Leasing farm land? 6 steps to help Iowa landowners prepare.

The agricultural landscape is shifting.

More farmers are leasing, and that puts landlords in a good spot.

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Of the 911 million acres of farmland in the United States, 39% is rented out.

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And a staggering 80% of this land is owned by non-operator landlords who are entirely hands-off.

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Rent prices are increasing, too.

Here in Iowa, for example, cash rents for farmland have jumped 87% since 2017. 

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If you’ve decided to lease out your farmland, these figures should be encouraging.

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However, being a landlord comes with its own set of challenges and opportunities .

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At its simplest, you advertise your land, rent it out and receive a deposit. 

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But seasoned landowners will tell you there’s a lot more to becoming successful as a farm landlord.

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So, here are six steps to follow when leasing farm land in Iowa.

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Advantage of leasing farmland

The advantages of leasing farmland in Iowa present an attractive alternative to selling. 

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Current market conditions — a diminishing inventory of available agricultural land, rising interest rates and surging land prices — have made it increasingly difficult for farmers to own land.

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This makes it an ideal time for landowners to lease vs. sell.

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Market conditions aside, here are some of the key benefits of leasing out your farm land:

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• Retained ownership: Instead of severing ties to land that may hold sentimental and financial value, you can hang on to it.
• Steady, predictable income: Cash rents for farmland provide consistent income. Iowa State University (ISU) data from 1970 to 2021 shows that Iowa farmland brought a 6.1% average return from cash rents.
• Long-term financial security: Farm land has historically returned a steady appreciation in value. ISU also notes an annual increase in Iowa farmland values of 2.7%, adjusted for inflation.
• Risk diversification: Compared to traditional stocks and bonds, diversifying with a tangible asset like farmland can provide stability to your portfolio. 
• Less hands-on oversight: Compared to other real estate investments that collect rents, like multi-family homes or commercial properties, agricultural land requires very little direct management. 
• Possibility of profit sharing: If you’re willing to embrace risk, a type of crop share arrangement — based on either yield- and/or a price-dependent lease — has the potential to bring greater financial rewards.
• Potential tax savings: By leasing out your farmland, you avoid the capital gains tax due when selling, which can be up to 20% for many land owners. And while rental income is taxable, you may be able to take advantage of certain deductions, such as maintenance, mortgage interest and property taxes.
• Flexible lease terms: The beauty of leasing is its flexibility. You can dictate the terms, allowing you to be as involved (or not) as you like.

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These benefits make leasing farmland a solid choice for many property owners.

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But that still requires ensuring a smooth transition from landowner to landlord.

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How to lease land for farming

Understanding how to lease your land for farming requires more than sticking a "For Rent" sign in the ground. 

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It's not as straightforward as renting an apartment; it’s about forming a partnership.

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That’s because your tenant isn’t just a renter — they’re a steward of your land.

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And their role in maintaining the health and productivity of your asset is crucial. 

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The partnership between you and your tenant extends beyond an annual financial transaction and can lead to the success and preservation of your land for generations to come.

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Here are six steps to follow when leasing your farmland.

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Step 1: Understand your motivations 

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Understanding why you want to rent out your farmland is important because it shapes the path you’ll follow in the leasing process. 

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Maybe you’ve been trying to sell for a while but the offers haven’t met your expectations.

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Perhaps you inherited a piece of land you don’t know what to do with but selling doesn’t feel quite right either.

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Or maybe, like many landowners, you want to generate a more robust stream of income while also increasing the underlying value of your asset.

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Regardless of your reason, acknowledging it will help you:

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• Make informed decisions about the type of lease that aligns with your goals.
• Set realistic terms and expectations for potential tenants.
• Market your land to the right audience.

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This step is also a good time to get an expert land valuation based on current market conditions. This not only gauges your land’s worth but can give you an edge when determining and negotiating lease prices down the road.

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Step 2: Vet and assemble your support team

Turning your Iowa farmland into a rental operation is no small feat. 

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That’s why pulling together the right support team is essential.

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Here’s who you’ll want to have in your corner:

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• Legal expert: Being a landlord is essentially the same as running a business — and, like with any business, you want to make sure you’re protected. Consider securing an attorney who’s well-versed in lease agreements, potential liabilities and handling challenges such as disputes or evictions.
• Financial advisor: It’s a good idea to enlist a financial professional who can help you break down numbers, understand tax implications and maximize your new income stream.
• Professional farmer: If you’re looking to be more hands-off, live far from your farmland or want to sidestep the daily responsibilities that come with being a landlord, consider partnering with a professional farmer. They can save you a lot of headaches by both caring for your land asset and overseeing farm operations, handling everything from supervising repairs and improvements, to compiling performance reports and ensuring compliance with regulations. Partnering with a professional farmer can also be a key strategy in generating above-average returns on your investment. In fact, we specialize in these types of arrangements for more than 65 landowners at Weiland Farms.

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Having these experts by your side can help ensure that both your interests and your land remain in good hands.

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Step 3: Prepare your farmland for leasing

Now, it’s time to prep your property for tenants — especially since demand is high.

