Know what you want
What is your motivation for doing a sale-leaseback? Answering this question up-front will help determine what type of investor and lease arrangement you might be interested in. Here are a few of the most common goals farmers have when considering a sale-leaseback: strengthening the balance sheet, improving cash flow, decreasing debt payments, unlocking equity to reinvest in operations and planning for retirement.
Determine your long-term goals
If you are a farmer looking to sell your land to an investor using a sale-leaseback arrangement, maintaining operational control of the land long term may be at the forefront of your concerns. If you have any interest in potentially owning the land long-term, you may want to consider writing a form of buy-back agreement into purchase agreement. There are multiple ways to go about this, such as including an option to purchase or a right of first refusal into the sale contract. These terms will give you a chance to own re-purchase the property from the investor at some point in the future.
Avoid financial backtracking
Many farmers consider a sale-leaseback to help with their goals to reduce debt payments and improve their financial freedom. This is easily achievable with this type of agreement, as long as you are careful when negotiating long-term lease prices. Paying too high of a rent price for a parcel, only for the reason of maintaining access and staying in control of the land, can undo the financial freedom from the original transaction. It is important that you calculate your break-even point and make sure that you’re still able to make money after paying rent. If you’re looking for an investor partner to share in some of the crop and yield risk, you might consider a flex-lease arrangement.