Financial Advice Needed

**disneysteve** · 10-05-2008, 06:29 AM

Welcome to the site.

I don't think you've given enough information to answer the question. Tell us how much debt you have currently. Break it down by type of debt - credit card, auto, mortgage, etc. and list the interest rates on each. Without that info, I would venture to guess that paying off debt will be your best option. Let's say, for example, that you have a 7% car loan. You are looking for "guaranteed interest." I don't know of any investment that will guarantee you 7%, but paying off that loan certainly will. If you have any higher interest debt, like credit cards, that is even more true.

**maat55** · 10-05-2008, 06:51 AM

If this land does not hold sentimental value, you should look at it as a cash gift. Then, what would you do with the cash? As Steve has stated, paying off debt may be the better option.

The value of the inheritance, will determine if their is any inheritance tax. Do you pay property tax in your state?

You can lease, lease purchase, sell or sell with owner finance. Ask yourself this question: If I had XXXX(Amount of money the land is worth) would I buy this land to: Lease, lease purchase, sell or sell owner finance or not at all?

If your answer is not at all, sell it, payoff debt, and invest the rest. I still believe in investing in the market longterm. What I might do is, put the proceeds into the market slowly. Example: Say you have 100k to invest, I would think about putting it in 10k at a time, monthly. Good luck.

**jIM_Ohio** · 10-05-2008, 09:49 AM

Three appears to me as the most viable option. Don't let an inheritance or family sentiment alter your own retirement plans.

But more information might change my advice- what does your gut tell you? How much experience do you have in farming?

**MYOM** · 10-05-2008, 10:49 AM

It all boils down to return on investment. How much is the farmland worth? How much money does the farmland currently produce? Take the annual revenue generated by the farmland and divide by a realistic value of the value of the land. There is your return in investment. Can that income grow in the future?

Lastly, if I was your father and I am probably old enough to be your father, I would ask you to pay off your debt from your earnings not your inheritance. At the end of the day, all of us want income. Income is a river of revenue that pays our bills.

You can never become wealthy owing other people a lot of money. Debt is a sign of living beyond ones budget.

Good luck to you!!

Dan Clemons, author and retired Certified Financial Planner

**waynow5** · 10-06-2008, 02:23 PM

Thanks

Thanks for your responses.

A little more info...the farm has a estimated worth around 600K. I get around 15K/year currently in cash renting it. I have to pay real estate taxes as well as income. 1/3 of the estate is in a trust for my 3 boys, which they get fully at age 30. My cousin, who is renting it wants "first dibs" at buying it and put a bug in my ear about possibly selling it to him contract for deed. Which, with a down payment of 20% would just let me payoff the mortgage or the cars plus some other things since 1/3 has to be invested for my sons.

Debt wise, we have the mortgage at 1K/month with an ARM after we refinanced a couple years ago...I think the rate is around 8% now and it's a 30 year note with 90K balance. No real credit card debt, 2 cars...3 years to pay on both at around 30K, and I have student loan debt at 8% with 40K balance. That's about it.

As far as if this would have been a cash gift, I would not go out and buy a farm, I would have paid off my house and bills, then invest the rest. I do know my dad would want me to keep the farm. I just tried to sell the house and a couple acres for a couple months, with no bites...of course with the market the way it is, this was no surprise.

Hope some of this info helps. Sentimental feelings have caused me to hold on to this for over a year now. I'm the only child, which doesn't help matters.

**jIM_Ohio** · 10-06-2008, 02:46 PM

I am not clear on what is required for your kids.

**waynow5** · 10-06-2008, 02:51 PM

1/3 of the total estate goes into a trust for the kids. For example, I rent the farm at 15K/yr. I get 10K, they get 5K divided by the 3 of them. They don't get the full amount of their portion until they turn 30. Same would apply if I sold the farm, with 1/3 of the sale going to them...say it sold for 600K, I'd get 400K and they would get 200K divided by 3 (3 kids). It gets a bit confusing heh?

**jIM_Ohio** · 10-06-2008, 03:11 PM

Originally posted by waynow5 View Post

1/3 of the total estate goes into a trust for the kids. For example, I rent the farm at 15K/yr. I get 10K, they get 5K divided by the 3 of them. They don't get the full amount of their portion until they turn 30. Same would apply if I sold the farm, with 1/3 of the sale going to them...say it sold for 600K, I'd get 400K and they would get 200K divided by 3 (3 kids). It gets a bit confusing heh?

What is your current retirement plan?

current age
retirement age
current assets (not inc farm)- where (401k/IRA/taxable accounts). I would not count real estate unless you plan on moving when you retire.
How much do you add to this each month/year?

What is your current financial plan?
debts?
income?
plan to reduce debts?
plan to increase income?
married?

**cptacek** · 10-06-2008, 11:00 PM

It sounds like your cousin is getting a hell of a deal being able to rent it for only $15,000. One rule of thumb I've been told is that the owner should be able to rent it for at least 5% of the total value of the land. 5% of $600,000 is $30,000. Of course, that is just productive land (crops or pasture...if the cousin isn't living in the house and the house is worth a lot, you have to subtract that).

The reason for this is because if you aren't getting 5% back for your investment, you should move the money into something that will give you at least that.

