What is a Private Sale?

By | General, Owning & Selling Farm Land

As you likely know, there are MANY ways in which farm land can be sold. Most people tend to think of auction sales, sealed bid sales, or traditional listings. However, another VERY common method used in selling farm land is what we call the “Private Sale” method. No, this isn’t some Black Friday or Cyber Monday gimmick used by retailers. It is a very legitimate sales strategy we can employ to help Clients achieve their goals.

What is a private sale?

If you take a look at the recent land sales we have handled, you may notice a good number of these parcels show the method of sale was “Private Sale.” In those cases, the Client did not want us to publicly list and advertise their land. Because of that, we did not list it in the local newspaper or hang posters at all the area elevators and cafes. For various and valid reasons, these Clients wanted to maintain a level of privacy and confidentiality through the process of selling their land. The private sale method allows us to do just that.

How does a private sale work?

While this method of sale clearly limits the marketing strategies we can employ (sorry Agweek, no advertising budget for you!), it does not limit our ability to find buyers and achieve great results for our Clients. In these circumstances, first we work with Clients to build a targeted list of potential buyers. Then, we execute a strategy of quietly reaching out to let them know of the confidential opportunity to buy the land. We do this through phone calls, emails, direct mailings, and in-person meetings. As a result, we are usually able to get multiple parties interested in the land through these tactics. In the end, we are able to negotiate a good price without doing so in the public eye.

Perhaps you own land but do not want to tell the neighbor or family you are selling. Or maybe you just do not like your personal business aired on the line for all to see. Whatever your reason, we can help you discreetly and successfully sell your land should a Private Sale be your preferred method. Contact us today to learn more if you would like!

Until next time!

Andy

A 101 for a 1031 Exchanges

By | General

If you have ever bought and sold land or commercial real estate before, you likely have heard of (or maybe even executed) a 1031 exchange. I have found many clients know a thing or two about them, while others are experts having done numerous 1031’s in the past. However, many clients I work with are unfamiliar with the rules or entirely new to the concept. So let’s dive into the topic of 1031’s and arm you with more information on this incredibly powerful tax-saving, wealth-building tool!

PS: Remember, we aren’t lawyers and we aren’t accountants…so ALWAYS consult with them to make sure you follow all the right rules and regulations!

What is a 1031?

In its simplest form, a 1031 Exchange is the process provided for by the IRS to defer capital gains taxes from the sale of one property by using the funds from that sale to buy another “like-kind” property. For example, if you are selling a $1M property and you have capital gains of $500k, rather than paying taxes on that gain (which could easily be 25% or more), you can purchase a replacement property with those funds and defer your capital gain (i.e. no tax is due after your sale). Pretty powerful stuff!

It is called a 1031 Exchange because it is defined in Section 1031 of the IRS tax code. The IRS has had a process for deferring capital gains on property dating all the way back to 1921 actually, and over the years it has taken on different rules and changes to become a VERY common process among real estate owners and investors. There are a number of rules you must follow around the type of replacement property you can buy (“like-kind”) and when you must finish the process in order to qualify. Let’s cover the big ones rules…

Note: If you plan to do a 1031 when selling a property, just tell your Realtor and/or closing company that you intend to do one. They will help guide you from there and make sure that a “Qualified Intermediary” is ready to handle the process and paperwork for you. There are even multiple types of 1031 exchanges and some other things to note…here is a good resource with more details direct from the IRS.

What does “like-kind” mean?

To qualify for a 1031 Exchange, the IRS says you must purchase a “like-kind” property (which becomes your replacement property) to replace the one you sold (which is called the relinquished property). Thankfully the definition of “like-kind” is quite broad. If you own real estate for your business, trade or for investment, you can purchase any type of real estate that meets that criteria. So if you are selling farm land, you can buy more farm land OR you can buy an apartment building, warehouse, or piece of development land. All would be considered investment property, and therefore “like-kind” to what you sold. One important thing to note here is you cannot buy replacement properties outside of the United States to qualify for a 1031 Exchange.

