Farm manager at 8 percent of the rent, or run the lease myself from three states away

One thing that may take the decision out of his hands: some ag lenders care who is managing the ground when they're underwriting a loan on it, especially for an absentee borrower with no farming background. It shows up as a condition rather than a rate change, and it varies by lender, so he should ask for it in writing before he assumes either way. If he's paying cash, that pressure disappears entirely and it's purely an economics question. Worth knowing which situation he's in before he shops managers.

The part of your post I'd focus on is the sentence about terminating a lease in writing. In a lot of states a year-to-year farm lease auto-renews unless notice is given by a specific date, and that date and the required form of notice differ state by state, so he needs a local attorney to tell him what applies to that county. Missing it once means he is locked into another crop year at the old rent.

A good manager knows that date cold. A friendly handshake arrangement with the operator does not protect him from it. If he self-manages, the calendar entry for that notice deadline is the single most important document he owns after the deed and the lease itself.

Your framing of the fee is the right one and most people get it wrong, so hold onto it. 8 percent of gross rent sounds modest next to 8 percent of a property value. Measured against net income it's much heavier.

Run it: $29,900 gross, property taxes call it $25 an acre so $3,250, insurance and misc $700, average annual drainage and lime reserve $1,500. Net around $24,450. The $2,400 fee is roughly 10 percent of net. On an $850,000 purchase that moves the yield from about 2.9 percent to about 2.6 percent. That is not nothing over a long hold.

Whether it's worth it depends on one number nobody in this thread can supply, which is how far below market his rent would drift if he negotiated it himself. If he'd sit at $230 for six years while the neighbors moved to $265, the manager is cheap. If he'd track the county average within $10, he's paying for photos.

I self-manage everything I own and I'd still tell him to hire someone for year one. The things that break on farmland aren't the things you can anticipate from a spreadsheet. I had a fence line dispute with an adjoining owner that ate a summer, and I live twenty minutes from that parcel. Nine hours away with no relationships in the county, he's going to learn the same lessons by mail.

I've owned distant ground both ways. The manager years were calmer. The self-managed years taught me more and cost me less.

What actually changed my mind was realizing what I was buying with the fee. It wasn't the field visits. It was the fact that the manager talked to four operators in that county every month and I talked to one, once a year, on the phone. Rent conversations go differently when the person on your side already knows what the ground across the road went for.

Even so, sextant's number is real. Ten percent of net, compounded across a long hold, is a meaningful piece of the total return on an asset that gradually compounds and doesn't sprint. I've settled on paying for management on the parcels I can't drive to and doing it myself on the ones I can.

What does a farm manager actually do that a normal property manager doesn't? I still want the basic version. With a rental I understand it, they collect rent and fix the furnace. If the operator farms the ground and pays cash rent once or twice a year, what is there to manage the rest of the time?

@juniper the answer to your question is that in a quiet year there isn't much, and that's the case against the fee. The work is lumpy. Setting the rent, choosing the operator, deciding whether to tile a wet corner, deciding whether to sign a solar or wind option if one gets offered, handling the year the operator's son takes over. In a boring year you're paying for availability.

Which is exactly the fee argument on the fund side too, @lantern. A farmland fund charges management on committed capital and it doesn't stop charging in the quiet years either. If your friend is comparing direct ownership with a fund, he should compare total fee load properly rather than pretending direct ownership is free. It isn't free, it's just that he can choose to do the labor himself.

Depends a lot on the price point. Where I look, ground is cheaper and rents are lower, and an 8 percent fee on $130 an acre rent doesn't buy anyone's attention. Most managers around there have minimums, so a small cheap parcel either pays a flat fee that eats a fifth of the income or gets no service. Your friend's farm is good enough ground to be worth managing, which is sort of a luxury problem.

Basic mechanical question since I mostly read about paper. When does the rent actually arrive? If it's one check in the spring and one in the fall, the collection part of the manager's job is two events a year, which makes the fee look strange to me. Is it common for the manager to hold the money or does it go straight to the owner?

@vellum it goes either way, and if a manager is holding funds your friend should know exactly what account and what state's trust account rules apply, because that varies. Ask before signing.

