Grade A dirt at 2.9 percent or tired ground at 3.6. Which is safer?

One thing that will show up whichever way you go. Lenders who do ag land look hard at soil productivity ratings when they size a loan, and the tired parcel can appraise lower per acre than the contract even at $6,200 if the comps in that county are thin. That changes your cash in, not just your yield. If you're borrowing any of this, get the lender's view on both parcels before you're under contract, and get their terms in writing since ag lending terms move around.

What actually makes a parcel Grade A? Is it purely the soil rating, or does the tile and the operator count toward it? quill's two parcels differ on all of those at once, which makes the comparison hard to hold in my head.

pike, in practice people mean soil first and everything else second.

quill, the handshake lease on parcel two is the thing I'd fix in the purchase agreement rather than after closing. A year to year verbal arrangement means you may inherit no enforceable rent for the coming season, and in many states farm lease termination requires written notice by a specific date or the tenancy rolls over. That date and how it applies to a buyer differ by state, so ask a local attorney what the deadline is before you sign anything. The price difference between your two parcels is partly the price of that uncertainty.

Naive question. If the tired parcel is harder to finance, is a seller carry more likely there? I've been reading about notes and I don't know whether farm sellers do that or whether it's mostly a house thing.

It happens, vellum, particularly with retiring owners who don't want the whole gain in one year. Tax treatment on installment sales is genuinely a question for a CPA though.

quill, the thing that would decide it for me is whether I want a project. Parcel two is a small operating business for a few years. Parcel one is a bond with dirt attached. Those are different lives, not different yields.

Before comparing yields I'd want the same information set on both, and right now you don't have it. Pull the soil survey and the productivity index field by field on parcel two, not as an average. A parcel can carry a mediocre average with 60 good acres and 20 bad ones, which is a completely different asset from 80 uniformly mediocre acres.

Then price the tile honestly. Systematic tile installation runs real money per acre and varies a lot by spacing and terrain, and it is the kind of quote that comes back higher than the number you carried in your head. If the fix costs $1,200 an acre, your $6,200 parcel is a $7,400 parcel and the yield gap closes to almost nothing before you've collected a single rent check.

On the downside question, what I saw in the last cycle is that thin ground sells at a wider discount when buyers get selective, and it takes longer to sell at all. Grade A tends to trade. That's a liquidity difference more than a value difference, and it only bites you if you have to exit at a bad time.

Don't forget the closing side. Survey, title, and any transfer tax vary by state and can be a couple thousand either way, and on the tired parcel you may want an environmental look if it's ever had fuel storage or a dump corner. That's a first deal cost people forget until it's on the settlement statement.

If you go with parcel two you'll probably want a farm manager for the first couple of years to rebid that lease properly. Typical fees I've seen quoted sit around 6 to 8 percent of gross rent, sometimes a flat per acre figure. On $18,000 of rent that's a bit over $1,200 a year, which eats a chunk of your 70 basis point advantage. Worth pricing into the comparison rather than treating it as free.

Buy the good ground. I've spent three years finding the ceiling on cheap assets in another sector and the pattern is the same every time. The discount is priced correctly. The market knows about the wet corners.

keystone, does that hold when the discount is for something fixable? Genuinely asking, because everyone says the market prices it right and yet people do make money on repairs.

At 2.9 percent, isn't almost all of the return on parcel one coming from land appreciation? Cropland values have been rising in the mid single digits and that's the fifth year in a row, but a stretch of flat years turns a 2.9 percent asset into something you're holding out of stubbornness. Which means the real comparison between quill's two parcels might be which one appreciates, and nobody in this thread can know that.

compass has the realistic version of it. Income is a small share of the total on either parcel.

quill, one thing nobody has raised. Check where the nearest substation is and whether either parcel sits in an interconnection queue area. Solar option payments on suitable ground can dwarf cash rent, and the developers care about transmission access and flat topography more than they care about soil quality. That can invert your whole ranking, because your tired parcel with two wet corners might be exactly what a developer wants. Zoning matters too, and whether a county permits utility scale solar on agricultural land is a local ordinance question that changes county by county. I'd read both counties' ordinances before I decided which parcel is the better one.