What are the time limits to do a 1031 Exchange?

There are two big dates to know about when doing a 1031 Exchange. The first is the identification period. From the date of closing on your relinquished property, you have 45 days to identify one or more replacement properties. This is a HARD date, meaning if 45 days go by and you have not yet identified replacement properties, you WILL pay the tax on the gain of your relinquished property. There are numerous methods for identifying the replacement property, but the most common is the “rule of 3” where you list up to 3 properties that you may purchase (you don’t have to buy them all, but you can if you have enough funds).

The second important date to know is that from the date you sold your relinquished property, you have 180 days to actually purchase and close on the replacement property (or properties). Here again, if you get to the 181st day and haven’t closed, then you will be paying that tax bill.

How long is the tax deferred?

That depends. If you sell your replacement property and do NOT do another 1031 Exchange, then the capital gains due on your original relinquished property AND your recently sold replacement property will be due. The great thing about 1031’s however is that you can keep doing them over and over! So if you sell your replacement property, you can do another 1031 Exchange to buy a new replacement property. Some clients even plan to use the “defer, defer, die” strategy…which sounds a bit morbid but it essentially means if you keep deferring capital gains through 1031’s until you die, when your property is passed to your heirs they will receive a stepped-up basis in the property (up to a limit) and the tax obligation goes away! Again, always consult your accountant and/or lawyer with matters such as this.

Why do I need a “Qualified Intermediary” to do a 1031 Exchange?

One last important rule to point out is that to do a 1031 Exchange, you MUST use a Qualified Intermediary (“QI” for short). This is a neutral third-party that acts on your behalf to accept and hold the funds from the sale of your relinquished property, and then they use those funds to help you purchase the replacement property. It is critical you never directly receive the funds from the sale of your relinquished property. They must go directly to the QI. They will handle the funds and the paperwork to make sure you follow the rules and properly defer your taxes per the Section 1031 code. Most title/closing companies can serve as a QI, but if you ever need a list of organizations that can help just let us know.

What is a 1033 Exchange?

Normally I wouldn’t bother explaining a 1033, but here in the Southern Red River Valley (specifically Cass County, ND), we have had numerous clients qualify under the rules of the 1033 Exchange.  This is the IRS Code for an “involuntary conversion”…i.e. a forced sale such as the land acquisitions being done for the Fargo-Moorhead Diversion. The 1033 functions in much the same way in that it helps sellers defer capital gains, however the time limits are MUCH longer and more flexible than on the 1031 Exchange rules. For example, under a 1033 Exchange the seller has up to 2 years to find and acquire their replacement property. They can also accept the funds from their sale instead of holding them with a QI as required by a 1031.

Here in the southern Red River Valley we have helped dozens of clients perform 1031 transactions, saving hundreds of thousands of dollars in taxes for them. They are a fantastic tool for accumulating and preserving wealth. If you are thinking about selling Red River Valley farm land and want to explore your 1031 or 1033 Exchange options, please contact us and we would be happy to show you how we have helped other people do the same thing!

Until next time,

Andy

 

 

YTD Sales in the Red River Valley

By | Ag Land Values

It has been some time since we did a check-in on sales activity on the North Dakota side of the southern Red River Valley, and there are some interesting trends to discuss! As we detailed earlier this year, sales started out pretty strong in Cass County yet were more moderate in Richland County. Through 9 full months now, that trend has continued in Cass while Richland has now picked up steam to outpace last year’s numbers at this time. Let’s talk a few details…

In Cass County, we count 31 arms-length deals with an average price of over $4,150/acre county-wide. That compares to a year ago at this time where we had counted 23 deals at an average price of $4,190/acre. It appears the majority of these sales are some of the less productive ground however, which generally is going to be sold at a discount to the best of the best soils. Sales for the higher productivity land have averaged over $4,800/acre YTD for example, with highs in the mid-$5k’s/tillable acre.

Richland County started quite slow but has had a much busier summer and fall, with 19 arms-length deals being recorded by our count from January through September. The average price has been around $3,600/acre which is in line with where it was at this point last year. Here again, we are seeing some of the less productive land trading which will limit the upside on pricing.