I'm not saying to double the rent on your cousin tomorrow. There is something great to be said for keeping a family farm in the family. But, the cash rent is only providing you (2.5% - taxes) return. If you don't want to be involved in farming, then working out something with your cousin to buy it would probably be the best thing. If you want to be involved but want a better return, contact your county's FSA office and see what the county average for rent is around there and work something out with your cousin to gradually raise the rent. He probably knows very well that he is getting a hell of a deal (maybe even bragging about it down at the local coop), and if you want to continue doing business with him, he should not balk too much.

**waynow5** · 10-07-2008, 06:01 AM

Originally posted by cptacek View Post

It sounds like your cousin is getting a hell of a deal being able to rent it for only $15,000. One rule of thumb I've been told is that the owner should be able to rent it for at least 5% of the total value of the land. 5% of $600,000 is $30,000. Of course, that is just productive land (crops or pasture...if the cousin isn't living in the house and the house is worth a lot, you have to subtract that).

The reason for this is because if you aren't getting 5% back for your investment, you should move the money into something that will give you at least that.

I'm not saying to double the rent on your cousin tomorrow. There is something great to be said for keeping a family farm in the family. But, the cash rent is only providing you (2.5% - taxes) return. If you don't want to be involved in farming, then working out something with your cousin to buy it would probably be the best thing. If you want to be involved but want a better return, contact your county's FSA office and see what the county average for rent is around there and work something out with your cousin to gradually raise the rent. He probably knows very well that he is getting a hell of a deal (maybe even bragging about it down at the local coop), and if you want to continue doing business with him, he should not balk too much.

Well, he was getting an even better deal with my dad at $140/acre, I bumped it up to $180/acre after I took over. I know some are paying $200-250/acre but who knows if they are taking care of the land. My dad trusted my cousin and it was his dying wish that he keep farming it.

I've been trying to crunch figures trying to compare renting for a few more years versus selling now, paying my mortgage off and investing the rest. I'm thinking I'd be better off selling. I would think the land prices are gonna level off but my lawyer thinks of course they'll be worth more when I die than now, which he's probably right. But, then there's the sentimental value.

**waynow5** · 10-07-2008, 07:14 AM

Originally posted by jIM_Ohio View Post

What is your current retirement plan?

current age
retirement age
current assets (not inc farm)- where (401k/IRA/taxable accounts). I would not count real estate unless you plan on moving when you retire.
How much do you add to this each month/year?

What is your current financial plan?
debts?
income?
plan to reduce debts?
plan to increase income?
married?

Ok...I'm embarrased to say this, but we have little assets besides our home, cars, and my husbands pension. My inheritance is my major asset. I've been on medical leave the past year and this ate up the nest egg. Likewise, hubby was laid off most the winter due to lack of work. I will be returning to work this month, probably part time for awhile. Hubby's pension will be over 2K/month at age 62, he's 46 now. I'm almost 45. I don't know when I want to fully retire but thought I'd work at least part time up to 60+. I'm not counting on SS either. My mom passed at 64 and my dad at 75 both from cancer, so I doubt if I live to 100. I'm not being morbid, just realistic.

So, I want to enjoy life while I am able. I would like to enjoy some nice vacations with my family, which we just have not done thru the years. We don't live extravagantly, with our main spending going on updating our house. Still have 2 boys at home...1 to graduate high school this year and he's probably going into the service. The youngest will be out in 3+ years and I'm sure he'll be going to college.

If I were to sell the farm, I'd pay off all our loans. Then I could start putting that money into the bank and/or investments instead of on the debts. The mortgage and car loans are close to 2K/month themselves. No credit card debt. Student loan is around $500/month.

Our living expenses are HIGH. We live in a very large farm house which cost us 80K...last appraisal was $120K and we've updated more since then. Our insurance is high due to living in the country (2K/yr), car insurance high cuz of boys driving ($500/mo), food high cuz of growing boys ($700/mo)...you get the picture. I'm a frugal shopper and buy a lot of things on ebay at a great savings...like clothes, etc. I even purchased most our flooring, fixtures, whirlpool, etc to update our home off of ebay and saved over 50% on most things from buying them locally. For example, I bought tile off ebay for $1/ft that cost $5/ft at the local flooring store. I get a thrill out of getting a bargain! And we also do/did most the work ourselves.

Hope this answers some questions.

Thanks for everyone's input.

**Ima saver** · 10-07-2008, 07:25 AM

I think you should sell the farm and pay off all of your debt, then save the rest for your future.

**waynow5** · 10-07-2008, 08:22 AM

Thought I'd add, that when the last kid is out of the house, we plan on downsizing on the house and will probably try to find something in or closer to a towm, as we will not need this big of house. IF, the housing market is back on track by then, if not we'll hold off. Therefore, our housing expenses should be a lot cheaper I would think. I love my house, but will not need 2800 sq ft for 2 people.

**jIM_Ohio** · 10-07-2008, 09:26 AM

The best retirement plan is the one which eliminates debt and invests money for retirement in 20 years.

So I would look sell the property or earn money from it, paying off debt, then use the balance to fund retirement.

Make sure 20% of all gross income is set aside starting now for retirement.

Financial Advice Needed