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Renting vs. selling farmland [7 questions that will help you decide]

When you’ve inherited or been gifted farmland, figuring out what to do with it can feel complicated. Here's how to decide if you should sell or rent your farm.

by Reid Weiland

Imagine standing at the edge of your family's farm, the horizon stretched out before you.

Each acre echos with memories of harvests past and possibilities of the future. 

This isn’t just land — it’s years of dedication, memories and hard work. 

That's why, when you come to a crossroads, it's essential to consider every aspect: Should you rent or sell your farmland? 

Many landowners — including those who’ve inherited or been gifted land — struggle with this monumental question.

It’s one we’re frequently asked.

Our approach always begins by diving deep into individual circumstances, needs and long-term goals. 

Let’s start with the considerations you might have when you inherit land in the first place…

Considerations when you inherit farmland 

Inheriting farmland often comes unexpectedly and can leave you unprepared for the decisions and responsibilities that lie ahead. 

Everyday tasks — from managing finances to keeping up with maintenance — may feel incomprehensibly hard or even trivial. You might be wondering how to best honor the legacy of your loved ones while also making sound financial decisions for your future. 

Perhaps the idea of managing a farm is too intimidating, or there are no family successors to carry on the farming tradition.

There might be financial pressures. Maybe the farm isn’t as profitable as you’d like due to operational challenges, rising costs and the unpredictable nature of commodity prices. 

Or a rural lifestyle might not be the right fit for you. 

Whatever your reason, remember this… 

You’re not alone in this journey, and you have options. 

You can choose to sell your farm outright, rent it out or partner with a professional farming operation.

Selling your farm

Deciding to sell your farmland is a big step. 

You can enlist an auction house, which can provide a competitive bidding environment to potentially maximize your sale price. 

You can hire a real estate agent who brings the advantage of their network and experience in listing and promoting your property. 

Or you can take the DIY approach and sell the farm by yourself. This approach costs less but may mean that you don’t score the highest and best price.

Benefits of selling farmland

When it comes to selling your farm, there are several benefits:

  • You may receive a significant payday. From 2021 to 2022, nationwide farmland values soared by 12.4% and reached a record high of $3,800 per acre — the highest since 1970. 
  • Selling your land can be a simpler process compared to the ongoing responsibilities of leasing it on your own.
  • You might have the potential to invest proceeds from the sale into opportunities that are more aligned with your interests and skills. 

Drawbacks of selling your farm

But, selling farmland isn’t without challenges:

  • You could get hit with capital gains. According to the American Farm Bureau, the capital gains tax rate can climb as high as 20%. That means, if you're planning on reinvesting into a 'better' investment, you’ll be starting with 20% less than you have now. Parting with land that may have been in your family for generations is a final decision, which can evoke mixed feelings.
  • The fluctuation of land appreciation may have you wondering whether you’re selling at the peak time or prematurely.

Renting your farmland out

If you’re considering keeping your farm but want to rent it out, you have a few options.

You can lease out the land yourself and oversee all farming operations.

You can enlist a professional land management company to care for your farmland. In this type of arrangement, the land management firm may manage either the custom farming activities or the lease agreement, typically for a fee. 

Another option is to partner with a professional farming operation who can both manage the land and operate the farm. Not only do you gain someone who deeply understands the land and its needs, but you also have an ally invested in its ongoing productivity and health.

Benefits of renting your farmland 

Renting out your farm land can provide some key benefits:

  • You’ll receive a steady income stream, either from flat or yield-dependent cash rent. In the U.S. in 2022, the average cropland rental rate was $148 per acre. (Here in Iowa, it was $256 per acre that same year.) Additionally, Iowa State University (ISU) reports that cash rents yield a 6.1% average return year over year.
  • You’ll keep the land in the family and retain the appreciation in value that comes with it over time. ISU also states that farmland has appreciated by about 6.7% annually (or 2.7% per year, inflation-adjusted) over the past 40 years, making it a potentially lucrative long-term investment. 
  • You won’t have to deal with the taxing (and potentially daunting) duties of running and working on the farm.
  • You’ll have the flexibility to become more involved in farming or pass on the land in the future, if you choose to do so.

Drawbacks of renting your farmland 

But, as with selling your farm, leasing it out has some cons:

  • It may be challenging to find competent, trustworthy tenants or land management companies.
  • You’ll need to find a way to ensure that your tenant employs sustainable farming practices — not only for the preservation of your land but also for its long-term value.
  • While renting can be profitable, it also means lease agreements, potential misunderstandings and unexpected challenges. Despite having a solid contract, occasional disagreements can arise, which can lead to unplanned costs and time commitments.

Whether you're contemplating selling or leasing your farm land, the decision is rarely straightforward. 

That’s why it’s vital to ensure you're making a choice that aligns with your values and long-term objectives.