These numbers seem to indicate strong, consistent demand with largely neutral prices compared to last year. Keep in mind we saw rising prices last year so it’s great to see things not decrease given the tough time the Ag markets and operators are having this year (this blog post analyzed 2017 in Cass County for example). I expect to see a similar volume of ag land selling this fall as we saw last year…perhaps even a bit more depending on how yields and prices shake out the next couple of months.

If you want more details or to talk about buying or selling farm land in our area, feel free to contact us anytime!

Until next time,

Andy

New Listing Alert! Another Cass County, Stanley Township Listing

By | New Listings

The Ag Land Sales & Auction team at Goldmark Commercial Real Estate is proud to present another excellent tract of farm land with GREAT future development potential for sale. This property sits just off a future I-29 interchange and north of 76th Ave, less than 1/2 mile east of 45th St South. Stanley township has been a hot-bed of sales activity lately and we are proud to present yet another great parcel to the market. This land is unique from many in that large portions of the property are already out of the flood plain! There is also an existing farm lease on the land that will ensure income before the land is eventually developed. This land will eventually include both commercial and residential zoning opportunities and is priced to sell!

You can read more about the land here. If you have any questions or interest, please do not hesitate to contact us!

Until next time!

Andy

What is a Sale Leaseback?

By | General, Owning & Selling Farm Land

There are many reasons why ag land is sold, and there are many different methods it can be sold by. A rising trend among farm land sales in the recent past has been something commonly referred to as a Sale Leaseback. You may have heard the term before, but I still find some people aren’t all that familiar with how they work. Here is a good example of what they are and how they work:

  • For various reasons, fictional owner “Valley Dirt Farms” needs to sell some land but does not want to give up farming the acres.
  • For many years they have owned and farmed a quarter of land that is a solid producing parcel that they would prefer to keep farming, and they could justify paying a strong rent to do so.
  • They decide to sell this quarter but only on the condition they are able to lease it back from the new buyer (hence the “leaseback” portion of the sale). Valley Dirt Farms is willing to offer a multi-year rental agreement at a good cash rent price.
  • The land is marketed with this condition and a focus on the returns that a potential buyer could achieve. Naturally, this marketing focuses on the Investor category of buyers, not the owner/operators who still tend to dominate the land buying market.
  • Once a buyer/investor steps forward and final terms are negotiated, a long-term lease is usually signed at or near closing that provides A) the seller with the opportunity to continue to farm the land, and B) the buyer with the income and return they were interested in. Win-win!

We have handled multiple Sale Leasebacks here and have found great success in marketing to this category of buyers with our deep network of regional and national investors. If you have interest in exploring your own Sale Leaseback (on the buy OR sell side), please do not hesitate to contact us!

Until next time!

Andy

 

New Listing Alert! Cass County, Stanley Township Land

By | New Listings

The Ag Land Sales & Auction team at Goldmark Commercial Real Estate is proud to present two excellent tracts of contiguous farm land with GREAT future development potential for sale. The property is just off a future I-29 interchange and north of 76th Ave, putting this farm land squarely in the growth path of South Fargo. We’ve helped numerous people buy and sell land in this area recently. Existing leases on the land will ensure income before the land is eventually developed. This land will eventually include both commercial and residential zoning opportunities and is priced to sell!

You can read more about the land here. If you have any questions or interest, please do not hesitate to contact us!

Until next time!

Andy

SOLD! Recent transactions, June 2018

By | SOLD! Recent sales

Another “Closing Day” to report! Earlier this morning Goldmark’s Ag Land Sales & Auction team was proud to help clients close on two pieces of great farm land in Wilkin County, MN! One parcel was listed for sale while another in close proximity was a private sale, proving that multiple methods can be used to achieve the same result! More info about these great parcels can be found below. Contact us if you would like help in selling or buying land in the Southern Red River Valley as well!

Wolverton Township, Wilkin County
Deerhorn Township, Wilkin County

Until next time!

