If you’ve spent any amount of time on this site, you already know that farmland is a highly valuable asset that can provide a lifetime of passive income through cash rents. However, many landowners do not realize how many additional sources of revenue may lie beneath their feet.
Depending on the unique features of your land and your level of creativity, you may be able to secure residual income opportunities in addition to your farming leases - turning those non-tillable acres into profit.
Let’s explore these options in detail...
Waterways, ditches, lakes, and woods on your property may yield one or more recreational leases, from hunting and fishing to boating and camping.
A hunting or fishing lease is probably the most common type of ancillary income and one of the easiest to arrange. Agreements among friends and neighbors often involve little more than a handshake and a check delivered prior to open season.
The going annual rates for hunting leases will vary depending on your geographic location, specific property features, total available acreage, type and size of game, etc.
For example, most deer hunters expect to pay $5 to $15 per acre for a hundred-acre field with a ditch running through it, but you may be able to command as much as $30 to $40 per acre if you own woods full of trophy bucks.
Furthermore, a single tract of land might be leased out several times during the same year for deer, elk, turkey, pheasant, or other seasonal game hunts. This can create a nice multiplier year after year, with little or no additional effort on your part.
Other recreational leases might include activities such as boating, camping, mountain-biking, or horseback riding. Investing in minor property improvements like boat ramps, pavilions, cabins, or campgrounds could yield additional rental income from visitors seeking refuge in the great outdoors.
When setting up recreational leases, you will definitely want to take steps to reduce liability and protect yourself legally. Landowners should post proper warnings and boundary markers around the property, eliminate any hazardous conditions, obtain liability insurance, ensure potential lessees are of good character, and above all get everything in writing.
Furthermore, have lessees show proof of proper licensing and permits, require that they follow state and local laws, and consider asking them to sign waivers of liability with respect to activities conducted on your land.
It is important to remember that simply owning the land does not also give you the right to hunt it or use it once an agreement is in place, unless you have approval from your lessees.
If your farmland contains a large body of surface water or an abundant groundwater supply, you may be able to sell or lease water rights to neighboring farmers or municipal water companies. This can be especially lucrative in parts of the country with routine drought. Whether or not this is a viable option, however, will depend on state land laws, environmental regulations, possible long-term impact on your own water supply, and any upfront cost for drilling and equipment.
Texas, for example, is a common law state that grants both absolute ownership and rule-of-capture to landowners. This means the surface owner owns everything from the center of the earth to the sky above her land, and she has the absolute right to take whatever she wants from her property.
Most other states have significantly more complicated laws around water rights, so you should always seek sound legal advice before pursuing any venture.
Water leases to neighboring farmers are usually simple arrangements in which they pay a fixed amount for a set quantity of water. Water for agricultural activity is measured in acre-feet (approximately 325,851 gallons), and the going rate for an acre-foot of water varies widely depending upon location, demand, and quality.
Payments may range anywhere from $100 per acre-foot in parts of the Midwest where fresh water is abundant to $5,000 or more in Utah, Colorado, and other semi-arid climates.
Water companies often require significant land use for pumping stations and/or pipelines (plus ingress and egress), possibly to the exclusion of your personal surface use. These agreements typically pay a 10% royalty based on the net wholesale value of the water removed, though how that value is calculated can be very complex.
Again, you should seek qualified legal counsel before entering any agreements pertaining to your water rights.
The presence of oil and natural gas deposits may result in an opportunity to sell or lease the mineral rights to an exploration and production (E&P) company. Similar to water rights, the viability of this option depends on state land laws that determine the nature of your property ownership, environmental regulations and restrictions, potential surface damages, and opportunity cost in terms of long-term environmental impacts to your land and loss of surface use occupied by wells, equipment, and access roads.
Mineral leases typically remain in place for so long as production continues and pay royalties between 12% to 18% of gross proceeds (though they have gone as high as 25% in recent years for the most valuable holdings). Additionally, speculative E&P companies often sweeten the deal with an upfront cash payment known as a lease bonus.
As with water rights, you should always seek qualified legal counsel before entering any mineral rights agreements, as these contracts are often very complicated.
