Strategy to acquire family farm

I've been lurking here a couple years now and finally decided it was time to join in a little conversation. A little about myself. 32 married with young boys. Been in the military for about a decade, worked a few years in special operations and the last 4 as a UH-60 blackhawk pilot, though I fly a desk more than a cockpit. Degree in elementary education and entrepreneurship. Spent last year building a couple of yurts on a organic farm near post but the tent situation even though we had a modern kitchen and A/C wife couldn't hack the isolation with no friends in the area and me working 16 hours a day so we now live in the burbs. I still own the yurts and rent them out but hope to find a buyer this fall.

I grew up in a small town on the Southern Oregon Coast but lived in the city as I grew up. Right before graduating my mother remarried and moved just outside of town to a 60 acre ranch (only llamas at the time) and it has grown to 94 acres with the acquisition of an adjacent parcel. I worked the property in college in the summers clearing land for a new home, a small vineyard which I also planted, and random work keeping the ranch up, running a small crew when necessary. With a desire to return home after my next couple of years in the military I expressed interest to my mother that I want to turn the old ranch into a working farm/ranch/bed and breakfast guest retreat. They currently live in the new house on the top of the property and the old remodeled farm house sits empty 95% of the year. Brother lives in the old shed and besides feeding some chickens and a summer garden the place is sitting idle when not used for weddings. The last farm hand was fired (alcoholic) and they don't have the desire to hire another one. They are getting up in age, near 70 and 55 and are looking at downsizing as they don't know how they are going to keep up with their new house let alone the whole ranch. She was thrilled to hear I wanted to come work the property and make something of it. She loves it out there and hated the idea of moving somewhere small and giving it all up. I have 2 younger siblings and her husband has 2 as well. None of the children have any interest in the property or farming what so ever. Here lies the problem though.

She told me they are open to about anything I can come up with, but I know I need to meet their vision as well and while I feel they would love for me to buy the place I don't foresee even with my wife getting a good job in the future and the farm being extremely profitable ever being able to afford what the place is worth, guessing over a million as oregon coast property is out of this world expensive. So I have come up with a few initial ideas to pitch to them and they follow below with what I see as my "vision" of sorts and or life goals. Not necessary any specifics about the farm or what/how it will produce.

Lease to own
Buyout Option if viable after 10+ years
Work full time/part time in a job in town and just pay rent while slowly building the property/farm up
Work as their farm hand for a place to live
Go into a business agreement with them, create LLC or similar
Profit share and if acceptable use that to carry my utilization of the ranch
Use a simple rent agreement for the land and hope I can build something sustainable (financially and environmentally)

My quick vision as I see it: The reason why I want to move to the ranch specifically,

A safe place to raise my family NEAR my family. Provide premium opportunity to unschool my children while maximizing quality time with immediate family members to include myself as head of household by working @ home. Create, with a shared vision, a unique and completely sustainable homestead that unilaterally provides housing, education, food, monetary income, social belonging in the community. As well utilize sustainable land practices that exponentially develop biodiversity and health within the land. To enable generational wealth and create a legacy. Establish the family and ranch as a permanent, integral, and crucial part of the community as a leader for ethical small business.

Anyway, does anyone have any thoughts on the best way to approach this and or develop a working plan for this situation? Anyone done anything similar?

A few observations:

Until you have a more accurate idea of the true market value of the land you really can't know the size of the financial issue you're confronting.

Landowners often have an unrealistically elevated idea about the value of their land, even when landowners are family members.

Don't put sweat equity into land you may never own.

Don't rely on farm profits to pay for the land. The majority of small farms lose money and are subsidized by second jobs.

Blended families make a complex situation even more complex. Handshake deals and vague intentions often morph over time into disputes that tear apart families forever.

I'd consider offering to buy over time an affordable portion of the property. Get a real appraisal of the value from an MAI appraiser. Maybe your relatives will owner finance the purchase for you. Get a good lawyer to draft the documents to make it a legally binding agreement. Focus your efforts on this portion only; start small. Develop a business plan for the property that is actually potentially profitable. I speak from experience. I lost money on my farm for years until I figured out how to exploit a profitable niche market. Today, my farm is reasonably profitable, but it took seven years of losses to get there.

Good luck.

I full understand the point about dealing with family is a precarious position especially with a mixed family. While I have never had to use one I have and agree that we will utilize a lawyer to draw everything up.

I fight with putting sweat equity into land for nothing in return. I would have to think that if we can work a way to live in the house and utilize the place there is value in that. It certainly isn't illegal immigration pay and the experience you would have has a value. But I do see your point and I need to think about it more. The additional parcel (all steep hills and only 1 flat acre of the 34) is valued at 70K and it may make sense to consider that property somehow as a long term purchase as an individual and work out a payment plan for use of the flat area on the old parcel.

