Looking for advice on buying land with friends

So me and two other friends are wanting to buy some land together. I live in Montana and the other two live in Georgia. There is a 40 acre property with good terrain and a creek running right through the middle of it that we would like to purchase in Burke County NC. The owner of the property does not want to do owner financing. We do not have the cash to buy it, so we will need to get a loan or find some investors. We are looking for advice on what might be the best option on how to obtain financing and how to title the property.

Some of our research:

--Starting an LLC--
-This may make things easier to get a loan (not sure though)
-Could title the land as an LLC and have documents explaining how the land will be divided among us and have an escape plan if one of us decides to move on.

--FSA Loans--
We do not qualify for their direct loans since we do not have the required 3 years of farm experience or 1 year of schooling. The guaranteed loan is an option, but we would still need to find a lender (credit union/bank/???). Might be easier to get the loan as an LLC?

--Special loans for minorities or women--
One of my friends is part native american. My other friend is a woman. I'm as white and boring as they come, lol

--Titling--
Joint Tenancy vs Tenants in Common vs LLC

Thanks in advance for y'alls help!

I have a lot more questions than I do answers on just how this would work, but for the interim I might suggest looking deeper into FSA Loans. Here, they have a 3 year waiting list for real estate loans, and with so few land buyers willing to wait three years for people to get their money, they seek financing elsewhere. This, may or may not be the case in NC though, I would just look into that because you don't want to get your hopes up, and get half way into the lengthy loan process to find out its years away before the money is available. Not that it is impossible to get FSA loans though, as I got one in the past, so I know it is possible.

But I am not 100% gloom and doom.

A lot of times the FSA provides guarantee loans, which means if you (the buyer) default, the government pays the bank who loaned the money, the money you would have paid them. In this way the government is just telling a bank, "hey, we know this is a risky loan, but if you (a bank) come up with the money and help this guy out, if he fails, we will cover the loss", so a bank goes for it. Why wouldn't they? They are guaranteed their money back, with the possibility of some interest off you.

So...Go to the banks that the USDA-FSA works with.

In Maine there are (3). This is what I did when I had a chance to buy some land for really cheap money. Usually one of the banks in a state is Farm Credit. They are okay, but they like A LOT of collateral, probably something you do not have as the landowner will want what their land is worth. I really do not like them, but it does not mean they might not work for you. Another was a regular bank (Bangor Savings Bank), and another was a special bank that helps poor income Farmers, Loggers and Fishermen, and this is the bank I went with. They were new, and so they wanted a loan, especially with my farm since they could lay claim to helping a 281 year old farm.

The point is, all these banks have agricultural loans, and most are used to working with people with low credit scores. Farm Credit is the exception on that; they like high credit, high collateral loans. :-( You may approach them individually and see what you can do though.

Your friend who is an Indian, may or may not get some assistance with that fact. I am an American Indian as well, but have never used it to get a loan or a grant because I do not feel it is ethical. But your friend could, if she is part of a recognized Indian Tribe. That is something you will have to find out.

You have to chase it sometimes, but money is available for new farm purchases. The biggest issue is, you have to convince them you will be putting food on the national food chain. I know that producing food for yourself is a lofty goal in and of itself, but the role of the USDA-FSA (and thus the banks they work with think likewise) is to provide food for a hungary nation. More than one homesteader has had their dreams shot down when they mentioned "self suffeciency". On Permies Forums it is something that is great, but never to be spoken in the halls of lenders. Many people forget that when they go for a loan.

In the end I got a $150,000 real estate loan with no money down, with 715 credit score, but at 6.5% interest. Not great terms, but I got the land. Praise me, or beat me up; your call. I have also got $70,000 in gants, and a FSA Operational Loan, so I do have real world experience in this stuff.

I am currently selling my homestead here in Maine, and one of the things every person that looks at the homestead gets, is a list of banks to work with, if the buyer has Good, or even Poor credit. The point I wanted them to know is, money is available to finance a farm if they know where to look. I just helped them out by telling them names and places for both good and poor credit people, with bank names, and loan officers that were receptive to farm loans. I do this because I know others do not have the contacts that I have as an experienced farmer. It does not mean my conttacts will float a person a loan, but it does increase the odds.

Money for farms IS available if you look in the right places. Best of luck to you.

Wow Travis! Thanks so much for that info! It's super helpful and you answered so fast! I'll Look more into the FSA guaranteed loan. I just checked the list of lenders in NC and there are 55 of them! Do you think it would help to form an LLC for that? What are your other questions?

Jeremy Butler wrote:Wow Travis! Thanks so much for that info! It's super helpful and you answered so fast! I'll Look more into the FSA guaranteed loan. I just checked the list of lenders in NC and there are 55 of them! Do you think it would help to form an LLC for that? What are your other questions?

I was really afraid I was coming across as a Know It All which I did not want to do, yet let you know that I did buy farm land with a farm real estate loan too. How I did it, may be vastly different than how you do it, but I can only tell you my experiences after all.

