Land Access and Tenure Toolshed: Determining Fair Land Rental Rates
There are several ways to develop cash rental rates for farmland.
You can use data about land rental rates in your area.
USDA-NASS has created an interactive database containing average annual cash rental rates for land categories in VT counties. To use the NASS Quick Stats Query Tool, Highlight "RENT" in the "commodity category", and in the "data item category," choose "EXPENSE, MEASURED IN $/ACRE" for the appropriate land category.
Market cash rental rates are also calculated by USDA-FSA annually.
The US Department of Labor Consumer Price Index is a widely used measure of inflation. It can be factored into lease agreements to adjust for inflation over the course of the lease term.
When farm infrastructure is involved, the DIRTI-5 formula can be used to calculate annual fixed costs associated with ownership.
- Depreciation: original cost of infrastructure / # of years of its useful life. Remember, land, ponds, roads or other permanent improvements are not depreciable and are instead capitalized as part of the owners cost basis. See the Farmers' Tax Guide section on depreciation for more information.
- Interest: Interest rate x average investment value (average value is usually figured as half of total original cost).
- Repairs: Usually figured as 1-2% of replacement costs for buildings and 3-5% of fixed cost for machinery.
- Taxes: Assessed value of buildings x tax rate.
- Insurance: A land owner’s liability insurance policy should include buildings and infrastructure. The “I” in this case is commonly figured as 1% of the average value of the equipment or machinery and/or 1% of the present value of buildings.
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Last modified February 21 2011 11:06 PM