There is also a consideration for rental use of other properties up the inlet in the future if expansion for livestock is necessary.

Here is a few photos of the place. That side of the barn has been built for events, hence the cloth hanging from the ceiling.

Wow, that is truly beautiful land. Definitely worth owning under the right terms.

I think I would try the LLC idea. You are a stockholder who gradually earns more stock based on your work.
If/when your folks pass on, the farm LLC is not lost to lawyers or politicians, it passes on to the surviving stockholders.

This could be a real mess. What if you set up an LLC with your parents having the vast majority of the ownership, and agree that as you contribute sweat equity, they transfer percentages to you. Put it in like you would bringing on a partner in another business, with milestones to meet.

I would not be a happy camper if I invested sweat equity while my sibling was living in a shed (is he paying rent?) and then my parents felt obliged out of "fairness" to split the property evenly at their death. Are their step-siblings? If everyone has joint equity in the LLC, at least the property doesn't have to be sold out from under you to settle the estate. You can set up an LLC where some parties (you) have management rights while others (your siblings) just have equity and possibly other rights like certain usages.

Getting the property in an LLC also precludes things like losing it all to remarriages after death of one spouse, reverse mortgages, crazy relations grabbing power of attorney. There's no end to the variations of crazy people come up with when there's money intertwined with grief. Not to mention protecting the asset should one of your folks need major long-term medical care. There's not a moment to be lost if you want to keep that land in the family.

Miles Flansburg wrote:I think I would try the LLC idea. You are a stockholder who gradually earns more stock based on your work.
If/when your folks pass on, the farm LLC is not lost to lawyers or politicians, it passes on to the surviving stockholders.

The issue is who decides if you've performed adequate work to justify your increased ownership in the LLC? I don't just own a farm, I'll reluctantly admit I've also been a lawyer for 30 years. The problem with the LLC approach is that it takes the cooperation of people who are sophisticated enough to operate as a true corporation and not just have the company operate as their alter ego. I see the LLC approach as being too complicated for most people to properly handle, and the ongoing control of the LLC creates a whole universe of new issues.

My advice is carve off a chunk of land that you can afford under a legally enforceable lease-option arrangement, and religiously pay your monthly rent payments until you can exercise your purchase option. It's a simple solution that will survive the death of your parents and eliminate problems with potentially squabbling siblings who are fighting over the estate.

Jason Traylor wrote:...while I feel they would love for me to buy the place, I don't foresee even with my wife getting a good job in the future and the farm being extremely profitable ever being able to afford what the place is worth, guessing over a million as oregon coast property is out of this world expensive.

What's the inheritance plan?
Do your folks have wills?
How's their health (does it seem like you've got closer to thirty years with them, or five years?)?

George Hayduke wrote:My advice is carve off a chunk of land that you can afford under a legally enforceable lease-option arrangement, and religiously pay your monthly rent payments until you can exercise your purchase option. It's a simple solution that will survive the death of your parents and eliminate problems with potentially squabbling siblings who are fighting over the estate.

I'm no lawyer, but this makes an awful lot of intuitive sense to me. In fact, I can imagine LOTS of benefits to doing all the surveying, deeding, easement decisions, and the rest, to split the place up now rather than later.
No one's surprised what you're getting.
Your parents deal with the administrative stuff unemotionally, instead of the heirs doing it emotionally.
If the larger section gets caught up in conflict and misunderstanding, the piece you care about is already yours.

That might not make the entire inheritance process go right, but if it separates a safe part for you, then you've got a whole lot more ability to cope with all the rest.

Sounds smart to me!

Just doing a quick check, it looks like a 55 year old female can get about a million dollars of 30 year term life insurance for a flat rate of $4000 a year. You might be able to structure something where as part of your agreement to work on the farm your mother pays the premiums on the life insurance that lists you and only you as the beneficiary. Upon her death (assuming she outlives your step dad), you get the million which can then be used to buyout your relatives' shares of the farm.

John Wolfram wrote:Just doing a quick check, it looks like a 55 year old female can get about a million dollars of 30 year term life insurance for a flat rate of $4000 a year. You might be able to structure something where as part of your agreement to work on the farm your mother pays the premiums on the life insurance that lists you and only you as the beneficiary. Upon her death (assuming she outlives your step dad), you get the million which can then be used to buyout your relatives' shares of the farm.

That is creative. Not sure how I feel about that. Just the concept itself of utilizing the death of a family member to obtain ownership in something. I don't think that is what I'm really going for. I know in my vision I mention the creating generational wealth but I would like to think I could do that in conjunction at least with my immediate family. While ownership of the land is an eventual end game, the ownership is only a byproduct or end game of what is really important in the creation of the farm. Hmmm maybe I need to clarify my vision.

