|
WCIL | First a quick rundown of my current situation. I'm returning to the family farm operation this spring with about 600 acres to support myself (no family) and I will also be getting a small monthly paycheck from my dad and uncle as I will be an employee for them. My questions is this. My mom has passed along some inheritance money to me from her parents estate. The options for this money that I see are:
1. Paydown Real Estate Debt. I've calculated that this will save me twice the amount paid down in interest over the life of the loan. I've just made the 2nd payment on a 30 year amortization. I've got an excel spread sheet that shows me what I can save by paying down extra principal on the loan. I made two additional payments on it last year which has shaved 9 years off the loan. If I put the money into this it will shave another 4 years off. This land purchase was done through the USDA beginning farmer program where I put 10% down, 40% borrowed from USDA at 4% and 50% borrowed from local bank at 6.5%. I would be at a loan to value ratio of 72% (at cost not market value) as compared to the original LTV of 90%. I would be paying down on the bank portion. I worked at a bank for 3 years and realized how amortization sticks it to ya with interest in the beginning years, so I've been determined to working on paying down the principal to reduce interest costs.
2. Put the money in savings and let it earn close to zero in interest but it will be there in case something happens and I need it. This would add to my current working capitol My current ratio at the end of 2008 was 1.57 which I am comfortable with.
3. Invest it in some type of venture that could generate income for me. Some general thoughts were getting into trucking, custom hay baling, custom strip tilling, etc. I've not found an idea yet that really looked good or has a niche cornered that I could capitalize on. One downside is that most all ideas that I think of would take more money than I have and so I would have to borrow additional money to make the initial investment. I'm also in the middle of corn and soybean country with some hay ground and not many niche markets that I can think of.
As of right now I'm leaning towards Option #1 which gives me the greatest return that I can see for now. The LTV using market values right now is probably 63% and it would take me to 59%. This would give me equity that if all else fails and I need to I could tap into that equity.
Option #2 doesn't appeal to me just because there is basically no return on the money. It would be just stuffing it way in case something happens. Although every article about finances keeps saying that I should be building my working capitol in light of the current economic situation.
Option 3 would be appealing if the right idea or venture came along, but I just can't think of something at the moment that would provide a better return than option #1.
I just wanted to bounce these ideas off everyone and see what suggestions might come up. | |
|
Young Farmer Question
