Farm Industry News

From pigs to Porsches

Farm Buildings are a terrible thing to waste. That's why more farmers are renting out ones they no longer use. But what is involved in converting a farrowing unit to a unit that houses Ferraris? And how much rent can you charge?

If you want to rent facilities for ag purposes, consult your state extension service. Some universities publish current rental rates for a variety of facilities. Iowa State University (ISU), for example, provides updates on farm building rental rates based on information supplied by Iowa tenants, farm owners and farm managers. ISU conducts the rental rate survey every five years. The most current guidelines, published in spring 2008, can be found at www.extension.iastate.edu/Publications/FM1838.pdf.

The Iowa Farm Building Rental Rate Survey, prepared by William Edwards, ISU Extension economist, states that rental rates will vary according to the age, condition, size, location and efficiency of the building being rented.

The University of Minnesota also publishes rental rates (see page 44). Its most recent data are from 2002. Property owners who think the lowest number in each rate range is too low for today's rates can use a higher percentage in the range, says David Bau, extension educator, Agricultural Business Management, University of Minnesota, Worthington, MN.

In lease agreements for agricultural purposes, the property owner is responsible for real estate taxes, insurance, major repairs and routine upkeep. The tenant would likely pay the cost of utilities if he or she is using the entire building. In some instances, the tenant might also be responsible for some of the day-to-day repairs (in a hog building, for example).

Vehicle, boat storage

Some property owners may prefer to rent their buildings for non-ag purposes — to store vintage cars, campers, boats or snowmobiles, for example.

A retired farmer in Wisconsin preferred this route because she thought the buildings would be easier to maintain than if she leased them to a livestock producer.

Before renting her buildings, she talked with other property owners who had leased their facilities for storage purposes. This gave her a better idea of current rental rates. She also checked with a few commercial storage unit owners, but she notes that facilities in a town or city are more likely to obtain higher rents because of their locations. However, many commercial units in town are not always large enough to store big vehicles or boats.

You can check to see what commercial storage units charge for certain size units, says Dale Lattz, agricultural economist, University of Illinois. You also can use DIRTI, a basic formula for calculating building cost: depreciation, interest, repairs, taxes (real estate) and insurance.

“The most you could probably rent for is full coverage of these costs,” Lattz says. “Renters would not pay more. Otherwise they could build their own. The minimum you would like to receive as rent would be your cash costs [insurance, taxes and maybe some repairs]. Generally, the rental rate will be somewhere in between.”

Check zoning laws

You should do your homework concerning any zoning issues that your county or township may have concerning rentals. Zoning laws can vary by county and city across the state for use of buildings.

You might also have to apply for a conditional use permit for renting for non-ag purposes. This also will vary in cost depending on the area.

The University of Minnesota's Bau recommends checking with county officials about planned uses for facilities. He also recommends talking with your insurance agent about what kind of liability insurance would be needed.

Tenants also should check with their agents about the insurance coverage they need. They should be sure they are covered in case of a tornado or fire.

Get your agreement in writing to limit differences of opinion on rental rates and terms. The agreement might also spell out who has access to the building.

You might want to be present when the renter has access to the building, particularly if the building contains other tenants' property. However, if the tenant has rented the entire building, you may give him or her a key. The Wisconsin property owner has a system, not unlike a safe deposit box, where both her key and the tenant's key are needed to gain access.

You also should consult with an attorney to see what recourse you have for tenants who are delinquent in rental payments and any court procedures that may be involved.

The transition

How can you transition your buildings from housing pigs to Porsches? Think like the Porsche owner. You would probably want a cement floor on which to store your investment. If you have a dirt floor in a pole shed, lay down some wooden planks. The car owner may be fine with that.

The Wisconsin property owner had an old cow barn that was banked on one side. Tenants could easily drive their cars into the barn. She reinforced the wooden floor of the haymow with wiring from old farrowing crates so that car owners could drive over the old boards.

One last tip: Place scented dryer sheets or cotton balls soaked in pure mint extract in vehicles or boats and in all four corners of campers to keep rodents at bay. The mint extract will last about a month.

Rental Rates

Facilities rent

Old: 10 to 15% of original investment

New: 12 to 16% of original investment cost, if built specifically to rent. If the new building already exists and is standing empty, the range could be lower.

Renter: Pays all utility costs incurred and minor building repair and equipment maintenance costs.

Owner: Pays real estate taxes, fire and wind insurance, building remodeling costs and replacement costs of barn cleaners, silo unloaders and livestock equipment.

Both: Carry their own farm liability insurance.

Machine shed rent

Old, small, low ceilings, small doors, dirt floor: $0.10 to $0.30/sq. ft./yr. Average: $0.20/sq. ft./yr.

New, larger, high ceilings, large doors, cement floor: $0.30 to $0.70/sq. ft./yr. Average: $0.45/sq. ft./yr.

Dairy facilities rent

Milking parlor, equipment, loafing shed, feed storage, manure handling and storage facilities, and replacement heifer housing: $75 to $200/cow unit/yr.

Older (40-cow barn): $75 to $125/cow unit/yr. or $6 to $11/cow unit/month. Average: $90/cow unit/yr. or $7.50/cow unit/month

Repair costs can be substantial with an old dairy facility. In most cases, the tenant is responsible for all repairs.

Modern (over 60-cow capacity): $120 to $200/cow unit/yr. or $10 to $15/cow unit/month. Average: $140/cow unit/yr. or $12/cow unit/month.

Modern facilities must have a lot of built-in labor-saving technology (liquid manure storage and forage conveyors, for example).

Hog facilities rent

Pasture farrowing hut: $3 to $18/hut/yr. Average: $9/hut/yr.

Farrowing house: $2.50 to $10.50/pig weaned or $5 to $35/crate/litter or $25 to $400/crate/yr. Average: $5.50/pig weaned or $110/crate/yr.

Nursery: $1 to $7.50/pig. Average: $3/pig.

Farrow-to-finish: Modern: $4 to $18/head sold; Average: $9/head sold.

Confinement finishing building: $10.50 to $35/space/yr. or $2 to $10.50/head sold or $0.05 to $0.08/pig/day. Average: $30/space/yr. or $7/head sold or $0.07/pig/day.

Open front finishing unit: $3.75 to $25/space/yr. or $2 to $8/head sold or $0.02 to $0.05/pig/day. Average: $12.34/space/yr. or $5/head sold or $0.04/pig/day.

Feeder cattle facilities rent

$1 to $9/head/month or $9 to $80/head finished or $0.07 to $0.30/head/day. Average: $4.50/head/month or $38/head finished or $0.15/head/day.

Grain storage rent

Old, smaller, high labor requirements,larger grain loss: $0.01 to $0.015/bu./month and $0.09 to $0.12/bu./yr. minimum.

New, larger, good elevator grain movement system, small grain loss: $0.015 to $0.03/bu./month and $0.12 to $0.20/bu./yr. minimum. Should have capability to cool grain in the fall and warm it in the spring. Should also keep grain in good condition. If facility has attached grain dryer for which owner supplies fuel, rent may be increased by $0.05 to $0.08/bu./period (usually one year). If operator supplies the fuel, additional rent will be $0.5 to $0.75/bu./period.

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