Andy Westby

What is a BPO?

By | Ag Land Values, General

The question of “how much is my land worth” is common for landowners who may not be in touch with the current market activity or those who perhaps live out of state and therefore get out of touch with what’s going on locally. Nearly everyone is familiar with using an appraisal to get an independent, expert opinion on the value of a property. However, most people are NOT as familiar with another method commonly referred to as a BPO, or “Broker’s Price Opinion.”

BPO’s have been around for a long time and banks have routinely used them for different purposes depending on the project or loan size, but yet many landowners I talk with are not familiar with them or the benefits they offer. So let me explain what a BPO is in general terms:

  • A BPO is usually a formal report that any qualified real estate agent or broker can do for you.
  • A good ag land BPO should provide a description and overview of the subject property, with things such as soil maps, aerial maps, and “boots on the ground” pictures.
  • The BPO should also identify a number of recent sales in close proximity and/or in similar characteristic to the subject property.
  • Based on these recent sales and the author’s experience in the market, the report should give you a strong opinion on the value (or value range) of the subject property.
  • They are generally much shorter than a full appraisal, which means two important things: 1) they can be completed within 1-2 weeks typically, and B) they are much less costly than a full appraisal.

BPO’s have been used in the past to help buyer’s and seller’s arrive at a fair price, to help families make an informed decision if now is a good time to sell or to hold, to help establish a basis for inheritance purposes, and much more. If you are interested in learning more about this or want a BPO done for your land in the Southern Red River Valley, please do not hesitate to contact us!

Until next time!

Andy

 

New Listing Alert! Wilkin County farmland with leaseback

By | New Listings

The Ag Land Sales & Auction team at Goldmark Commercial Real Estate is proud to present this excellent tract of farm land for sale. The current owner desires to lease back the property at a very strong rent for a multi-year period with strong returns. The property is just 1½ miles south of County Road 50 near Wolverton, MN and the Clay County/Wilkin County line. With a strong soil productivity index, excellent historical yields, and good drainage, this is a great opportunity to own quality Red River Valley farm land!

You can read more about the land here, but in summary this property can offer 4%+ returns which is hard to achieve in today’s environment. If you have any questions or interest, please do not hesitate to contact us!

 

How Farmer’s Can Pencil High Priced Land

By | Ag Land Values, General

In the past couple of years, it has been a question I have heard routinely from people not connected directly to Ag but who are familiar enough with what has happened in the farm economy the last few years. The question goes something like this: How in the WORLD are farmer’s still paying that kind of money for farmland! I always enjoy this question as it’s a great opportunity to educate people and dispel some myths about ag land and the farm economy. Well the good people over at www.agriculture.com recently posted a new article that tackles this same question. Have a read yourself here: https://www.agriculture.com/farm-management/farm-land/how-are-farmers-affording-high-land-prices

While this area of the Southern Red River Valley doesn’t see the same prices mentioned in the article from places like Iowa, we still see strong prices for good land that make some people scratch their head. To summarize the article, here are the key reasons we continue to see good prices for strong farm land:

  1. For many, buying farmland is hard to pencil they day you buy it, but buyers are typically buying it for multiple generations. Over time, land investments have usually paid off and been a huge source of a farmer’s net-worth and future income when the time comes to stop farming it and start renting it.
  2. Farmers can often-times dollar-cost-average their investment in new land. Many farmers have owned land that was purchased decades ago for a few hundred dollars an acre. Paying a strong price today is easier when you can dollar-cost-average your total land investments across low-basis land with higher-value land.
  3. We are seeing more investors interested in ag land with prices having fallen since the highs of 2012/2013. Investors can tend to push the market a bit which can lead to rising prices.
  4. I will add one more item the article didn’t address. While the farm economy has struggled along the past few years, the top 20% of producers out there are still incredibly well positioned to capitalize on the land market when the right parcels come up for sale. Strong land will always bring strong prices, and there are still excellent operators out there with dry powder just waiting for the right opportunities.

Until next time!

Andy

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