On the main question, I pay 8 percent on small multifamily and I've never once thought the fee was the problem. The manager who is bad at the job is the problem. A farm has fewer moving parts than eight units, so I'd expect the same rule to hold. Cheap management on good ground is worse than fair management on good ground, and the fee difference between the two is a rounding error compared to a mispriced five year lease.

The item in the scope list I'd actually pay for is the soil sampling schedule. A cash rent operator has no strong reason to build fertility for a landlord he sees once a year, and depleted P and K show up in your rent negotiations four years later when yields sag and he tells you the ground can't support the rent anymore. Sampling on a fixed rotation, with the results going to the owner, is how you keep that honest.

Drainage is the other one. A plugged tile line or a blown-out waterway gets expensive fast and it doesn't announce itself. Someone standing in the field after a heavy spring rain is worth more than someone standing in it in August when everything looks fine.

I wouldn't pay 8 percent of gross for photos. I'd pay it for sampling records and a set of eyes in wet weather.

Manager. He doesn't want a job, he wants ground that pays and doesn't call him. That's what the fee buys and I'd stop trying to optimize it.

How many fee structures are out there? I've seen percentage of gross mentioned here but @hollow said flat fee too. If I ever get to this point I'd rather pay per acre so the cost doesn't climb every time the rent climbs, since the work doesn't get harder when rent goes from $230 to $270.

@quill that's the argument I find most convincing in the whole thread. Percentage of gross means the manager's fee rises with rent even though the workload is flat. A per acre fee, say $12 to $15, is predictable and I can budget it for twenty years.

I'll admit my bias, I want income without a second job, so I'm voting manager regardless. But I'd rather pay a flat number and know it.

I've only been reading about the screening end of this, so that's where I'll start. Picking the operator seems like the whole thing. Eleven years on the same ground is a real signal, the same way a tenant who has been somewhere five years is. If your friend inherits a good operator with the purchase, most of the value a manager adds up front has already happened. It's the year that operator retires that he'll wish he had someone with a phone list.

I've been trying to figure out which strategy fits me and threads like this keep answering it sideways. If the decision is whether to pay someone to have relationships in a county you'll never visit, then the real question is whether you wanted to be a farmland owner or wanted farmland exposure. Those are different purchases with different work attached and I don't think your friend has picked yet.

Nine hours away and he's never met a farmer. Hire someone.

Before I picked a side I'd read the exit from the agreement closely. Term length, notice to cancel, whether the manager gets a commission if the farm sells, whether they claim a fee on a solar or wind option they bring him. Those clauses cost nothing to read now and a lot to discover later.

My leaning would be to hire for two or three years with a short cancellation window, ride along on every rent conversation, ask why on each decision, then decide whether to keep paying. He gets the education and the protection at the same time, and the fee for three years is under $8,000. That's a cheap apprenticeship on an $850,000 asset. I move slowly on things like this, so take that as the pattern of someone who'd rather buy time to learn.

Before he signs with anyone he should get the names of three or four owners the manager already works for in that same county and call them. Ask what the rent was in 2021 and what it is now. Ask whether the operator was changed and why. Ask how fast the manager returns calls in planting season.

A manager who won't hand over references is telling you something. A manager whose owners have all sat at flat rent for five years while the county moved is also telling you something. @sextant's whole case rests on the manager capturing rent his friend would miss, and that's checkable in advance rather than a matter of faith.

The hybrid option in the poll is the one I keep coming back to. There are people who will write and negotiate a lease on an hourly or flat project basis and do an annual inspection without taking a percentage of every check forever. That covers the two places a beginner does real damage, mispricing the rent and botching the termination notice, and it doesn't compound against a thin income yield for twenty five years.

The catch is that hourly help doesn't have the standing relationship with the operator, and it's the standing relationship @orchard is describing that actually moves rent. I'm not sure you can buy that by the hour.

I self-manage until self-managing starts costing me more than the fee, then I hand it off. On one farm that took four years. On another it took one bad spring.

For a first purchase nine hours out I'd pay the 8 percent and spend the saved attention on learning the county well enough to eventually fire them. @arbor, the relationship point is right, and it's also why the hybrid tends to collapse into one of the other two answers within a few years.