I do not know anything about LLC's, but I might just try and keep things as simple as possible. With most of that stuff, it can both help, and hurt you on a loan. In my experience, lenders really wanted to help people, more than corporations, so I would tend to think that an LLC would hurt you. But that is just a guess. With the bank I went with, your "story" is 50% of the loan; the ability to pay it back is only 50%.

I guess my biggest question is, why bring so many partners into the ownership mix? I have seen some partnerships work, but not many so when I hear people suggesting partnerships, I start to wonder what each person brings to the table, and why they are vital to the success of the operation. Two people are hard enough to get along with, but three is that much harder. BUT I do not know any of you, so what I just said is 100% based on probability, and not anything profound.

If your friend is part of a Federally Recognized traibe, just as an example, she will not need any of you others to help fund the land purchase, she can get that on her own. So that is why I wondered why (3) people, from (2) states were trying to get together. That is not a judgement call on my account, there may be a valid reason for it after all.

Travis Johnson wrote:I was really afraid I was coming across as a Know It All which I did not want to do, yet let you know that I did buy farm land with a farm real estate loan too. How I did it, may be vastly different than how you do it, but I can only tell you my experiences after all.

No worries. That's not how I took it at all.

Travis Johnson wrote:I do not know anything about LLC's, but I might just try and keep things as simple as possible. With most of that stuff, it can both help, and hurt you on a loan. In my experience, lenders really wanted to help people, more than corporations, so I would tend to think that an LLC would hurt you. But that is just a guess. With the bank I went with, your "story" is 50% of the loan; the ability to pay it back is only 50%.

I'm very interested in how you pitched your story to get them to approve you.

Travis Johnson wrote:I guess my biggest question is, why bring so many partners into the ownership mix? I have seen some partnerships work, but not many so when I hear people suggesting partnerships, I start to wonder what each person brings to the table, and why they are vital to the success of the operation. Two people are hard enough to get along with, but three is that much harder. BUT I do not know any of you, so what I just said is 100% based on probability, and not anything profound.

If your friend is part of a Federally Recognized traibe, just as an example, she will not need any of you others to help fund the land purchase, she can get that on her own. So that is why I wondered why (3) people, from (2) states were trying to get together. That is not a judgement call on my account, there may be a valid reason for it after all.

Well part of why we wanted to do it together is because we wanted to create some community. We all have a permaculture mindset and are all wanting to homestead. We thought that it would be easier to find one large tract of land that we could all live on than finding 3 tracts next to each other. We planned on internally dividing the land equally between the three of us and having a small community space for us to use together and for visitors. Another reason would be to ease the financial burden of everyone as we would all be responsible. One of them has been my friend since I was a little kid. The other is her boyfriend. We all trust each other, are very open with each other, and communicate very well. Her boyfriend is the one that is part Native American, but he isn't part of a tribe. He was something like 1/8th or 1/16th native. Might not be enough to even worry about.

Am not aware of a farm LLC having any credit advantage. Lenders want to know how long you have been farming, production numbers, but mainly what assets it has. If the partners have cash and machinery they can put in the LLC it might help.
Corporate legal structures are most useful for accounting purposes. There can be a lot of advantages in shielding partners from some types of personal liability, cash flow timing, and utilizing the tax loopholes that evilglobocorps use.
The downside is it adds a lot of paperwork, and there are penalties if you don't do it right.

Jeremy Butler wrote:I'm very interested in how you pitched your story to get them to approve you.

It was pretty easy, but not really something many people can replicate.

I am a 9th Generational Farmer here in Maine, and 14 Generations if you go back to the Mayflower. No organization wants to be approached for help, and told they cannot keep a farm going with that much history. Even if I defaulted on the loan, the bank would have got $150,000 in advertising alone from the deal over the years. So it sucks that my farm is being "used", but I can use it to my advantage at times too.

For that reason I get a lot of articles published about this farm quite a bit, but I do not talk about it much on Permies because I know a lot of people here are new to farming, or have new farms, and as such they do not have much history, and I do not want someone else to feel bad because they may not have much direct farming history. To me it does not really matter, if a person is farming, they quickly know all the disappointments, hard work, and set-backs that come from farming, and whether they have been doing it since last year, or since 1621, it does not matter; farming is farming.

But the loan was kind of easy to get too because while I was borrowing $150,000, it was 161 acres of land, a sawmill, a house and a gravel pit. It had a total value of $305.000, so the land was worth twice what I was borrowing, and banks love collateral. I really did not need any more land at the time, but it was a good deal. so I decided to grab it while I could.

How can 3 retired women find a piece of land in Maine, or N.H. Or VT and be able to build their own homes on it?

Research
Drive
Hardwork

There may be schemes out there to help you, thats what the research is about.
Good luck with it

In reference to the OP: when money is involved, friends are not necessarily friends. A well crafted legal agreement, however, is everyone's friend.