I'm constantly exploring ways for people to get started in farming. I've offered ideas for
a large group. This is what I've come up with for a small group.
Lots of thought went into this article. It's been a month just writing it up, many months developing small ideas into the bigger picture, and probably more time will be needed to add finesse.
You can keep up with
revisions on my site as well as explore relevant links.
For better or worse, this is what I've come up with.
Get yourself a cup of
coffee...
A Few People Can Share A Farm
Getting started in farming and making a go of it is made difficult because of the cost of
land. I've met people from all walks of life that would love to farm, would probably do very well for themselves, but lack the financial resources to buy property. It's tough out there just paying the bills. It would take a young kid making minimum wage forever to save up for a downpayment. If they are paying all the rent and bills alone, it may be impossible. People are left with only the dream of farming. Unless that dream is nourished, it can wither away. Rather than let the dream die, exploring different ways of buying a farm is in order.
Back in college, when dinosaurs still roamed the earth, I was earning something like 7 bucks an hour as a short order cook. Minimum wage was around $5/hour, so I was doing better than some. Still, the paycheck was only around $200/week. A couple bucks an hour up or down does not make a great deal of difference. Slightly better food, a new pair of pants now and then, some money to go to a concert, maybe I could get cable TV. To make ends meat I got together with some college buddies to share an apartment, 5 of us in all. These guys made less than me and with the rent at $500/month, sharing an apartment was the practical way to go. Split the rent, the light bill, everyone paid for their own long distance phone calls, and everyone was on their own for groceries. I don't know where toilet paper came from. The dishes were never done. There were
mushrooms growing in the bathroom. Someone ate my spaghetti. There are advantages and disadvantages with shared housing arrangements. We had our own rooms and the bills were affordable. Had we organized ourselves a little more, by sharing cleaning/cooking/groceries, we could have made the apartment a more comfortable
experience. As an example of cooperation for mutual advantage, I can think of none better.
I've explored the notion of a large group of people cooperating on an enterprise. A key element is using the money people are already spending. Most folks are already spending money on housing. Putting it to use to buy a farm makes good sense. I want to explore the notion of a handful of people sharing a farm. A small group can be formed more easily than an army. I'll use my place as the reference because it was cheap to buy, was purchased without a bank or even so much as a credit check. Several people will fit with a little bit of carpentry, it comes with 3.7 acres of pasture and
trees and most importantly, the bills are low.
This place is a 40 year old mobile home. About 15 years ago the previous owner built an addition along the entire north side to add an enclosed porch, bedroom and sizable living room. Total area is 1000 square feet. Except for that one outlet and the garage light, practically everything works. With the 2 existing bedrooms and the laundry room, 5 people could fit comfortably but the plan may call for bunks or couples in the bedrooms. Fully enclosing the back porch would make a fine bedroom, as would the front porch. It can work.
If I were to
sell the place, bank financing is not an option. The trailer was built in 1972. No bank is going to touch a trailer older than 30 years. Anyone with the money to pay for the place outright would probably be looking at something more modern. The only practical option is to finance the sale myself, which is what the previous owner did with me. $5000 down, 500/month is affordable. I've gone the extra mile in paying down the debt. It'll be paid off before I've been here 5 years. There are homes out there that can be had for little down. My last house I moved in with a $1600 downpayment. 25 years ago my brother and I bought a place with no downpayment. We got a bank loan that covered the entire price of the house, plus an extra $2k we used to put in a new front door, turn on the utilities, and catch up on some bills.
Anyway you look at it, coming up with a downpayment is not the easiest thing to do. For someone earning wages, saving up $5000 is tough. Add in a few hundred more for closing costs, turning the
lights on, hooking up a phone, and renting a truck to move furniture. Having been a landlord, I've seen hundreds of people who can't come up with $800, the first months rent and security deposit, needed to move into an apartment. I've also seen people come up with a thousand bucks fast. They gotta have a car, somehow they find the money. They gotta have an apartment, they come up with it. Tax refunds are a nice shot in the arm every year. If you put the first $25 from each paycheck into a savings account or a mayonnaise jar, you'd have the money within a year. Split the downpayment with 5 people, $1200 each buys the property, pays the closing costs, and gets the lights turned on.