Mike Cantrell wrote:

Jason Traylor wrote:...while I feel they would love for me to buy the place, I don't foresee even with my wife getting a good job in the future and the farm being extremely profitable ever being able to afford what the place is worth, guessing over a million as oregon coast property is out of this world expensive.

What's the inheritance plan?
Do your folks have wills?
How's their health (does it seem like you've got closer to thirty years with them, or five years?)?

George Hayduke wrote:My advice is carve off a chunk of land that you can afford under a legally enforceable lease-option arrangement, and religiously pay your monthly rent payments until you can exercise your purchase option. It's a simple solution that will survive the death of your parents and eliminate problems with potentially squabbling siblings who are fighting over the estate.

I'm no lawyer, but this makes an awful lot of intuitive sense to me. In fact, I can imagine LOTS of benefits to doing all the surveying, deeding, easement decisions, and the rest, to split the place up now rather than later.
No one's surprised what you're getting.
Your parents deal with the administrative stuff unemotionally, instead of the heirs doing it emotionally.
If the larger section gets caught up in conflict and misunderstanding, the piece you care about is already yours.

That might not make the entire inheritance process go right, but if it separates a safe part for you, then you've got a whole lot more ability to cope with all the rest.

Sounds smart to me!

We have never talked inheritance nor do I really want to. I mean I guess it is the responsible thing but I'm not sure outside of not being comfortable with it, that it is truly important. My parents on both sides taught me to earn something, no matter what it is. While the other children of the original owner (mothers husband) have no interest in the property I feel it would be a pretty shitty thing for me to do to squeeze them out of some opportunity in the future. I try to be a fair guy and not burn any bridges. His health is generally good I believe and I know my mothers is great. I hope to be working in her garden with her for another 40 years!

I like the part about getting all of the legal stuff that you often forget about done in the process of purchasing the land. Helps tie up all of those lose ends you never think about. I hate nothing more than misunderstandings or one party expecting one thing and getting another.

George Hayduke wrote:

Miles Flansburg wrote:I think I would try the LLC idea. You are a stockholder who gradually earns more stock based on your work.
If/when your folks pass on, the farm LLC is not lost to lawyers or politicians, it passes on to the surviving stockholders.

The issue is who decides if you've performed adequate work to justify your increased ownership in the LLC? I don't just own a farm, I'll reluctantly admit I've also been a lawyer for 30 years. The problem with the LLC approach is that it takes the cooperation of people who are sophisticated enough to operate as a true corporation and not just have the company operate as their alter ego. I see the LLC approach as being too complicated for most people to properly handle, and the ongoing control of the LLC creates a whole universe of new issues.

My advice is carve off a chunk of land that you can afford under a legally enforceable lease-option arrangement, and religiously pay your monthly rent payments until you can exercise your purchase option. It's a simple solution that will survive the death of your parents and eliminate problems with potentially squabbling siblings who are fighting over the estate.

I see your points and as a reluctant lawyer I'll heed them. I will clarify maybe out of a self arrogance that our family has the sophistication to operate a true LLC. Both parents owned a successful business together my entire childhood and also separately with new enterprises after. I have a degree in business and my mothers husband ran his own oral surgery business for longer than I have been alive along with sitting on the boards of many other successful businesses located throughout the state and the north American continent.

In regards to carving out chunks thanks to Portland and the other isolated liberal strong holds of our state we have very few rights as land owners in Oregon. I don't look forward to going back to the socialist state of Oregon in that regard. The stipulations and regulations governing land (especially agricultural land) is out of control. You can't simply carve out parcels, there are limitations on buildings even if a different property owned by the same person is adjacent but separate and uses and regulations mandating or in this case precluding uses due to its zoning hurts my soul.

Jason, do the laws change at all when the farm becomes a company? I am just wondering if there are different rules that might be an advantage?

Miles Flansburg wrote:Jason, do the laws change at all when the farm becomes a company? I am just wondering if there are different rules that might be an advantage?

That is a great question. I believe the laws don't change but that is something I will look into.

I actually had a great conversation with my mother today and she had been talking about it with her husband. I guess they don't even know what their vision of the property is. I know they don't want to be tied to the place and if they want they would like to be able to leave for a month and travel and not have to worry about anything, knowing it is in good hands. Then come back and of course have a place for family to congregate. I think we are slowly figuring out what is important to everyone in each of our own unique phases of life and we will be able to work something out. Sadly I'm no closer on a on deciding on a legal way to enact this dream. The one thing I do know is that it WILL HAPPEN. To great of an opportunity to pass up.

