I've been working on this idea since September, with lots of hair pulling, research, and more coffee than I would have thought possible. Already burned out 1 laptop. After many late nights, the pieces are starting to fall into place.
It is my intention to establish a fund to be used to purchase or finance properties which will be developed into natural growing farms.
This is a bold statement, and one for which Posterity demands a thorough explanation. The plan has several features which are mutually supportive, but each feature and the overall plan can still function independently. There is opportunity for anyone interested to earn money, from spare cash to residual income to a decent living to investment income. How fast this idea takes off and the scope that can be reached is a matter of people getting the word out and contributing time, effort, and ideas. How far the project goes is dependent on persistence.
I keep a quote on the margin of my website, www.farmwhisperer.com...
"The greatest fine art of the future will be the making of a comfortable living from a small piece of land."
There are people everywhere who have the dream of owning a small piece of land and earning a living from it by growing vegetables, raising livestock, and operating a small farm. There are variations, of course, as many as there are people. There are those who would gravitate towards bees or chickens or grass fed beef. Others with a desire for healing or culinary herbs. Vegetables show great promise, with a ready market found in the growing demand for local goods. Still others simply want a place to raise a family in a wholesome, natural setting with good food and clean air.
The biggest obstacle in getting started is often getting the land. Downpayment, closing costs, and deposits on utilities all slurp up cash like a sponge. Once the land is in place, there is the constant burden of the mortgage and finding a means of putting the farm on a paying basis. In addition, the propective new farmer must uproot his family, incur the costs of moving, and somehow scrape up the capital to invest in the farm operation. That's with banks, having taken a beating in the last housing bubble, demanding excessive documentation, a long and strict credit history, and are uninterested in financing farm operations when things are good. All the while, a weak economy combined with few employment options create difficulties in making the leap of faith required to give it a go. Nonetheless, the Dream persists.
For such a project to succeed it must be viable over the long term, highly detailed with contingencies to minimize failure, and set up from the start to be a stand alone enterprise, independent of outside influence. Encumbrances must be removed, and where that is not possible, identified and mitigated. Raising capital can be best served by openly presenting the facts of where it comes from and how it is used. The people involved will require screening, perhaps training, and continuous access to new ideas and methods. The property in question will need to be examined, with the plan for the operation highly scrutinized, with progress tracked. Incentives can be put in place to enhance results, provide opportunity, and duplicate successes.
There is no One Size Fits All formula. Properties are as diverse as people. End use of the funds, while contractualized, will be dependent on the situation presented. Properties can be leased, mortgaged, rent to own, owner financed, refinanced, or retained as a subsidiary enterprise and repurposed. Properties may be bare land to be used for farming, include structures to be used by the farm, include a home to be occupied by the owner(s), or a complex of land and structures to be put to several tasks which may or may not include housing. The project is not without risk. Non-performing projects will be examined for the best possible solution. Foreclosure and subsequent liquidation are viable options. Neither the fund nor the sponsored farms are immune to failure. Risk will be contained inasmuch as possible. Precarious situations brought to light, openly disclosed and discussed.
This is not a get rich quick scheme. It's not even a get rich slow scheme. Nobody gets involved in farming because of it's fast track to wealth. While I stand a chance of earning an honest living one day, I'm giving up neither my day job nor my own aspirations of building a business growing vegetables. I appreciate your patience while I assemble the details, to be published here as free time allows.
Details of the plan may be found in the Farmland Fund Plan Index
Comments, suggestions, and critical opinion is welcome.
IMHO, 7% simple interest is too high to be realistic for a farm enterprise in most situations. I understand the need to be competetive from an investment attraction standpoint, but I fear that the financial burden for the farmer will be too much.
Just speaking for myself, a legit skilled farmer considering expansion, I couldnt handle the overhead of 7% interest. I am figuring that a large enough parcel to run a grassfed beef operation on would cost upwards of 200k. Having 14k annually in loan payments would be too much. That's just my situation of course.
