Entrust Learning Center > Keyword: Self-directed > Land Banking Strategy: Sustainable Farming Lease Agreements

Land Banking Strategy: Sustainable Farming Lease Agreements

By: Curt Smeller

IRA & 401(k) Insights

A growing number of IRA investors are flocking to embrace true self-direction using strategies associated with raw land investment, or land banking.  Holding raw land as an investment for appreciation over the long-term has historically been a sound strategy for many IRA owners.  One way raw land investors can turn dirt into an income-producing asset is by utilizing land use agreements - a lease between the investor’s IRA and a tenant seeking to work the IRA owned raw land.

Land use agreements can encompass a broad range of strategies.  Mineral rights, timber rights and water rights may lead to leases to harvest these natural resources.  Green energy trends may lead to leases aimed at harvesting power from the sun or wind. The most traditional strategy for raw land has been farming.  Ground swells of investors are catching on to the idea of preserving space and turning toward sustainable farm leasing with their IRAs.

Like all investment strategies, the duties and responsibilities regarding the stewardship of the investments over time can be complicated and requires due diligence and monitoring.  Farm lease agreements are no exception. Here are some things to consider before investing in a sustainable farm lease:

• What does my IRA owned land have to offer and for how long?
• How do I ensure that the land is farmed successfully with protection of the land’s natural resources and its long-term productivity?
• What kind of rent will allow for a long-term tenant?
• How should the agreement protect my investment in regard to improvements made to the land by the tenant?
• Should there be cost-sharing in the agreement to motivate a long-term sustainable farming practice?
• What risk-sharing provisions should be included to account for varying crop yield over time?
• What is the conservation plan for the land and what provisions should be included to ensure the plan is upheld?
• How do I establish thresholds and a monitoring strategy for the tenant to understand their role in the conservation plan?

Thoroughly understanding these basic questions can help lead to a successful sustainable farm lease agreement for your IRA owned raw land.  Additionally, discovering “the local lay of the land” will also ensure that as an investor, you are accepted into an agricultural community.  

Information on developing a sustainable farm lease can be obtained from a variety of resources.  Real estate advisors and farm managers can be critical sources of advice. There are also numerous government, academic, and nonprofit organizations ready to provide assistance such as the USDA’s Natural Resource Conservation Service, State University Agricultural Extensions, and Drake University’s Sustainable Agricultural Land Tenure Initiative website .

There are a multitude of investment opportunities with land banking, and it may not be for every investor. The key to making any investment is educating yourself and finding which option best fits your overall financial goals. To gain a full understanding of all the options available to you when you hold a truly self-directed IRA, contact your local Entrust Office.

By Curt Smeller

Curt Smeller is a Business Development Manager for The Entrust Group, a premier provider of self-directed retirement plans. He can be reached at csmeller@theentrustgroup.com or (503) 534-3540.

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