Right now, there are some encouraging signs for those ready to take that next step, with real estate agency Property Brokers describing current conditions at a recent farm buyers' event as "the best opportunity in a decade for first farm buyers" due to: 

• Healthy supply of farms on market
• Stable land values alongside strong livestock values
• Strong farm-gate returns and improved confidence
• Greater bank appetite for first farm purchases

A favourable market, however, does not automatically make a farm the right purchase. At Baker Tilly Staples Rodway, our message to aspiring farm owners is simple: Opportunity matters, but preparation matters just as much.

Our Taranaki team recently co-hosted Property Brokers' Footprint into Land seminar in Stratford, bringing together rural professionals, an expert panel and real-life case studies from farmers who had recently made the transition to farm ownership.

The key message was that buying your first farm involves much more than finding the right property. The financials, funding, business structure, legal considerations and longer-term goals all need to work together. So, from an accounting and advisory perspective, what should prospective first farm buyers be thinking about?

Make sure the numbers stack up before buying a property!

Before committing to a property, understand your equity and borrowing capacity, and prepare a realistic budget based on achievable production, farm working expenses, drawings and finance costs. Then, stress test it. What happens if interest rates increase by 2–3%, the milk price drops by $2, a drought occurs or costs rise?

Look beyond the purchase price, too. Consider the farm's sustainable earning potential and any additional investment required in livestock, plant and machinery, maintenance, and working capital.

A good farm can still be the wrong purchase if the numbers leave no breathing room, especially important for a first farm purchase, when debt levels may be higher and there is less capacity to absorb an unexpected setback.

Get your farm ownership structure right from the start

There is no one-size-fits-all structure for buying a farm. The right structure depends on who is involved, where the equity is coming from, and everyone’s short, medium, and long-term goals.

This is particularly important where family, equity partners or vendor finance are involved. Can the purchaser build enough equity to eventually buy out the exiting party? And will the exiting party have sufficient funds for their next stage?

Related-party transactions can also have specific tax implications, including around asset values, livestock valuations and depreciation. Asset protection and relationship property considerations should also be factored in.

The structure needs to work not only on settlement day, but for where you want the farming business to be in five, 10 and 20 years.

What to do before signing a sale and purchase agreement

Once you have found the farm, involving your accountant and lawyer before the agreement becomes unconditional can prevent expensive surprises later.

• GST: Make sure the GST clauses accurately reflect the transaction. Getting the GST treatment wrong can be costly, so have it reviewed before the agreement is finalised.
• Purchase price allocation: Buildings, plant and machinery, and other depreciable assets should be separately identified and appropriately valued, as these values can affect future depreciation claims.
• Forestry: If the property includes forestry that may be harvested, consider allocating an appropriate value at purchase, as this can have future tax implications.
• Settlement date: Settlement timing can also have tax implications depending on the purchaser's circumstances and financial year, so discuss this before finalising the agreement.
• Tax planning: This is important, but it should form part of the wider picture rather than drive the deal.
• Having the right team is paramount: A rural accountant, banker, lawyer, farm adviser and rural property specialist each bring a unique perspective. Involving your trusted advisers early allows you to test assumptions, identify risks and work through different scenarios before you commit.

An opportunity worth exploring

A farm purchase should never be rushed, but if farm ownership has been on your radar, now could be a suitable time to bring that plan back to the table and find out what may be achievable.

We work alongside farming clients throughout the ownership journey, from assessing financial capacity and stress-testing budgets through to ownership structures, tax implications and the detail of the purchase.

The right farm at the right price is important. Making sure the numbers, structure and longer-term plan stack up is just as important.

If you're considering farm ownership, talk to our Baker Tilly Staples Rodway agribusiness advisory team today!