AGRICULTURE
DAIRY & LIVESTOCK
 Fair Rent for Farm Buildings
Arriving at a fair rent for agricultural buildings is no simple
task. Several different methods may be employed in reaching rental
values. No matter which method you may select to use, one thing
to keep in mind is that the price you come up with is not a concrete
value, but rather a bench mark from which to negotiate from.
Former UW-Extension Farm Management Specialist, Bob Luening,
recommends a “floor to ceiling” approach. At the
low end, the landlord must cover the cash expenses: taxes, insurance
and out-of-pocket repairs. On the high end, lessees won’t
pay more than the full ownership cost – not in the long
team, anyway. Of course, a renter who needs the building badly
might pay more but not for long.
To calculate the full cost of ownership, figure individual costs
as a percentage of the building’s value. Figure repairs
at about 1 to 1 ½ percent, insurance at ½ to 1
percent, and taxes at 1 to 1 ½ percent. Add in the capital
recovery charge (CRC) – the cost of the money you have
invested in the structure and the loss in value (or depreciation).
Together, these percentages should total somewhere between 12
and 18 percent of the building’s value, with 15 percent
being about average. So if the building is worth $10,000, the
annual ownership cost is about $1,500.
There are two kinds of repair costs to consider. Fixed costs
are what you have to pay in any case – like repairing the
roof every 20 years. Out-of-pocket cost occur because the building
is being used – for example, if a cow breaks a stanchion.
What’s the value of the building? Luening lists three
ways to look at it. You could add the costs of recent or expected
improvements to any other cost of remodeling. You could also
take the contributory value – the difference between what
the farm would sell for with and without the buildings in place.
Or finally, you can use the cost of replacing in function, minus
accumulated depreciation. Replacing the building in function
means that if you’ve remodeled the bottom of the old barn
to house calves, you figure the cost of putting up a new calf
barn.
Local supply and demand affects the rental value of a building.
Another factor is the level of technology the building represents,
and what’s typical for the area. Grain storage bins are
worth more on the Rock county prairie than in areas where corn
is a less important crop.
Convenience of loading and unloading is another consideration – so
is the determination of who is going to furnish repairs and maintenance.
“There’s another factor,” Luening adds. “It’s
people relationships. Say every time you come to get hay from
the barn you’re renting, you push the snow out of my driveway.
You can’t put a dollar value on neighborly acts, but they’re
worth something.”
With all of the above considerations in mind, Luening says the
following storage prices are in the ballpark for Wisconsin:
- Silage (wet basis): $1 to $3 a ton per season
- Grains: $.01 to $.03 per bushel per month with a six month
guarantee
- Hay: $2 to $5 per ton, or $.05 to $.15 per bale
- Heifers or steers: $5 to $15 per month
- Dairy Cows: $10 to $20 per month
- Pole Sheds: $.15 to $.20 per square foot per season
But for goodness sake, don’t just grab these numbers.
Take all of the factors into consideration and figure it out
for yourself. Then do some bargaining between your floor and
ceiling numbers.
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