The place has some bills, everyone chips in equally. The place has a
mortgage, everyone chips in equally. You are sharing the roof, the bathroom, the appliances, the electrical wiring, the door knobs,
light bulbs, and the land. Sleeping arrangements, room size, and who owns the couch has no bearing on the amount of each share. 5 people demands the bills be split 5 ways.
Mortgage 500
Homeowners Insurance 75
Phone/Wifi 75
Electricity 125
Property Tax 100
TOTAL 875
Split 5 ways, 175/month each. About $45/week. These figures are based on my current situation. With 5 people sharing the home, the electric bill would probably be more. I don't pay for homeowners insurance. I don't have municipal
water and sewer, I have a well and septic tank. I don't have cable TV. The bills will depend on the specifics of the property and the lifestyle agreed upon by the people in the group. Not included in the above figures is the cost of groceries and supplies. The arrangement can have each person looking out for their own needs but considerable cost reductions can be found by working together. There is also no debate over who's turn it is to buy toilet paper this week. Groceries and supplies can be collectively purchased and meet everyone's needs for around $50/week each. This brings the total Room and Board charge to $95/week/person. Keeping the bills down is essential. Everyone has their own personal expenses, transportation, cell phones, hobbies and interests, and would likely be saving for a place of their own.
The numbers say around $100/week/person will do the job. It also assumes everything is smooth and there are no troubles. Reality and experience dictate otherwise. The
water heater leaks, the fridge breaks down, the stairs need to be repaired and we don't have a saw to do it with, and we need a bigger pot to cook
enough spaghetti to
feed everyone. With everyone in the group dependent on everyone else, prudence demands the group be prepared for troubles and unexpected situations. The group needs to do more than just get by. It needs to flourish. A weekly Room & Board charge of $125-$150/week would make it possible for the group to get ahead of the game without making it unaffordable. The amount can be estimated ahead of time in order for the people involved to determine if they can be involved and make plans accordingly. When it's time to search for a property, these figures will aid in selecting suitable properties. The weekly R&B can be reduced at any time the group comes to agreement. Increasing the amount can cause hardship.
The first few weeks will surely find a need for funds. Tools and renovations, furniture, kitchen equipment, perhaps a spare fridge or chest freezer is essential to smoothing out operations. Once people are settled in, the surplus will grow, even with setting aside funds to handle emergencies. When the group has enough to cover the bills for a couple of months, that surplus can be used to further the ultimate goal of establishing a farm. It is the farm operation that will cut expenses and offer opportunity to everyone involved.
Everyone chips in on the bills, they do the same with the workload. Share the meals, share the cooking, share the cleanup. Everyone keeps an area clean and tidy. Take turns cleaning the bathroom. Getting a farm started takes an endless contribution of effort. Using natural growing methods, the costs are kept down, but the workload can be considerable. There is
compost and leaf mold to gather,
chickens to chase, growing areas to develop as raised beds, swales or hugelkulture. There are seeds to start and seedlings to transplant, potatoes that need to be hilled, and greens to harvest. If the marketing strategy includes farmers markets the product needs to be sorted, washed, packed, and the market staffed. The advantage of a group is found in division of labor. Where one person has strong skills, another may not. Delegating tasks according to ability makes good sense and puts the right person on the job for which they are best suited.
Growing vegetables is perhaps the easiest thing to do. As one of the first projects to pursue, it can be done with very little cost (seeds and hand tools), and offer food for the group. This offers an immediate return by reducing the grocery bill. If the grocery bill can be reduced consistently, the R&B fee can be reduced. Rather than reduce that fee, an increase in the surplus would allow the group to enhance operations with more/better tools and equipment. Get the pressure canner to preserve the harvest and keep the bills down when it's not harvest season. Buy and scavenge the materials needed to build a
solar dehydrator. Save up for
solar PV panels to eliminate the electric bill. Getting ahead on the mortgage or paying if off entirely sure would be a relief. The potential revenue from farm sales from even a small plot of land suggests the people involved could replace their employment income. Surely they would be able to enhance their income.