Is there any way to attract investment from a more philanthropic angle, rather than a returns approach? If we could offer financing to farmers for more like 2%, then I think we could really help to move more young people onto farms. Maybe there are individuals looking to invest in a better world, while holding the value of their assets without increasing them? I may be naive.
Please read this as constructive and respectful comment, as I appreciate what you have assembled and the intention that goes behind it.
The 7% interest rate is not far from historical bank rates over the past 38 years. A $50,000 mortgage at 7% with a 15 year term would see a payment of $449.41/month coming back into the fund. If the prospective farmer can get a better rate from a bank, then by all means, go for it. This is not a bank, so bank rates are not the norm. Private investment capital carries a premium as banks are not always willing to get involved. This figure leaves ample room for better offers from outside investors, as well as bank refinancing. The Farmland Fund includes tracking the progress of the farmer, giving them a chance to prove their worth and attract refinancing offers. If a farm is refinanced, the fund is replenished and can take on another proposal.
Zero interest was considered, as well as lower interest rates. The primary reason for the 7% rate is to account for inflation. Without growth in the fund, purchasing power will be reduced over time, taking with it the ability to offer opportunity.
Interest on a $50,000 loan at 7% would be around $3500/year. There are some expenses associated with operating the fund: bank fees, legal fees, registering and renewing the LLC, maintaining the website. See the Plan, Section 4.1: Accountability. Full disclosure of where the money comes from and goes to is a critical element. I do not draw income from the fund, donations to it, or interest on loans. In the event the fund becomes active enough that a staff is required, the interest serves as the income source required to pay the staff.
As for paying off a mortgage early, that would be a positive thing. A pre-payment penalty is not part of the plan. The Fund would be back in action, furthering someone else's dream. The Fund offers a foot in the door. Get the farm going, develop an income, then use that success and experience when seeking refinancing. A part of the Fund plan includes full disclosure. Your progress would be in full view of the public in the hopes private investment would seek you out once you have established a pattern of success and prove yourself to be a good risk.
The farmer gets a better rate, the private investor gets a good return, the Fund gets replenished, someone else gets a chance.
Adam Klaus wrote:IMHO, 7% simple interest is too high to be realistic for a farm enterprise in most situations.
This is not a project to help people handle hundreds of acres of wheat or a herd of cattle ranging to the horizon.
It could easily finance a small home with a few acres with a mortgage in the neighborhood of $500/month. Compared to renting an apartment, this is competitive. I use my place as a reference for price, housing, utilities, and land. After that it is up to the prospective farmer to explain what he/she would do with the place and how the mortgage would be paid.
Adam Klaus wrote:Is there any way to attract investment from a more philanthropic angle, rather than a returns approach? If we could offer financing to farmers for more like 2%, then I think we could really help to move more young people onto farms.
I'm not a man of unlimited means. It has taken me a year to build the fund to $3000. Philanthropy is not within my grasp beyond a $20 kickstarter pledge. If the interest rate was lower, it could draw in folks of less scrupulous intention. I don't want to finance a home for 30 years and be left holding the bag for someone who's plans 'inexplicably change' as soon as they move in. I'm looking for folks who have every intention of making a go of it and develop an income from farming. Get your foot in the door, establish yourself, show the world what you can do when unleashed, and get refinanced at a favorable rate so the fund is replenished to repeat the process.
On a side note, would it be possible to Crowdfund A Farm.
I'm continuously adding to the potential of a small farm with ideas on how to market product, generate income, and develop a residual income stream. A large group of people would have a strong potential to operate a farm and pay that mortgage in short order.
For this Fund to work, I will need competent people who want to own their own farm. If I had a 2nd farm being operated by people I believe in, I've got an ideal prospect for the Fund. A trained operator could start here. I'd have a vested interest in teaching them everything I know (which will take about a week), expose them to all the information possible, give them the incentive to perform, and focus on preparing them to manage that 2nd farm.