Rent vs. sell farmland: 7 key questions to ask yourself 

Asking yourself the right questions can help you navigate the decision between leasing or selling your family farm. 

While some aspects may seem clear-cut, others might have gray areas.

Regardless, reflecting on these seven questions can help guide you toward the best course of action.

1. What’s driving my decision?

Understanding the motivation behind your wish to rent or sell your farmland is crucial.

Is it due to a lack of knowledge or desire to manage the farm, financial pressures, the absence of heirs to carry on the farming tradition or something else?

Identifying your core “why” can serve as a foundation for every subsequent decision.

Waypost: Reflect on whether your motivation stems from a fleeting emotion or aligns with sustainable life goals.

2. Are market conditions in my favor?

Supply and demand for farmland in your area can significantly affect what your property is worth. 

More buyers than agricultural land for sale means it’s a sellers’ market. A large inventory of listings and fewer buyers mean it’s a more competitive market for sellers, which can slow down your sale.

Understanding these dynamics can inform your decision on whether it’s best to sell or rent.

Waypost: Research recent farmland sales and rental rates in your area, considering factors like interest rates and broader economic aspects. If farm selling prices are high and leasing demand is strong, you're in a favorable position to sell or lease. 

What are the tax implications of renting and selling? 

Both selling and renting your farmland come with tax implications that can drastically affect your financial situation:

  • Selling your land may result in capital gains tax on any profits.
  • Leasing it out will require you to pay income tax on the rental income.

There may also be estate or inheritance tax considerations if the land has been passed down to you.

Waypost: Consult with a tax professional to understand the full spectrum of any tax implications. Having a clear understanding of this impact will help you make an informed decision that aligns with your overall financial goals.

4. How attached am I to my land’s legacy?

For many landowners, their farm represents family history and cherished memories — whether you’ve been working the land for decades or recently inherited it.

Deciding to sell it might mean severing those ties while leasing it could preserve them.

The key?

Try to view your farm land objectively, as a product.

This is a mindset shift, an attitude adjustment that allows you to make choices that honor both your heritage and your goals.

However, we know that this is often easier said than done. 

If you’re struggling to view the situation neutrally, you may find it helpful to seek an outside perspective.

Waypost: Reflect on your emotional connection to the land. As part of that, consider how your decision to sell or lease it out will impact your legacy and your community.

5. Am I ready for what comes next?

If you decide to rent your land, transitioning to a landlord role means adapting to new responsibilities. 

These may include managing tenant relations, overseeing property upkeep and handling potential disputes. 

On the other hand, selling your land brings finality. It means relinquishing your stake in the property and surrendering both its day-to-day challenges and any future gains. 

Waypost: Assess your capacity and desire to be involved in ongoing farm management. If you're leaning towards selling, ask yourself if you're ready to part with the land. If the idea of becoming a landlord overwhelms you, but you're not ready to sell, consider partnering with a seasoned farmer, like Weiland Farms, who can handle both asset land management and daily farming operations to lighten the load.

6. How will my decision affect my family?

Every family has its unique dynamics. Your decision to sell or lease the farm could ripple through your immediate and extended family. 

Are there any legal implications, especially if multiple heirs or stakeholders are involved? 

Will it affect family traditions? 

Are there sentimental ties to the land other family members aren’t ready to sever? 

Maybe you have a cousin who has been considering entering farming and hopes to take over, or perhaps your kids have dreams for that parcel of land. 

Waypost: Have an open dialogue with family members early on in the process to gauge their feelings. Their insights may offer a different perspective and influence your decision on whether the land should be kept within the family (and leased) or let go (sold). It might also be necessary to consult with a legal professional to fully understand any implications.

7. If I lease the land, how can I find reliable tenants?

The future of your land, when in someone else’s hands, can be a big concern.

But leasing doesn’t mean you lose all control; in fact, it can be an opportunity to be selective. 

Think about the kind of agricultural practices you'd like to see, the type of crops you'd prefer and the environmental impact you want your land to have. 

These can all be outlined in lease agreements to clarify your wishes to potential tenants.

Waypost: Have a comprehensive lease agreement drawn with a focus on sustainability and land preservation. Additionally, consider enlisting a professional partner who already has a reputation for upholding these values. They’ll not only bring reliability but also a proven track record, ensuring your land's legacy continues in trusted hands.

The bottom line

Deciding the future of family farmland is a big and deeply personal decision.

This land — whether it's been in your family for generations or recently inherited — is sown with memories, hope and years of dedication. 

Every question you contemplate, memory you revisit and option you consider adds layers to this decision. 

And whether you choose to sell or lease your farmland, you’re continuing its story. 

At Weiland Farms, we understand the weight of this decision. We walk alongside our landowner clients through these pivotal crossroads, offering not just professional guidance but also understanding and empathy. If you’d like to explore your options or discuss your farmland’s potential, don't hesitate to schedule a consultation with 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.