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Return on equity as a farming operation matures
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pat-michigan
Posted 11/27/2015 18:29 (#4922909 - in reply to #4922692)
Subject: RE: Agree with dabeegmon...............


Thumb of Michigan
Before I answer that, I should point out that I think my situation is different than yours.

When I was asked to return to the farm in 1982, my job description was fairly simple- increase the net worth of the operation. Still my job today I guess, but obviously there are a lot of variables that enter into that calculation that can't be controlled or hedged easily.

Poor genes and an inability to take the easy way on any manual labor caused an earlier exit from active farming for me than I envisioned when I came home. My plan was to follow in the shoes of my ancestors and just do it till I tipped over one day. Neck and back problems changed my plans.

With that out of the way: when we quit farming, I was able to find a very good tenant. Or he found me, but either way, its been a great partnership. I'm happy, I think he is as well. Although I kept almost all of the land we owned, I had some ground that is sort of away from the main operation that I had bought in the 80's with the intention of selling it someday. I originally intended to trade it for land closer to home if the opportunity arose, but changed course when my career did. I swapped it for some commercial property instead.I have some active involvement in some of it, none in another entity. In the part I have somewhat of an active role in, I have expanded the business since buying and I have a goal of further expansion in mind.The ROI as well as the ROE is good, the increase (or decrease?) in net worth is harder to measure. From a tax standpoint, the depreciation available is a good thing on the commercial stuff. It also can be a "real" cost, although not as real as owning a hog finishing building for example.

I did some of this stuff because I was too young to do nothing. I wanted to spread risk. I didn't want to get bored, I have a short attention span. Different business's aren't everyone's cup of tea and I in no way am suggesting it should be. None of that may fit your situation at all. I do feel that my ROE has kind of stayed flat over time, but most of that (I feel anyway) probably can be attributed to diversification of assets over anything else.
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