Cooperation, working together towards a common goal, sharing the burdens and responsibilities all come together to form an effective means of getting the land and bringing out the best in people. It promotes success. There is nothing new here. This is a proven method that works.
Until it all goes to hell.
Jack wants to move out to go to college or join the Army and wants his money back when he leaves. Jill is upset because she works twice as hard as everyone one else. John does all the cooking and it's as much time as Jane spends pulling weeds. Jane does the job of handling the bank, the shopping, the errands and wants to be compensated. Jim has been busy the last few months and has not put in the same effort.
Unless the arrangement has plans and procedures in place at the beginning to account for discontent, the mortgage holder will end up with the property, the lawyers will end up with all the money, and the people involved will be broke, homeless, unemployed and in debt. If things go well, at some point some members of the group will wish to move on to the next chapter of their life. The best case scenario of living together in harmony and operating a successful farm is possible for many years. Still, prudence demands there be an exit strategy for people to leave the group, voluntarily or involuntarily, and an entrance strategy to bring new members into the group.
There are separate and distinct projects involved: property management, rentable housing and a farm. The initial plan of 'share everything' can be modified to keep the separation.
Property Management Company
Establish a company with the purpose of buying and financing the land. This can add a couple hundred to a couple thousand bucks to the overall
project, so it may be a difficult step to take with limited funds. There are advantages in the long run, but these advantages may not present with the single property. Foregoing this part of the plan is possible, in which case the farm company serves the purpose of owning the land.
The land company is the landlord. The home is a rentable asset, as is the land. The rent for the home must cover the mortgage, utilities, taxes, property insurance and maintenance. It is assumed the property is purchased with owner financing. In order for this to work, the people involved will need to be personally responsible for that mortgage. This is a committment from which there is no walking away. If there is no rent coming in, these shareholders either come out of pocket for the mortgage and expenses, or risk losing the property and all their invesment. A small group of people involved with a closely held company would be well served with equal shares and an equal investment.
The shareholders are not required to rent the home or live in the home. They are not required to participate in the farm enterprise. They can be unrelated and unassociated individuals involved only in the land company. Becoming a shareholder requires investment capital to create the company, purchase the property, and pay the bills long enough for income to fall in place. A shareholder is free to sell his/her share at anytime to anyone for whatever price. Any person can own from between 1 to all shares.
Instead of a small group of people investing in a land company, a large group of people could engage in a land company. An ideal situation sees the shareholders raise enough capital to purchase the land outright. Any rents collected cover a few minor expenses, with most of the rest being available for distribution to shareholders. Having prospective tenants already lined up is an incentive for those investors to get involved. For the prospective farmers, the shareholders are a potential market and the land company removes the need for a large investment. The trade off is ownership vs leasing the land. There are land companies out there, but a small group of farmers would benefit from a land company on their side. It may be possible for the farmers to eventually buy all the outstanding shares.
Using my place as a reference, the electricity creates a slight complication. A single meter for a housing unit and a farm will require the rent include the utility bill. A separate power pole could be installed, but the well is powered by one meter and shared by the housing and the farm. The septic system is usable only by the home. Installing independent systems is possible but can increase the investment required to unacceptable levels. Increasing the rent according to projected utility demand with the land company responsible for the electric service bill is the simple solution. Independent systems can be installed at a later date. In the meantime, the farm has no bathroom. A portalet would be the responsibility of the farm company.
Rental Housing
The house loses status as a center of activity and becomes an income generating asset. The house rent would be a major component of the income for the land company. The utilities must be included in the rent as there is no way to split it equitably between the house and the land rentals. Using the same figures as above, the rent would be $1000/month. Because there are not independent systems for the home and the land, the rent must include electricity.
Stable tenants are desired. Anyone can rent the house. The tenants can be completely unrelated to the group or comprised in part or entirely of the group. The rent would need to be sufficient to cover the mortgage, insurance, utilities, maintenance, and property taxes. Those living in the house will be responsible for their own means of organizing and working out internal issues without impacting or shutting down the farm company or land company. As with the earlier plan, cooperation and sharing of expenses offers advantage if the tenants are unrelated. Since tenancy does not require a surplus for farm development, the R&B fee would be lower than the projection above. $40/week for each of 5 people covers the rent. Add another $50/week for groceries and supplies. $100/week rather than $125-150/week. Furthermore, with the land company in place the initial cost of tenancy is low and affordable. If the tenants are not involved in the land company or the farm operation, they would be charged a security deposit.
