By: JT Holt
Seems everyone wants to be debt free. Recently, a mentor referred to a statement his mother made to him when he graduated college and was purchasing his first home in the early ‘80s. The statement that has resonated with me for some time now, goes like this: “Son, I’m sorry that you had to purchase your home on the time.” As this makes me chuckle, it brings up a good point and makes one begin to deliberate when is, or when will, debt be a good thing? If you are able to obtain a greater return than the interest rate available, doesn’t it make sense to leverage an asset to generate greater returns?
The biggest competitor for me as a lender these last several years has been cash! Why would you not utilize your cash in a farm or ranch real estate purchase, with no other stable returns of any significance in the market place? It was proven by the large amounts of cash that flooded the farm and ranch real estate market. The recent moves in interest rates, the availability of financing, and the equity that has been lost all pose the question, “Is now the time to leverage my farm or ranch real estate?”
Since the recent election we have seen the 10-year treasury go from 1.80 To 2.54, which has some direct correlation to our interest rates. Long-term fixed rates have taken the greatest hit overall, at this point, but we have seen a significant increase in farm real estate interest rates recently, although they are still significantly lower than historical averages. The concern is, will rates continue to rise in this economic environment? Now may be the time to take advantage of these low rates and pull some of the equity out of your farm or ranch real estate. Do you need to lock in a low fixed rate today?
The availability of financing may be a greater issue than you realize. As we saw the collapse of the financial markets in 2008, we saw a significant tightening in farm real estate loans. As farm loans became more difficult to acquire, it caused greater strain and financial concerns for producers. The offset of this was the profitability of farming and ranching during this cycle and the cash in the marketplace. Right now we are actively seeking opportunities to finance farms and ranch real estate. In this search, we are seeking out the top producers, those that have a strong financial position and those that have equity in their farm or ranch real estate that we are able to leverage. Is this you?
Significant equity has been lost over the last three years in farming and ranching. Row crop farmers are going on three years of losses while the rancher is most likely seeing it for the first time in his operation this year, and if not, definitely a drop in income. Now may be the time to restore that liquidity position. Did you utilize cash to purchase some ground and now need to restore your cash position?
All in all, now may be the time to look at utilizing the equity in your farm or ranch real estate by taking out a farm loan before rates move too far. Farm real estate loans are still attractive to your lender, and it allows an opportunity to restore your liquidity position. Is now the time to leverage one of your most valuable assets and “buy it on the time?” Call us today and let’s talk through your many farm and ranch loan options.