Opportunities with mineral rights extend beyond oil and gas, too. Deposits of materials such as gravel, shale, sand, and limestone could also be sold to anyone ranging from neighboring farmers to local backfill and excavation services to industrial cement companies.
Depending on location, quality and size of the deposit, and the distance it must be transported, landowners can usually expect to make anywhere from $0.50 to $2.00 per cubic yard of rock or 3,500 pounds.
Two dollars doesn’t sound like much, but it can add up! Even a small, one-acre quarry with a gravel deposit 10 to 25 feet deep could potentially yield $50,000 to $100,000 or more.
Downsides include noise pollution from excavation equipment and the steady cavalcade of dump trucks, not to mention lots of dust and the large crater left on your land. Some quarries, however, can be reclaimed as valuable water reservoirs if given the right environmental conditions.
Renewable Energy Installations
Depending on your climate and topography, you may discover leasing opportunities with energy companies or public cooperatives looking for land on which to build wind turbines or solar panel arrays. State and federal tax credits for green energy investments, combined with falling prices for everything from batteries to photovoltaic cells, have led to significant commercial expansion in recent years.
Renewable energy installations may yield annual rents as high as $800 to $1,000 per acre for solar panels (typically with a 4-acre minimum), while the placement of a single wind turbine may pay landowners up to $8,000 per year. Furthermore, once a lease is in place, you have an almost guaranteed source of income for the next 10 to 50 years.
As with anything else, your rent rate will be determined by several factors including the amount of land available, the suitability of the land, the average amount of wind or sunlight generated, proximity to grid infrastructure, regional demand, and local competition.
If your land is near a large town or major roadway, you may be able to generate monthly income by leasing space to information towers that carry cell phone signals, radio broadcasts, or microwave data transmissions. As of 2018 there were over 300,000 towers in the United States, with another 10,000 still being added each year, so the odds are decent you will be approached at some point by a tower company or major wireless carrier.
Leases between landowners and tower companies are called ground leases. Subleases made between the tower owner and any carriers wanting transmission space are called tower leases.
Ground lease payments to landowners tend to be higher in more populated areas but still vary widely based on local zoning ordinances, type of tenant, proximity to adjacent towers, and availability of alternative locations.
The nationwide average ground lease pays $10,000 to $15,000 per year, though in some instances annual rental payments may be as low as $1,000, while in other cases can easily exceed $100,000.
Ground lease agreements typically run 10 years with multiple five-year renewal options extending to a total term of 30 to 50 years. Because towers require very little land and provide stable, long-term income, these almost always have a positive effect on property value.
If your land is located adjacent to a major highway or interstate, you may be able to earn recurring income from outdoor advertising companies looking to place billboards.
Daily impressions, defined as the average number of people who "see" the billboard each day, determine the advertising rates that businesses are willing to pay outdoor advertising companies for a location, which in turn directly correlates to the billboard lease rates that advertising companies are willing to pay property owners. Billboard lease rates are typically expressed as 20% of the advertising rate.
For example, billboards on lonely rural highways might generate a lease rate of $200 per month, but those located along major routes outside cities can produce much more. It’s not uncommon for landowners to receive $1,000 or more each month in such locations.
Furthermore, billboards occupy a very small footprint. Given enough frontage along the road and high enough market demand, you may even be able to secure a second or third billboard on your property for double or triple the revenue.
Billboard contracts are relatively straightforward, but do your research first to make sure you’re getting a fair market rate. Additional terms to consider asking for include annual rent increases based on 1% over the Consumer Price Index, specifying the exact location on your property where the ad company installs their billboard, and prohibiting placement of certain ad content to which you have strong moral objections.
As you can see, there are a number of ways a landowner might profit from his acreage in ways that are supplemental to primary farming operations.
While AcreTrader focuses primarily on farm rental income through cash rents, our management team is always looking for additional, passive income opportunities to maximize returns for our investors, so long as there is minimal risk and minimal disruption to farming operations.
With proper land management strategies, shrewd negotiating skills, and a bit of luck, farmland can be an exciting legacy investment with which to create multiple streams of income and build significant wealth!
Please note: this article is meant to be a topical overview and, as such, does not include specific financial advice. Every situation is unique, and you should consult with a licensed attorney, accountant, and/or financial advisor prior to entering any written contract or verbal agreement.