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How Brokers Can Use Land Leases to Increase Business Opportunities with Landowners

Here’s how land brokers can leverage land leases to deepen relationships & open revenue streams with landowners.
May 16, 2023

You’ve just sold a piece of land. But once the ink dries, your relationship with the landowner isn’t over. 

The brokerage business model has transformed in the past several decades. As a result, your primary value proposition has changed. 

Land brokers used to control information about land availability, attributes, and other key insights that could influence the buying decision. Now, online marketplaces and general information availability mean that savvy landowners can find that intel on their own. 

To provide value in this changing world, land brokers must be more than just brokers. They have to be true business partners in the landowner’s operation. 

This approach provides mutual benefit to both parties. The broker helps the landowner maximize the return on their investment. The landowner builds trust with the broker and keeps lines of communication open, both of which are key to future sales.

As you look to adapt your brokerage firm to modern practices, here are some ways you can increase business opportunities with landowners in your market. 

How can land brokers support landowners & their operations?

There are a number of ways that, as the land broker, you can support landowners in their operations: 

  • Connections. Because of your networks and relationships, you serve a critical role in connecting the landowner with people and entities that can enhance and improve their operation (more on that later).
  • Operations. Because you work with a number of different farm operations, you can provide insight on operational improvements based on best practices you’ve observed elsewhere.
  • Expansion & innovation. When opportunities arise, you can present them to the farmer to help them grow, expand, or innovate.
  • Alternatives. It’s important for you to be clear about the alternatives available to the landowner—even if some of those choices result in them not doing business with you. In fact, recommending an option that has no benefit to you in the short-term can help to build trust. 
  • Risk management. You have a good handle on the various risks facing the operation, and can provide advice on how the landowner can protect themselves and the farm. 
  • Tools & technologies. You can help introduce landowners to the tools, technologies, and platforms that can help make managing and growing their operation more efficient. 

The one thing all these practices have in common: you’re leveraging your expertise to provide more business opportunities for the landowner. Although you should certainly take a facilitator’s fee, the majority of the value should flow to the landowner. 

Land leases: a turnkey profit for both landowner and broker

If you’re looking for a way to demonstrate material value quickly, helping your landowner lease out their land can be a great first step. There are a number of reasons why now is the best time to invest in such an arrangement. 

High demand for farmland leases

The market for land leases is white hote. According to the most recent data, the total market size in 2023 is $17.4B, and expected to expand at a compound annual growth rate (CAGR) of 5.9% from 2021 to 2028.

High chance of profitability

A simple recreational or tillable land purchase could return high investments with a leasing contract for the landowner and a percentage to you as the facilitating agent. Some landowners may be willing to rely on appreciation as their primary ROI driver, but appreciation isn’t consistent year over year. 

According to USDA, the land appreciation rate from 2020 to 2021 was, on average, 12.4%. That nets out to $400 per acre, which is good. But in previous years, that number has fallen as been as low as $100—and even $0 in some cases. 

So what happens if you end up in one of those 0% years? Land leases are a great way to hedge against volatile market conditions and increase profitability. According to DTN, the average rental rate is $148 per acre—and that’s on top of whatever appreciation you receive. 

Liquidity without the need for a sale

Appreciation gains only become material when you sell off the land or borrow against it. Land leases allow you to realize some of that material value while the asset is still in your possession. 

Increase farmland value

Expanding the income potential of a piece of farmland can also help actively increase its value. Historic lease amounts, soil quality, and similar factors all play into the overall farmland value.

Remember: farmland isn’t just a piece of ground. It’s an opportunity to make profit. If you can increase its profitability—and leasing land is one way to do that—you can increase its value. 

Additional revenue for your brokerage

As the facilitating agent, if you can help your landowner find a farmer tenant, typically you can take a percentage of the lease amount. While the majority of the benefit is going to the landowner and their operation, you still can add additional revenue streams to your business. It truly is a “best of both worlds” situation. 

Additionally, if you’re involved in the resale of that land down the line, then you’ve taken a concrete step to increase its value. Again, both you and the landowner benefit. 

How to help your landowners find farmer tenants

If you’re going to facilitate a land lease agreement with your landowners, then there needs to be a lessee. There are a number of ways to find farmer tenants. 

Leverage your own network

One of the ways to support the landowner is to connect them with similar farmers in your network. You may know people who would be a good fit for the land. Making that introduction and taking a facilitation fee is a simple way to introduce more revenue into your portfolio.

Help landowners vet potential tenants

Sometimes, your landowners may have potential tenants in mind. One way to support them is to use your knowledge to vet them, and leverage technology to ensure that the landowner isn’t being under- or over-bid. 

Use an online marketplace to find new tenants

There are several reasons why online marketplaces are a great option to find new farmer tenants: 

  • Efficiency—manual processes that used to take days and weeks can happen in hours, if not minutes
  • Speed—in a rapidly shifting market, technology enables brokers to respond to ideal conditions quickly
  • Opportunity—land brokers are no longer limited to the opportunities within their immediate network

By using an online marketplace, you can provide potential tenants to landowners that they may not even know about. This is a powerful value-add that can cement your role as not just a vendor, but a true business partner. 

Final thoughts on growing your brokerage firm through farmland leasing

Using farmland leases as a strategy to grow your brokerage firm may not seem obvious. However, the mutual benefits to both you and the landowner—not to mention how it perfectly fits within the value you already provide—makes it an idea worth considering.

If you’d like to learn more about how to incorporate online farmland marketplaces into your brokerage’s tech stack, learn more about GroundOS here. 

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