If you own farmland in Iowa, deciding whether to rent it or sell it can be difficult. Renting may make sense if you want to keep the land and receive ongoing income. Selling may make sense if you want access to the farm’s equity, no longer want the responsibilities of ownership, or have another use for the money.
Neither option is automatically better.
Instead, consider the farm’s current value, expected rental income, ownership costs, taxes, family goals, and what you could do with the money if you sold.
Here are some questions to consider before deciding whether to rent or sell your Iowa farm.
How Much Is My Iowa Farm Worth?
Start by understanding the current value of your farmland.
Iowa farmland values can vary significantly. In fact, two farms in the same county may sell for very different prices.
Factors that can affect value include:
- Location
- CSR2
- Soil types
- Tillable acres
- Drainage and tile
- Farm size and shape
- Access
- Improvements
- Current lease
- CRP acres
- Recreational value
- Development potential
- Local buyer demand
Recent comparable sales can provide useful information. However, they do not tell the entire story.
A farmland broker can evaluate recent sales, local demand, and the characteristics of your farm to help estimate its current market value.
Once you know what the farm may be worth, you can compare that value with the income it produces.
How Much Income Could I Receive From Renting My Farm?
Next, determine the potential rental income.
Cash rent is common in Iowa. However, rental arrangements may also include crop share, flexible cash rent, or other structures.
Suppose a farm is worth $12,000 per acre and generates $300 per acre in annual cash rent.
The basic gross rental yield would be:
$300 ÷ $12,000 = 2.5%
That does not mean the owner earns a 2.5% net return.
You still need to consider expenses such as property taxes, insurance, management, drainage, improvements, and other ownership costs.
Still, this calculation provides a useful starting point.
It allows you to compare the income from keeping the farmland with the amount of equity tied up in the property.
What Does It Cost Me to Own the Farm?
Rental income is only one side of the equation.
Farmland also has expenses.
Depending on the property, these may include:
- Property taxes
- Insurance
- Farm management
- Drainage assessments
- Tile repairs
- Conservation work
- Building repairs
- Legal or accounting expenses
- Other improvements
Some years may require very little additional expense. Other years may require a significant investment.
Therefore, compare net income rather than looking only at gross cash rent.
When Does Renting an Iowa Farm Make Sense?
Renting may make sense if you want to continue owning farmland but do not want to farm it yourself.
For example, you may want to:
- Keep the farm in the family
- Receive annual rental income
- Maintain ownership of a hard asset
- Participate in potential long-term appreciation
- Sell at a later date
- Pass the land to another generation
- Keep future options open
Renting can also be attractive for retired farmers.
Instead of selling when they retire, some owners rent the farm to another operator and continue receiving income from the property.
When Might Selling an Iowa Farm Make Sense?
Selling may make sense when your goals have changed.
For example, you may want to:
- Access the equity in the farm
- Reduce management responsibilities
- Simplify an estate
- Divide assets among heirs
- Pay down debt
- Buy another property
- Diversify your investments
- Fund retirement
- Move capital into another business or investment
- Avoid future property expenses
A farm may represent a large percentage of a family’s total wealth.
Therefore, the decision is not simply about whether farmland is a good asset. It is also about whether continuing to own that particular asset fits your financial plans.
Should I Sell My Farm and Invest the Money Somewhere Else?
This is an important question.
Suppose your farm is worth $1 million.
You could keep the property and continue receiving rental income. Alternatively, you could sell the farm and have approximately $1 million in gross sale proceeds before taxes, selling expenses, debt payoff, and other costs.
The next question becomes:
What would you do with the money?
If the sale proceeds would simply sit in a low-interest account, selling may look different than if the money would be used to pay off expensive debt, purchase another property, fund retirement, or make another investment.
In other words, do not evaluate the farm in isolation.
Compare keeping the farm with the realistic alternatives available to you.
Should I Consider Future Farmland Appreciation?
Potential appreciation is one reason some owners choose to keep farmland.
Historically, Iowa farmland has experienced periods of rising values. However, farmland values can also remain flat or decline.
Future appreciation is never guaranteed.
Therefore, avoid making the entire decision based on an assumption that the farm will be worth substantially more in the future.
Instead, consider appreciation as one part of the overall return from owning farmland.
Your total return may include rental income plus changes in the property’s value over time.
What If My Farm Has Been in the Family for Generations?
Financial calculations are important, but they are not the only consideration.
A farm may have been owned by your family for decades. It may have been purchased by a parent, grandparent, or great-grandparent.
That history can matter.
Before selling, ask yourself:
If I sell this farm today, will I be comfortable knowing my family may never own it again?
Then ask another question:
If I keep the farm for another 10 or 20 years, does owning it still fit my family’s financial goals?
There is no universal answer.
For some families, preserving ownership is extremely important. For others, selling allows the value created by previous generations to help the family in a different way.
Should I Rent or Sell Farmland I Inherited?
Inherited farmland creates many of the same questions.
If you inherited an Iowa farm, you may have little farming experience. You may also live far from the property.
That does not mean you need to sell.
You may be able to rent the farm to a local operator and continue owning it.
