Farm manager at 8 percent of gross rent, or run a cash lease from out of state

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 that deserves the most attention 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. Eight percent of gross rent sounds modest next to 8 percent of a property value. Measured against net income it is 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 is 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 would sit at $230 for six years while the neighbors moved to $265, the manager is cheap. If he would track the county average within $10, he is paying for photos.

Even an owner who self manages everything else should hire someone for year one here. The things that break on farmland are rarely the things a spreadsheet anticipates. A fence line dispute with an adjoining owner can eat a whole summer for someone who lives twenty minutes from the parcel. Nine hours away with no relationships in the county, he is 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?

@kevin_lombard 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, @mikeoconnell7. 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.

Not wanting a second job is a reasonable filter, and it makes hiring from day one the only version worth signing up for. @renee_dubois, does that mean small multifamily only pencils with management once someone has a few buildings?

Basic mechanical question, since management agreements are what get read most closely here. 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 a percentage fee look strange. Is it common for the manager to hold the money, or does it go straight to the owner?

@raj_mehta14 it goes either way, and if a manager is holding funds, it's worth confirming exactly what account and what state's trust account rules apply, since that varies. Ask before signing. On the main question, 8 percent is a common fee on small multifamily, and the fee itself is rarely the problem. The manager who is bad at the job is the problem. A farm has fewer moving parts than a multi-unit property, so the same rule should 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 a farm management scope worth paying for is the soil sampling schedule. A cash rent operator has no strong reason to build fertility for a landlord seen once a year, and depleted phosphorus and potassium show up in rent negotiations years later when yields sag and the operator argues the ground can't support the rent anymore. Sampling on a fixed rotation, with results going to the owner, is how that stays honest. Drainage is the other one. A plugged tile line or a blown-out waterway gets expensive fast and 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. Eight percent of gross isn't worth paying for photos. It's worth paying 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 it isn't worth optimizing much past that.

How many fee structures are actually out there. Percentage of gross comes up often, and @laurenkim53 mentioned flat fee as well. A per acre fee is usually the more sensible pick, since the cost then doesn't climb every time the rent climbs, and the work doesn't get harder when rent moves from 230 an acre to 270.

@tashaford30 that's the most convincing argument in the thread. Percentage of gross means the manager's fee rises with rent even though the workload stays flat. A per acre fee, in the 12 to 15 dollar range, is predictable and easy to budget for twenty years. Income without a second job still favors hiring a manager, but paying a flat number and knowing it up front is the better structure.

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.

Threads like this keep answering the strategy question sideways. If the decision is whether to pay someone to have relationships in a county the owner will never visit, the real question is whether the goal was to be a farmland owner or to hold farmland exposure. Those are different purchases with different work attached, and it's a choice worth making deliberately rather than by default.

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

Before picking a side, 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 in. Those clauses cost nothing to read now and a lot to discover later. A reasonable approach is to hire for two or three years with a short cancellation window, sit in on every rent conversation, ask why on each decision, then decide whether to keep paying. That buys the education and the protection at the same time, and the fee for three years is under $8,000, a cheap apprenticeship on an $850,000 asset. Moving slowly on a decision like this usually pays for itself.

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. @dpatel_re'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 @karen_whitfield 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. @diane_kowalski, 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.