Buying a Montana Ranch, Things to Consider
The idea of buying a Montana ranch or farm is a dream come true for many that have spent their career in office buildings or concrete jungles. They envision quiet time with incredible views and solitude where no one can interrupt them and they have plenty of space. We get that at Venture West Ranches. I was one of those concrete jungle people. This is a dream come true for many people and we want to ensure the dream lasts. So, here is a list of questions to consider before letting the views make the decision for you in buying Montana ranch. This list is by no means exhaustive but these 13 items are great places to start when evaluating a Montana ranch before you buy.
Whether you have irrigation or water rights from subsurface or rivers, you need to have them checked out by a water expert. Do you have senior rights that are current or are you down the list where someone can greatly diminish what flows through your property? Ask what happens in a drought situation. Water is key to irrigation, wildlife, and value of a property and needs to be nailed down so you know where you stand in the water hierarchy in buying Montana ranch. Additional information about water rights can be found in our article about Montana Water Rights.
Land Support Capability
If you have never been a cattle rancher before you need someone on your side to help you understand what a ranch will support. Sellers can sometimes exaggerate how many animal units their land will carry. Many are very honest about what their land will support. The animal carry capability just needs to have an objective third person that can verify what the owner is saying. This really should be done for all parties involved. One free source is the Natural Resources Conservation Service(NRCS). This is a county by county office run by the USDA. These numbers give you some indication of carrying capacity of the land and land in the area. You might even find these numbers to be too conservative at times. You can also hire a consultant, talk to the local sale barn and neighbors in general.
While it has become harder and harder to buy mineral rights on ranches, it is something you need to understand. The mineral estate is the dominant estate. What that means is if you only own the surface rights to a Montana ranch, the mineral estate owner will have the right to develop the minerals. Minerals can be oil & gas or it could be gold, silver, precious stones, etc…You will have very little say in how that is done if all you own are surface rights. There will be a surface agreement signed that will protect you and compensate you to some degree but it is not going to prevent the destruction and loss of aesthetics of the surface land and most likely will not compensate you adequately.
I would strongly encourage you to hire an attorney or surface owners representation to represent you in the surface agreement. My belief is you push for splitting the owners mineral rights in the purchase to some degree. This gives you a say in protecting your Montana ranch and it gets you in on the discussion with the company that will be developing the minerals. That is potentially huge, even if you own a small percentage of the minerals.
The other thing I recommend is finding out what mining or oil and gas development there is in the region before purchasing. Have there been test wells or holes dug and were they abandoned or did they ever produce? These are usually publicly available records where you can see what is going on in the county and neighborhood. This definitely does not guarantee 100% that you know the future but it gives you a bit more indication of if there is a trend of development in Montana ranches in your area. The final thing I will say on Minerals as it pertains to Montana ranches is if there are no present developments due to noncommercial quantities of minerals being found know that could change in either mineral prices or in technology could make the Minerals profitable in the future.
We’re from the Government and we’re here to help. Spoken by Ronald Reagan and it has become even more important in today’s world. Are there archaeology finds or some rare insect or animal in the area that could limit your use of your own Montana ranch? Montana is a state where the majority of land is owned by a government entity. The government and environmentalist groups can affect how you use your Montana ranch due to a archaeology find or some rare insect, fish or animal. Not likely to happen but it is worth some time checking things out before you purchase your Montana dream ranch. Hard to believe in buying Montana ranch that the government can have such a say but they can and if you are in that situation it can affect the value of your property.
You should have the soil tested to find out nutrients and condition. Requesting soil tests or having a soil test of your own gives you information. Information is good. It helps you know what you might have to spend to improve the soil or how you might be able to improve carrying capacity. Sometimes a simple soil test can be the key to you unlocking value in your recently purchased Montana ranch. Is there land that was tilled at one point and is laying idle? Could you reclaim land with some work? Look at the NRCS soil survey. This will give you yield, type, drainage class and an abundance of other valuable information for free.
What tax status does the ranch or farm have? Is it an Ag exemption or Wildlife exemption? What are the requirements of those exemptions? Do you have to actively farm the land or raise cattle to keep that exemption? These are very important things to know. Most Montana farms and ranches have a stepped down taxation compared to commercial or residential property. You need to know what you have to do to keep that exemption. For instance, on my Texas ranch we have a wildlife exemption. This means we don’t actively cattle ranch, or manage for cattle. We have built lakes, removed cactus, do predator control, do wildlife surveys and planted food plots. We had a difficult neighbor that decided to write the county tax assessor and tell them that we weren’t raising any cattle and we needed to be taxed at the higher rate. If we had not been doing everything for the wildlife exemption we would have been taxed at the much higher rate.
Neighbors can be assets or liabilities. My neighbor mentioned above was a liability. Those are few and far between but you would like to know who owns the property that shares a fence. You will have common situations and business dealings with them. Fences need replacing, wildlife management, mineral pooling, surface right agreements and mineral agreements are all issues that you will have common issues and quite frankly may be partners on. Just a thought from someone who came from Dallas with 8 million of my closest friends. You are going to be operating in a small town with very deep roots. Bend over backwards to get along. Even if you have to give a bit. It will be in your best interest. Business is done differently in small towns versus the big city. Doesn’t mean you should be abused, just means you will probably be dealing with this same person over and over and they have deeper roots in the community than you do. You are viewed as an outsider. Owning a Montana ranch or farm, you will make some of the best friends you will ever have and have some great stories to tell. Montana ranchers and farmers are great people and we have a few characters as well.