However, selling may be worth considering if you do not want to manage the property, need liquidity, or share ownership with several heirs who have different goals.
Before deciding, understand the farm’s value, current lease, income, expenses, and potential tax consequences.
What If My Siblings and I Own the Farm Together?
Joint ownership can make the rent-or-sell decision more complicated.
One sibling may want annual rental income. Another may want cash from a sale. Meanwhile, another may want to preserve the family farm.
Start by making sure everyone has the same information.
Determine:
- Current market value
- Annual rental income
- Annual expenses
- Existing lease terms
- Ownership percentages
- Potential tax considerations
- Long-term management needs
Then discuss what each owner wants.
In some situations, one family member may be able to purchase the interests of the others. In other cases, the family may decide to continue renting or sell the property.
Can I Rent My Farm Now and Sell It Later?
Yes.
Choosing to rent your farm today does not necessarily mean you have to own it forever.
Some landowners continue renting farmland while they evaluate their long-term plans.
However, pay close attention to the lease.
Lease terms and possession can affect a future sale. For example, a buyer who wants to farm the property may view a long-term lease differently than an investor who wants rental income.
If you think you may sell in the near future, discuss your plans with an attorney or farmland professional before entering into a new long-term lease.
Can I Sell My Iowa Farm While It Is Rented?
In many situations, farmland can be sold while it is under lease.
However, the lease does not necessarily disappear simply because ownership changes.
The terms of the lease may affect possession, rental income, and the types of buyers interested in the property.
Therefore, review the lease before marketing the farm.
A rented farm may appeal to an investor who wants immediate income. On the other hand, an owner-operator may prefer possession for the next crop year.
Understanding the lease allows the property to be marketed accurately.
Does Renting Make My Farm Harder to Sell?
Not necessarily.
A good lease with a strong tenant can be attractive to certain buyers.
However, lease terms can affect marketability.
For example, a multi-year lease may limit the ability of a new owner to farm the property immediately. That could matter to neighboring farmers and other owner-operators.
Meanwhile, an investor may view an established tenant and rental income positively.
The effect depends on the lease and the likely buyer pool.
What About Taxes If I Sell My Farm?
Taxes can significantly affect the decision to sell.
Depending on your situation, a farmland sale may involve capital gains taxes and other tax considerations.
Your tax basis is especially important.
Inherited farmland may also have different basis considerations than farmland you purchased yourself.
Additionally, some landowners may consider a 1031 exchange when selling qualifying investment real estate and purchasing other qualifying property.
Tax situations vary widely.
Therefore, speak with a qualified CPA, tax advisor, or attorney before making a sale decision.
How Do I Compare Renting vs. Selling My Iowa Farm?
Start with actual numbers.
First, estimate the farm’s current market value.
Next, determine the expected annual rental income.
Then subtract estimated ownership expenses.
Now compare the farm’s net income with its current value.
For example:
Estimated farm value: $1,200,000
Annual cash rent: $30,000
Annual ownership expenses: $7,000
Estimated net income: $23,000
In this simplified example, the farm generates approximately $23,000 per year before income taxes and other individual considerations.
The next question is whether continuing to own a $1.2 million asset for that income and potential future appreciation fits your goals.
There is no single percentage that makes renting or selling automatically better.
The answer depends on what you want the asset to accomplish.
What Questions Should I Ask Before Deciding?
Before choosing to rent or sell, ask yourself:
- What is my farm worth today?
- How much rent does it generate?
- What are my annual ownership expenses?
- Is the current rent competitive?
- Do I want to continue managing the property?
- Is keeping the farm important to my family?
- Do my heirs want the property?
- Do I need income or a larger amount of cash?
- What would I do with the sale proceeds?
- What are the tax consequences of selling?
- Do I expect to need the money in the next few years?
- Would I regret selling the farm?
- Would I regret keeping it?
These questions can help turn an emotional decision into a more informed one.
Should I Rent or Sell My Iowa Farm?
Renting may make sense if you want ongoing income, continued farmland ownership, and the possibility of long-term appreciation. Selling may make sense if you want access to your equity, less responsibility, greater liquidity, or the ability to use the money elsewhere.
Neither decision is automatically right for every Iowa landowner.
Before choosing, compare the farm’s current value with its net rental income. Then consider taxes, family goals, management responsibilities, and what you would do with the sale proceeds.
Most importantly, do not feel pressured to make the decision based on one factor alone.
Where Should I Start?
Start by finding out what your farm is worth and what it could realistically generate in rent.
Those two numbers give you a foundation for comparing your options.
Then talk with the appropriate professionals. Depending on your situation, that may include a farmland broker, CPA, attorney, farm manager, financial advisor, or lender.
At Whitaker Marketing Group, we work with Iowa landowners who are evaluating what to do with their farmland.
Sometimes that means selling. Other times, the owner may decide that continuing to rent the property better fits their goals.
Our role is to help you understand the farmland market, your property’s potential value, and the sale options available if you decide to sell.
Trying to decide whether to rent or sell your Iowa farm? Contact Whitaker Marketing Group to discuss your farm, its potential market value, and your options.
Land is our Brand
