Three seasons into a cash lease with a floor, and alternate bearing sits with the tenant
The whole point of this purchase was income that doesn't call me at 9pm, so I bought the crop and gave away the farming.
60 acres of mature pecans, trees mostly 25 to 35 years old, one shared irrigation well with a recorded easement, bought at $9,800 an acre, so $588,000 with about $11k in closing and title work. All cash, which matters to the numbers below.
The lease is where I spent my energy. Straight cash rent is simple and it hands all the upside to the operator. A pure crop share hands me the volatility of a crop that alternate bears, meaning a heavy year is usually followed by a light one, sometimes by half. So we wrote a base of $550 an acre paid in two installments, February and September, plus 20 percent of gross receipts above $1,900 an acre in any year. Base is $33,000. In three years the bonus has paid once, $6,400, and I'm treating that as noise rather than income.
The obligations are the part I'd keep. The tenant carries hedging and pruning on a written schedule, replaces any tree lost to storm or disease within one dormant season at his cost up to eight trees a year, and has to give me the crop insurance declarations page each spring. If pruning slips, base rent steps up by $75 an acre, which is my crude way of pricing the fact that a neglected orchard hands me back a worse asset than I leased out.
Costs on me: property tax $6,200 under the county's ag valuation, liability insurance $1,400, well reserve $5,000 a year that I actually fund into a separate account, and about $1,800 of accounting. Net around $18,600 on $599k, so roughly 3.1 percent cash before any bonus.
The part that nearly broke it: my tenant is a single operator farming about 900 acres total. If he quits or dies, I own an orchard I can't farm, in a shrinking pool of custom operators. I asked for two years of his tax returns before signing and he was insulted. He gave them anyway. I'd ask again.