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As you get your land lease-ready, try to think beyond the basics.

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Why?

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If you want to increase your income and attract cream-of-the-crop tenants, you’ll need to align your property with modern farmers’ needs.

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This approach may include:

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• Assessing land capacity: It’s important to understand the underlying productive capacity of your land. While it’s a running joke that every landowner thinks they have the best property in the country, it's crucial to have an accurate picture of your land's capacity. 
• Enhancing property value and appeal: Maybe your property just needs routine maintenance (like rock picking, weed control or fence repairs), or it might benefit from strategic upgrades (like irrigation systems, soil enhancements or improved access roads) and addressing any long-standing issues. 
• Seeking professional guidance: Engaging an expert to recommend specific repairs and updates that will bring you the best return on your investment can make your land more appealing and market-ready.

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Being thorough in your preparations sets the stage for a mutually beneficial leasing partnership.

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Step 4: Choose the right farmland tenant 

Selecting the right tenant is one of the most important decisions you’ll make as a landowner.

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That’s because it impacts the success and sustainability of your lease.

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Choose the wrong tenant?

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You risk jeopardizing your investment and legacy through land degradation, financial instability, decreased property value, legal complications, and increased maintenance and/or repairs.

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What to look for when selecting a farm tenant

Start by making a list of the key criteria you’re seeking in a tenant. This should include:

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• Financial stability
• A track record of sustainable farming practices
• A good reputation
• A positive lease history

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The farm tenant screening process 

Next, you’ll want to screen prospective tenants by doing your due diligence:

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• Check references with previous landlords 
• Conduct interviews, asking open-ended questions to gauge potential lessees’ intentions and competence
• Look for certifications or affiliations that show a commitment to farming excellence
• Run a background check

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Red flags when selecting a tenant

Be sure to watch for potential warning signs during the screening process:

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• Disputes or lawsuits with former landlords
• Lack of proper insurance or licensing
• Questionable farming practices

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When it comes to sourcing potential tenants, don’t forget the power of your community. 

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Engaging with local farming associations and online platforms can put you in touch with prospective lessees.

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Step 5: Draft an airtight farmland lease agreement

Once you’ve secured the perfect tenant, you’ll want to ensure that you both sign a farmland lease agreement.

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Farm land leases are contracts that outline the terms of your rental agreement. A well-structured lease can help safeguard your property, set clear expectations and ensure a mutual understanding.

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There are standard clauses you’ll want to include in your farm lease agreement, such as:

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• Lease duration
• Rental rate, due date and methods of payment accepted (along with consequences for late payment or non-payment)
• Lease type (cash rent, crop share or hybrid)
• Maintenance and improvement requirements (who will take care of tasks like soil conversation, pest control and infrastructure repairs, along with how major improvements will be managed and financed)
• Land use expectations (including any restricted types of farming)
• Termination clauses (including notice requirements and any penalties)
• Liability and insurance requirements

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This list is just a starting point. You’ll need to tailor the contract to your specific situation.

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ISU offers several free resources on their website that can help you get started, including an Iowa farm lease, a short form cash rent farm lease and a lease supplement for investing in improvements on a rented farm.

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If you’re a new landowner, you may also want to engage an attorney who can help you craft a lease agreement to lay the groundwork for a successful relationship while protecting your interests in the event of unforeseen circumstances.

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Setting farmland rental rates

When setting the rental rate for your farmland, it’s important to understand current market trends. 

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The USDA National Agricultural Statistics Service reports that in 2023, the average Iowa cropland rental rate is $269 per acre.

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That’s a 5.1% jump from 2022, making it the second highest annual increase in the past decade.

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To drill down even further, you can take a look at ISU’s roundup of historical county cropland rental rates. This resource breaks down the average country rental rate for corn and soybean acres in Iowa (per tillable acre).

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This information can serve as a benchmark when you’re trying to set a fair and competitive rental price for your farm land.

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Step 6: Embrace your role as a landlord

Taking on the role of a landlord may feel a bit daunting, especially if you’ve inherited the land or had challenges with tenants in the past.

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But it’s an important role that requires a bit of strategy.

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Staying engaged with the agricultural community is key. You can do this by keeping updated on local events and industry news. 

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This not only helps keep you informed but can also empower you in discussions with your tenant.

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It’s also important to establish a regular feedback mechanism or check-in schedule with your tenant. This can help you identify any early potential issues and foster a positive landlord-tenant relationship.

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Partner with a professional farmer for a seamless leasing experience

Leasing your farm land might feel like navigating uncharted territory.

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But with the right preparation and trusted partners by your side, the path becomes much easier to follow. 

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If you don’t have experience or find yourself struggling along the way, hiring a professional can make all the difference. For north-central Iowa farm landowners, we’re here to help. Discover how our land management services can safeguard your land’s value and legacy, or schedule a consultation with a member of our team.

‍Disclaimer: This article is for general informational purposes only and does not constitute investment, financial or tax advice. You should consult with a licensed professional for advice concerning your specific situation.