Jason Traylor wrote:
She told me they are open to about anything I can come up with, but I know I need to meet their vision as well and while I feel they would love for me to buy the place

You say "I feel they would love me to buy the place" also "She told me they are open to about anything". So why not take her words at face value? You feel you need to pay your way, I understand, so do I, but parents are immensely generous (the right ones are). Sometimes as grown children we need to swallow our pride and ask for/accept their generosity.

So ,my advice, offer to "buy" the property for as much $$$ as you can manage, even be that enormously less than it is worth. Ask your parents to sever their home (so that they will not loose it no matter what happens) and promise they will be able to use/influence/enjoy the property for the rest of their (hopefully very long) lives. If you are the good, conscientiousness person I think you are (just from reading this thread) your word is good as gold. And if your parents are the great people it sounds like they are they already know this and will love you even if they say no. (and possibly more, because you had the courage to ask)

At worst they say no. and at best...

Tom Kozak wrote:

Jason Traylor wrote:
She told me they are open to about anything I can come up with, but I know I need to meet their vision as well and while I feel they would love for me to buy the place

You say "I feel they would love me to buy the place" also "She told me they are open to about anything". So why not take her words at face value? You feel you need to pay your way, I understand, so do I, but parents are immensely generous (the right ones are). Sometimes as grown children we need to swallow our pride and ask for/accept their generosity.

So ,my advice, offer to "buy" the property for as much $$$ as you can manage, even be that enormously less than it is worth. Ask your parents to sever their home (so that they will not loose it no matter what happens) and promise they will be able to use/influence/enjoy the property for the rest of their (hopefully very long) lives. If you are the good, conscientiousness person I think you are (just from reading this thread) your word is good as gold. And if your parents are the great people it sounds like they are they already know this and will love you even if they say no. (and possibly more, because you had the courage to ask)

At worst they say no. and at best...

Tom,

The timing and content of your comments are timely and I think you really hit the nail on the head. I've been discussing some thoughts in the last few days that are reflected in your reply. In addition my mother will be flying in to help out on Friday while I am down for awhile after surgery. Your words really hit home and more importantly the timing of there arrival was impeccable.

Not sure if this has been covered, but a lot of people aren't aware of gift tax issues in the USA. Properties can be transferred without any taxes if the value of the transfer is $14,000 or less (this amount changes by year, so make sure you check what the amount is each year). That is, one person can gift each person in their family $14,000 or less each year with no tax effect on either party. Dividing a farm property into $14,000 chunks would cost some in surveying, but it might be something to consider.

The older generation with many valuable assets should definitely be considering taking advantage of this tax rule to transfer property to the younger generation.

https://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Frequently-Asked-Questions-on-Gift-Taxes

Tyler,

That is something to keep in mind. I think there is a lifetime total of $1 million or somewhere close to that so if you give over the 14K a year you can claim it and you are ok up to that point but they keep a tally for the rest of your life. Would hate to blow it all in one shot. Sadly I didn't get to talk to her much about it. Her flight arrived a day late (about a 25% chance you can fly from the west coast to the east on one day these days) and I had a pretty serious surgery the next morning that kept me all but out of it until she left.

I am still optimistic about it all though and I'm sure in time it will all work itself out. I just have to keep up the pursuit. It appears they may be moving back down to the farm house one of these days. Their "new" house was to big by the time they finished it and family had moved out and her husband retires on his 70th birthday this summer so I think they are looking for a sizing down and slowing down. We will see!!! Less than 2 years left on my 12 years in the Army and I'll be home before I know it.

Thanks for keeping this going. Reminds me I need keep the dream alive.

Even if they were able to only transfer a portion of the farm to you, then you would have your own land and could continue to negotiate for the rest of the farm. Who knows, if you were successful enough with a small patch, you might earn enough to make payments on the whole thing!

Best of luck to you, what a wonderful opportunity faces you. So many people miss out on any chance to obtain the family farm because it is sold to strangers right when the younger generation is just getting started in a career.

One possibility is to put the property into a limited liability partnership and have yourself be the general partner. Huge need for a good lawyer here but LLPs are used a lot for protecting assets, and the general partner tends to do the work while the other partners rely on it as a passive sort of investment.

I can't help but notice many large tracts of land just sit on Craigslist and other places. The older owners can't really take care of it, or sell it, because the price is too high. Renters & employees just don't have the incentive to make improvements.

I see your vision, what a beautiful place! So much potential.

What if you were to build a modest sized home which had handicap accessibility and ease of maintenance factored in from the get-go? They could live there, you could live in the farm house and the big house could be rented or airbnb'd or one of the other siblings could live there.

Do you have a business plan for your farming endeavors?