What goes with the sale of the Montana ranch or farm? All attached property should convey but you want a list of the existing items and whether they will stay or be removed. This goes both ways. Sometimes, people will try and leave broken down equipment or remove sheds or equipment you view as permanent. To avoid this, there should be a list of items and whether they will be removed and/or stay. You can, of course, negotiate the list but there should be a list so both parties know the situation. Fences, irrigation equipment, and tractors all need to be spelled out. You might have a movable electric fence or an irrigation pump that might be viewed as non permanent. Panels, gates and feeders are some other items. Put it in writing and spell it out so both parties are part of a mutually enjoyable transaction. I would also try and remember that many times Montana ranchers and farmers are selling something that has been in the family for generations. There are a lot of emotions and memories involved in some of the items.
Ranch or farm easements are common and can involve road access to another property, power lines, irrigation or dam easements. When you are purchasing a Montana ranch or farm you just need to know what easements are involved. The first time someone drives on your land and you have no clue who they are is quite an interesting moment! Know what your rights are and enforce them. Are they suppose to give notice? Do they have a certain access? Can they spray chemicals?
Surveys in rural ranches will cost money but many times property lines go back generations and when the seller says they are selling 105 acres the actual fenced acreage might be more or less. You can look at the tax roll to get a general idea but there are instances where the tax survey and the owners might be wrong and you might be buying more or less than what is stated. This can be negotiated but sellers are usually resistant to splitting these costs.
This depends on why you are buying Montana ranch or farm and your financial resources. If your living depends on the Montana ranch or farm then it will be a full time job plus some. You will also find it to be very rewarding. If you are buying it as a recreational property or as an investment, you can lease the grazing or farming to someone else to minimize the time commitment. If you are wanting to dabble in raising cattle or farming to a lesser degree, many times you can find a local person that may trade use of part of your land for watching over your cattle or crops. This enables you to be more of a part time farmer or rancher and learn from someone as well.
If you are a cash buyer then that simplifies things. If you are buying the property with financing, then you will need to deal with an Agriculture lender. You don’t want to use a banker that doesn’t deal with AG on a daily basis. There are some compelling reasons with interest rates being at historic lows and some of the lending programs out there to consider financing part of your Montana ranch or farm purchase. They will want to know revenue, cash flow and income history of the ranch. What equipment purchases are you going to need. You will have to answer some questions you may not have thought about but if handled right, you can learn a great deal and find a great partner in a competent AG lender.
Purchasers of Montana ranches and farms often discuss tax write offs as one of the reasons they are purchasing a Montana ranch or farm. This can be true in a capital intensive business where you can write off equipment quickly. The thing to remember is it is important to show a profit once every five years so the government views it as an ongoing entity and not just a hobby farm or ranch. If the government views it as a hobby they will disallow most or all deductions. Your profit can be very small and insignificant but management decisions should not be made solely on saving taxes. You also may want to look into a 1031 exchange. Check our our article about 1031 exchanges for more information.
In all businesses, there is a small percent that outperforms the rest of the industry averages in profitability. This is true in farming and ranching. The biggest determinants of profitability in Montana ranching and farming is land prices. The next is your costs such as cows, seed, etc…Pay too much on either or both of those and it may be a while before you are going to show a reasonable profit. The other is inputs such as spraying, medicines and hay and these can affect your profit level substantially since they come directly off the bottom line. The other factor is Management. Just like any business, management can make a big difference in profitability. An example might be adding irrigation equipment that dramatically increases your lands carrying capacity or rotated grazing where there wasn’t before. Taking calculated risks can pay large returns sometimes.
You may also consider trying to add additional sources of revenue. There is a long list of ways to create more revenue streams for a Montana farm or ranch. We have several articles with ideas for creating new revenue streams for just about any situation. These article include:
As you can see from this article there is a great deal to think about before buying a Montana ranch or farm. One thing I didn’t mention is the use of a ranch or farm as a hedge against inflation. There are no guarantees that appreciation comes with owning a Montana ranch or farm and in fact as I write land prices are down a bit. But long term the trend and the ever increasing use of money printing and large deficits by our government points toward increased inflation. The beauty is I have never had an investment that I was able to enjoy so much and create so many memories on. My family has made money and enjoyed the family time that we have spent on our ranch. If buying a Montana ranch or farm is something you are considering, I would love to help you on this journey of buying your Montana dream ranch or farm and creating lasting memories. Contact Buzz.
John Winder, Fred Schmedt, Matt Mattox, R. Gill and S. Northcutt-Dolezal,
Things to Know Before Buying a Ranch, http://www.noble.org/ag/economics/ranch/
Melissa Matthewson, Top Ten Things I learned Buying a Small Farm,
Unknown Author, 10 Points to Consider Before Buying Farmland,
About the Author
Partner at Venture West Ranches
Buzz Tatom, a partner at Venture West Ranches, is a ranch owner and has built, run and sold numerous businesses in his career. This gives him a unique background in helping Montana farmers and ranchers navigate the life decisions that we all have to face. Whether it is passing a ranch on to the next generation or planning for eventual sale, his talents and contacts help save clients money and navigate complicated transactions.