What has been emerging over the past couple years is a plan to move an individual from start to finish: Train, Prove, Own. Do it a few times and we all share in the next step: a co-op. Do it a whole bunch of times, a Permaculture Community will have sprung to life.
I would follow the model of using a good grant writer to aid in funding the principal. The grant writer can gain you funds way beyond the return you'll might gain by charging interest on loans. This model would make more funds available to more farmers. This is a pretty common model for non-profits ... that is, to act as a conduit of funds from larger non-profit organizations to the end user. Just don't take any money from the Rockefeller Foundation, they've done their fair share of damage to the planet through their agricultural pursuits. Anyway, if the object of the Farmland Fund is to provide greater access to farming to more people, it would seem that charging interest is putting a barrier that already exists through other funding mechanisms. Bringing a grant writer on board would dramatically increase your funding pool allowing more people to access the funds without interest.
Just a thought.
Setting up as a For Profit Company allows virtually unlimited discretion as to the use of the fund as well as options for raising the funds. I am able to engage in whatever enterprise I see fit without the risk of being injoined by a lawsuit for unfair competition which could instantly wipe the entire project off the face of the world.
Let me allay the notion that I will make a big sack of money from this project.
-Even in it's infancy this project is eating a little bit of money in the form of documentation fees, mail, and website charges.
-Income Taxes will eat a third of the interest income as well as income from fundraising projects.
-If I solicit donations to the fund, income taxes will eat a third of the donations.
-If the fund grows to a point a staff is needed, it would take the interest income of several funded proposals just to cover the payroll.
-I draw no salary from the fund. I make a few bucks on the proposal fee (section 5.2), much of which which would be used for public record, credit, and criminal background checks, as well as travel to the site and real estate investigations.
-A single default would wipe out the income gain from several successes.
-If the Fund is a raging success, those mortgage payments go right back in to replenish the fund and get another farm going.
-I lined my pockets where?
There is a vast amount of investment capital out there. The amount of private investment capital blows the doors off what is available through non-profit organizations. Getting that money invested into farms is the task at hand. If done right, the Farmland Fund serves the purpose of offering the opportunity for people to get started and draws attention to those who have proven themselves.
A guy is at the casino with a bucket of quarters plugging them one at a time into the slot machines. Cherry-Cherry-Lemon. He keeps at it. 7-7-Banana, Clover-Clover-Zap. His bucket gets lower and lower.
Finally he reaches in for his last quarter...Bust. He's got nothing left.
He's been playing so long he's gotta go to the bathroom but finds the bathroom stall doors in the casino are coin operated. This guy has to go BAD. Another patron sees this guy in his anxious state. Understand the urgency of the predicament he hands the player a quarter and walks off. Just as he is about to put in the quarter to open the door, the fellow in the next stall finishes his work and opens the door. 'What Luck' the guy says as he pockets the quarter and makes use of the facilities.
With his gift quarter he tries one last time on the slot machine...JACKPOT-JACKPOT-JACKPOT
As a matter of fact it's such a huge jackpot that sirens sound off, balloons and confetti tumble down, the casino manager offers him a suite, and the champagne flows all night. Being the largest jackpot in a long time a news reporter interviews the winner. The new gozillionaire tells his story about the bathroom, and the quarter and the lucky break with the next stall.
'You must be rally thankful for the guy giving you that quarter" says the reporter.
'No' says the winner, 'I'm thankful for the guy who opened the door.'
I invite anyone to form a non-profit organization to help folks get a farm of their own, bring in a grant writer, charge zero interest, do whatever you think is right. Let my Fund be an inspiration for others to duplicate or emulate. As long as it helps bring people and land together, I'm all for it.
Be the guy who opens the door.
These are not the droids you are looking for. Perhaps I can interest you in a tiny ad?
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