No I dont think selling a smaller piece against the new block is a runner

Its a tough one. I think proceeding with the purchase would set you back on getting a mortgage ( depending on what your partner is earning). I dont think you would get approved for €125K on your own. Also a loan for land is usually done over a shorter term so repayments would be high.

It sounds like you will be the most impacted ( cashflow wise) by the purchase.

I think it may be a good time for the 3 of you to sit down and discuss who is inheriting what. Its a tough chat to have but needs to happen. I agree with the other poster who said partnerships are not always the best option ( especially on a small scale). Also you have to think down the line when you have a family of your own its better to own land in your own right to avoid issues.

minerleague

salmonorcod wrote: »

Hi all,

Theres a fairly big plot of land for sale locally (not joining our farm). We are in sucklers, dairy will never be an option due to fragmentation of land. There are 3 of us farming part time and working off farm full time. The other 2 are mad to buy this land but I'm not too sure myself as it still will leave us part time farming in my mind and at the minute we are stretched enough calving etc.

Also I'm geared towards a mortgage with herself at the minute. My only means of raising my third would be a long term loan and using up the mortgage deposit saved. I would imagine I would have to have most of the loan cleared before being mortgage approved which adds a nice few years on to me. I'm renting a house at the moment so between that and the loan repayments I'm afraid I would be snookered.

Looking for advice on where to look for long term loans for land purchase and also if anyone has been through applying for a mortgage with existing long term loan in their name.

Thanks in advance

If your father intends to stay farming for 10 years and is about 55 now it might make sense for him to buy the land in his sole name now, use retirement relief in 10 years to pass on land and gives you breathing space to build house now?

salmonorcod

Thanks great comments. This block of land is too big for only one of us to cover. Hence hes trying to get us set up on it between us. We have an understanding that the farm will stay together for the purpose of farming it ie partnership for running the farm. That being the same idea with the new piece.

I'm not sure about putting it in the fathers name as we might be caught for stamp duty, cgt etc later on transfer.

I'm aware I couldnt borrow 125 but I'd have to use up the house deposit and get as close to that figure as possible with the loan. The mortgage would be joint but we would be back to square one deposit wise plus the loan on top.

forgottenhills

salmonorcod wrote: »

Thanks great comments. This block of land is too big for only one of us to cover. Hence hes trying to get us set up on it between us. We have an understanding that the farm will stay together for the purpose of farming it ie partnership for running the farm. That being the same idea with the new piece.

I'm not sure about putting it in the fathers name as we might be caught for stamp duty, cgt etc later on transfer.

I'm aware I couldnt borrow 125 but I'd have to use up the house deposit and get as close to that figure as possible with the loan. The mortgage would be joint but we would be back to square one deposit wise plus the loan on top.

You have said that your father is trying to get you and your brother "set up". I am sure that his intentions are good but encouraging someone to saddle themselves with a high debt load with not a clear path to repayment is not good business, it is not "setting you up".

To be honest what you are describing sounds like a vanity project, not a commercial enterprise if you are not making much from the existing suckling and will also be suckling on the new farm. It would be different if you were describing expanding a highly profitable existing farm enterprise. Also you have not said what your girlfriend thinks about all of this or what her earnings are, she needs to be consulted.

If I were you I would concentrate first and foremost on advancing your career and your own family and put any spare cash you have over and above your mortgage into something that makes financial sense such as your pension or something else that will generate money.

The risk you are running is that you will have a debt millstone around your neck, your girlfriend might get pissed off at the lack of funds available to start a home and a family and could leave you. And you end up working every spare moment on a farm that is not generating much of a return and will be getting in the way of you leading a happier life.

Kevhog1988

If you get your father to gift you a site you can use that as a deposit for mortgage on a self build. The only issue i can see is you then may be under pressure to prove repayment ability if you have a large loan for the extra land when going for mortgage approval. Also make sure you check out the repayment cost of the loan. We bought land here a few yrs ago and tbh the interest rate is high on it.

MfMan

Is it tillage-quality land or have development potential? Sometimes the best time to jump is when you're afraid. Land property prices are quite inflated currently but it's hard to see them deteriorating much any time soon.

funkey_monkey

Do you have any awkward or isolated parts of land that you could sell off a few sites to raise some capital and reduce the outlay on this new place?
If you got a site yourself on one of the farms would that help alleviate your problem? Depending on where you are, the site can be the biggest cost of the property.

salmonorcod

Thanks for all the comments. A lot of the stuff that came up I was thinking myself. The land in question is only suitable for grassland or tillage no sites really on it. Looking like the better option could be to hold off and wait for a smaller more manageable block of land.

Iodine1

Get your house sorted. Land is a luxury. You don't want to be struggling to pay for land and being forced to pay rent at the same time. Your best investment will be your house and use your spare money to cover land, stock etc etc, Only then is it an investment rather than a millstone. That's just my view. Good luck with your decision.

Bass Reeves

Assuming a 100k loan repayments on it would be 722 / months. That is presuming a 25k deposit. Bank will insist on a life insurance policy as well. Biggest issue is technically you are liable for all the money lend. It crazy renting and doing this. You are probably paying 6-800/ months for a house. As well as you are only in the lower tax band any farm losses will not lead to substantial tax savings.

Even trying to get a site and build will not get a mortgage accross the line IMO. Problem for the bank in that senario you will have house rental, land repayments and mortgage repayments while house is being build. Priority should be a roof over your head. Anyway in alot of rural Ireland house prices are behind building costs still.