New year, new look for the farm. Building any kind of new farm building or structure can seem like a daunting task. It needs to last for coming generations, hold up against inclement weather and of course, come at the right price.

For producers hoping to start the new year with a new farm building, opening up a new farm lease can happen easily with three key ingredients.

“Our leasing program is what we utilize a lot for financing grain bins, farm shops and things of that nature,” said Frontier Farm Credit financial officer Brett Thornton. “A lease would be owned by Farm Credit and they would be making a rent payment directly to us.”

With interest rates low but on the rise and farm building depreciation due to change in the coming years, a farm building lease can be an easy way to lock in a low rate and take advantage of a lease payment structure.

“Our lease rates are competitive in the market as far as with what you would get as a traditional farm loan,” Thornton said.

“I would say rates within the last year have been very low and obviously the projection looks like they’re going to start increasing,” said Matt Mastny, Frontier Farm Credit senior relationship manager for leasing. “With the lease, you can set the rate for seven or 10 years and lock in the rent payment for that term so you don’t have to worry about interest rates or any rental payments going up.”

The first step to getting started is the simplest and the most important.

Come With a Quote

In the ever-changing world of building supply issues and construction costs, Thornton said the first priority when filling out a lease application is to have a recent and comprehensive quote for the structure.

“The first thing we want to know when we’re approaching a loan or a lease like this is the cost,” Thornton said. “The person applying needs to be sure they know the cost themselves and have multiple estimates or quotes.”

Because constructions costs and supply availability change quickly, Thornton recommended that customers get multiple building quotes from different entities and that they be in the last 30 to 60 days.

“Quotes can become outdated very quickly these days,” Thornton said.

Location, Location, Location

Choosing a location for a farm structure is not only important because the building could likely be a part of the farm in perpetuity, it’s also important because applying for a farm lease gives extra location options.

“We also want to talk about the location of this building,” Thornton said. “With a lease, you don’t necessarily have to be the owner of the ground you are building the structure on.”

Ideal situations to use this unique feature of leases would include a member of a younger generation that wanted to contribute to the family farm before actual ownership of the ground is transitioned. Of course, in these scenarios permission has to be given before the lease is finalized.

Ask the Accountant

Before embarking on any new, major farm purchase, it’s important to consult with a financial expert that knows the individual’s operation and an tax implications that could come along with a new structure.

“I would recommend if we’re going to consider a lease to put up a new structure or building, to talk with a tax accountant first,” Thornton said. “Lease payments can be beneficial from a tax perspective so it is worthwhile to see if that works for them as well.”

While an accountant can help provide advice on exactly what size or shape of structure is affordable for a specific operation, they can also direct hopeful farm structure buyers on the best way to use farm buildings as a tax advantage.

“The customer is able to expense the whole payment as an operating expense,” Mastny said. “A lot of accountants like that because it’s pretty streamlined and it doesn’t change throughout the term of release.”

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