Grand Rapids, MI | GEMLAKEny - 9/8/2009 22:23
I own all of the land i farm right now and also rent some of my ground out. I was wondering the best way to figure land into my cost per acre calculations, should i only include what it costs me in taxes or should i calculate it based on how much i could get for the ground if i simply rented it out?
Gem, you could do this either way but you need to add in the opportunity cost of your capital somewhere.
Lets say you are calculating your costs/ac so that you can take them and add a desired profit margin to them and determine a desired revenue per acre for marketing, etc.
If you figure in only your taxes, you will need to figure a larger return to your capital since you have not yet accounted for the cost of the capital invested in the land. This gets tricky since I consider investment in land and investment in operating capital two completely seperate risk classes. For capital invested in land, I might be happy with a 5-6% return (excluding appreciation), for capital invested in operations I require closer to a 20% return because of the risk involved.
This is one of the reasons I generally advise farms to have their operations in a seperate company from their land and other "investment" type assets. The other big reasons are liability, self employment taxes, and the ability to have different ownership shares between operations and land.
In general look at Martin's post below he offers some good insight. |
calculating input costs.
