22 acre vineyard: cash lease at 1,900 an acre or custom farm it and keep the crop

The cash lease number means nothing until I've read who pays for what. In vineyard leases the split on trellis repair, replanting dead vines, frost protection, and deferred maintenance is negotiated every time and it's often where the economics actually live. A tenant paying 1,900 an acre on a block he intends to run into the ground for five years is a very different tenant from one who's obligated to maintain vine count and stake replacement at his cost.

Ask for the current lease document, not a summary. Look for the maintenance clause, the end-of-term condition standard, and whether there's any obligation to leave the block at a stated vine count. Then look at whether the water district assessment is passed through or split, because your 4,400 might be your share of something the tenant is also being billed for.

The other structure you didn't list is crop share, where you take a percentage of the fruit revenue and the operator farms. That sits between your two options on risk and it's common in permanent crops. Whether any of these structures creates issues for you specifically is a question for a professional licensed in that state.

Pull the water district documents before anything else. "Shared well interest" in a purchase agreement can mean a recorded easement with a defined allocation, or a handshake between two families that has worked fine for thirty years. Those are not the same asset. Find out whether the interest is recorded, what the allocation is, whether there's a written maintenance and cost-sharing agreement for the pump and casing, and whether the district has assessed anything for future infrastructure that becomes a lien on the parcel. Groundwater regulation and district assessment mechanics differ substantially by state and often by basin, so confirm with the district in writing and have counsel in that state read the recorded documents.

Second thing. Your 3,100 insurance line looks light for a block with trellis and a shed. Ask specifically whether crop insurance is included or whether that's property only, and who's the named insured under the lease.

Custom farming was new to me, so I read up on it before jumping in here. 5,600 an acre to farm and 7,350 an acre of fruit revenue is a margin of 24 percent before your fixed costs. That's thin enough that one bad set or one frost night flips it negative, and you'd still owe the operator.

@pike that was my reaction too. In option two a 15 percent yield miss takes 1,100 an acre off revenue and the farming bill doesn't move. Ledger, is the 5,600 fixed or does it move with hours and inputs?

The number I'd want is the age of the vines and the replant reserve. Vines have a productive life, and yields fall off at the back end. If this block is 22 years old you're buying a declining asset with a large capital event in front of you, and replanting is expensive per acre plus several years to first meaningful crop. That cost belongs in both options and it's in neither of your columns. A 2.7 percent lease yield with an unfunded replant on the horizon isn't 2.7 percent.

@keystone this is the part I'm trying to understand about permanent crops generally. The land keeps its value, the planting depreciates and then has to be rebuilt. So the return is really land appreciation plus a stream that decays and resets. Ledger, does the appraisal split the 41,000 an acre into land and planting? If the planting is 12,000 of it and half consumed, you're paying differently than you think.

Fruit contract at 1,750 a ton, who's the buyer and how long is the term? A signed contract that expires next season is a very different input to your model than a multi-year one, and grape prices by variety and region swing hard. If the last contract was signed in a strong year it's a ceiling, not a base case.

Nobody's mentioned that option two makes you an employer of a service relationship you have to manage from wherever you live. The operator is running your block on your account and you're checking his work. That's a job, even a small one.

@beacon fair, though Ledger's own arithmetic already picked the lease. I'd stop modeling option two and spend the three weeks on the lease terms and the water documents instead. That's where the risk actually is and it's the part he hasn't read yet.

Asking the embarrassing one: why is 2.7 percent acceptable at all? On the numbers as given you're putting up 902,000 to net 24,700 while the vines age. What's the argument for that other than hoping the land goes up?

@compass the argument is that the land is scarce, the income has almost no correlation to whatever the stock market does, and it tends to track inflation over long periods. That's a real reason to own it, and it's a bad reason to overpay for it. Which is why I'd want two things Ledger doesn't have yet. Actual county-level land sale evidence for comparable planted acreage, keeping in mind some states don't publish sale prices at all so you may need an appraiser to get it. And the last five years of tonnage by block from the current operator, not a normal-year figure. "4 to 4.5 tons in normal years" is a sentence from a seller. Five years of weigh tags is data.

If the tonnage history shows a downward drift, that supports @keystone on vine age and you should be negotiating on the planting value, not choosing between lease and farming.