Farm Company
The farm company rents the land from the land company. The rent includes the use of utilities and may be adjusted for increases in utility usage as the farm expands. There are few expenses incurred by the land company but they need to be covered. Property taxes, some part of the utility bills, and insurance on structures used by the farm company won't add up to $100/month. Increase this amount to include a buffer for maintenance, increased electricity usage from running a well pump, and a return on investment. $200/month would be in line with a reasonable rental rate for the land and systems involved.
Developing a farm will take some investment. Along with the rent, there will be a need for tools, seed, fuel, and and endless list of other supplies and materials. This investment does not need to come in all at once. The farm company needs regular cashflow. 5 people chipping in $100/month each will pay the rent and allow enough to work with to get the place going. The greater investment is the time and effort being put in by the people involved. There is much more to discuss in how the farm is organized and operated. For the sake of getting this article finished, I'll assume equal effort and equal reward.
I've presented 2 plans.
Plan 1, everyone chips in equally, share everything equally. Cost per person, $1200 down, $150/week.
Plan 2, the people establish 3 companies. If all people involved live in the home and work the farm, and set up the companies with minimal cash outlay and equal shares, the cost per person can be $2000 down, $150/week.
The investment is pretty close. The monthly budget is the same. It may seem to be pointless redundancy for the people involved to shuffle money from one company to the next, but it is necessary to keep the
books right and the enterprises separate and distinct. If the time comes that an outside investor is interested in assuming all the debt of the land company at a favorable rate, those books become critically important. If one of the people in the group wishes to exit, these books establish a fair market value. The key difference between the two plans is flexibility and continuity. There is an entrance strategy for others to get involved. There is an exit strategy for people to leave the group.
Perhaps the single biggest obstacle to a small group cooperating on a farm enterprise (other than coming up with the money) is the personalities involved. People come and go. They pair off and go their separate ways. They get along and they argue. There will be people who want to leave the group, people who want to join the group, and people who, as a last resort, need to be driven out. Setting up the 3 companies makes life a whole lot easier. Problems have solutions. They don't tear down the whole operation. In the event of disagreement there is a remedy to be found.
If 2 people can't live under the same roof, they can part company while still maintaining the farm. If someone moves out, the rent for the home is split among those who remain. A new roommate can be brought in, even if that new roomie has nothing to do with the farm. Everyone can move out. As long as a new tenant is found, the land company remains solvent. The farm can be a flop, never making a dime in sales, but the people involved still have really low bills. If someone wants to sell their share of the land company, there is nothing to stop them. It would
be nice if the other shareholders had the right of first refusal. It would be possible for the shareholders of the land company to buy back the share.
What's important to understand is the fact there are plenty of options under the 2nd plan. In the first plan, if cohesion of the group breaks down there is the risk of losing the land and everything that comes with it. It is difficult to interchange people without a plan and a statutory structure which allows it to be conducted quickly and fairly. A few years down the road, if the original group is still working and living well together, the fruits of their labor can be impressive. Even if they hit some bumps along the way, they don't have to stop and start over from scratch.
Perseverance has it's place. This sort of situation is designed so that it is not necessarily a permanent one. It may be that most of the original group takes their leave as time goes by. While there, perhaps they learn skills that make them better people. For those who remain behind, the learning continues, as does the development and performance of the farm which can make it possible for the group to operate with fewer people involved. Attrition can be an advantage for those who stick with the plan.
If the original team sticks with it the advantages are greater still. Say the farm business performs well enough for the group to buy another farm. Some of the original team break off to operate it, perhaps bringing in roommates, interns, or new group members to give the place a financial
boost at the start. A couple of
local farms begins to form the nucleus of a cooperative market.
There is no limit to where this can go but it has to start somewhere.
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