Iowa Farmer Today
03-25-06
Cash in by renting unused facilities
By Gene Lucht, Iowa Farmer Today
For Calvin Larsen, renting out his feedlot and part of his machine shed was an
easy choice.
Some income was better than none from the retired farmer’s unused facilities.
But, he also understood there was a potential downside and more than a few
items to consider.
“My facilities were in pretty good shape, so I didn’t have to do anything,” he says.
That’s not always the case.
Kelvin Liebold, Iowa State University Extension farm management
specialist, says, “There are a number of items to think about, whether you are
the person renting it from someone or whether you are the owner renting it out.”
The first item to consider, if you are the owner, is the cost and depreciation
figures, he says. That entails how much is the building costing you the tax
ramification of any change.
A second general thing to consider when renting out buildings or facilities is
whether the change will require up-front expense by the owner. Do fences need
to be put up or repaired, for example. Does gravel need to be put down to allow
trucks better access?
A third item to consider is the ongoing cost and who assumes it. That means little
things that add up fast. Who pays for the electricity and the water? Who pays for
snow removal? Who is paying for the insurance?
A fourth item is particularly important with livestock facilities: Who assumes
liability for problems? If there is an odor or a manure problem, who is
responsible?
Those are all things that should be considered before entering into a contract,
Liebold says.
Of course, most of those are important for farmers who want to rent or lease
facilities, he adds.
There are a few other considerations. For example, for grain bins:
= Is the bin large enough to be useful?
When newer grain carts hold almost as much as older grain bins, some small
bins simply aren’t useful for many farmers. The exception might be for a farmer
who is trying to store a small amount of identity-preserved grain.
= Is there year-round, all-weather access? That can involve rock and snow
removal.
= If the dryer or fan go out, who is responsible and what is the process?
If the owner is not present does the renter have the right to buy a new piece of
machinery or is he going to be stuck in the middle of harvest with no working
dryer for days or weeks?
= How long is the contract? Grain is often stored for long periods. Multi-year
contracts may be useful.
For machine sheds and other storage buildings, the considerations might be
different, Liebold says. The major item is the size — both of the building and of
the doors.
Also, it is not unusual to rent a part of a shed or storage for one or two items of
equipment.
If that happens, how accessible is the equipment? Will it be near a door or tucked
in a back corner. How easy will it be to get out?
Also, is the shed paved or unpaved? Is it an open shed or a closed one? Who is
responsible for rodent or bird control?
For livestock facilities, liability and odor are big items, but so are wear and tear.
Many farmers rent livestock facilities by the animal or by the day. Many work out
a formula of so many cents per day per animal or so many dollars per month per
animal.
Again, the length of the lease and the specifications for use (type of animal, etc.)
are all-important.
And, it might be important to consider items such as noise, traffic and odor,
particularly if the person who owns the facilities lives on that farm or nearby.
For Larsen, it wasn’t a difficult decision to rent out some facilities. He wasn’t
using them and they were in good condition. They were also not outdated.
That made the decision easier.