Rent or buy land calculator

Do I buy this land or keep renting it, and is the asking price fair?

Two separate accounts: equivalent annual cost and income capitalization.

CurrencyHowever you write money in your own books.

Unit of areaHowever you measure land: acre, hectare, field. Every figure comes out in it.

The price and the rent

Asking price for the landWhat the seller is asking, in your own unit of area. Example: 57,000 a hectare.

Rent actually paid per yearWhat gets paid each year for the same land, in the same unit. Not what you think is fair: what contracts in your area are actually closing at. Example: 3,600.

Your rate and your horizon

Rate you charge your own moneyPercent a year. It is what the same money would earn in the best alternative you actually have, not a rate off a table. It moves both accounts at once. Example: 8.

How many years you are looking atWhole years, at least one. It is not the life of the land: it is the term over which you want the decision to pay for itself. Example: 20.

What the land leaves

Net income the land leaves each yearAfter production costs and before the property tax and upkeep, which have their own field. It takes a negative number. Example: 5,400.

Optional

Expected value at the end of the termOptional. What the land should be worth in the last year of your horizon. Left blank it counts as zero, which assumes it would be worth nothing. Equal to the asking price assumes it merely holds its value. Example: 57,000.

Upkeep and property tax per yearOptional. What owning costs each year even with nothing planted: tax, fencing, roads, improvements. Left blank it counts as zero, which is the optimistic assumption. Example: 600.

The math runs in your browser. We do not send or store anything you type.

Your result

Enter the asking price, the rent, your rate and the horizon to see the year account. With the income from the land, the fair value and the purchase NPV appear.

Take both accounts in writing

The report carries your figures, both yearly costs with their reading, the calculation trail step by step, the fair value with the premium over the asking price, and the sensitivity to the rate and to appreciation, in a document you can print and take to the table where the call gets made.

ArticleRent the land or buy it: which account decides?Both accounts step by step, with the same worked example as this tool, to the number, and the case where they disagree. It shows where the rate comes from, why rent almost always looks cheap, and what gets left out on both sides.Read the full article

Rent or buy land

Your inputs

Your result

Calculation trail

What these numbers say

The yearly cost of buying turns the asking price into a figure comparable with rent: the part of the price that does not come back, spread over the years, plus the cost of money parked in the part that does, plus the cost of holding. Fair value asks the opposite question, what the land is worth from the income it leaves, and the net present value says what remains after paying the rate you demanded. The two accounts can disagree, and disagreeing is not an error.

Understand the method in full

The full article shows where the rate comes from, why rent almost always looks cheap, and what gets left out on both sides.

Read the full article

How to read it

These are two separate accounts on purpose, and they can point in different directions without either being wrong. The year account compares two costs and assumes the money not spent on land earns exactly the rate you typed. The value account compares the price with the income and assumes that income repeats every year, forever and without growing, which no farm ever has. The rate is the heaviest assumption of the two: change it and both answers move together. The tool works out what your assumptions deliver, and does not say which of them is right.

The sources

Buying or renting is two questions stuck together, and deciding without pulling them apart is expensive. One is whether it fits the year: what each path costs per year. The other is whether the price is fair: what the land is worth from the income it leaves. Enter the asking price, the rent your area pays, your own rate and the income from the land, and see both accounts side by side, including when they disagree.

On an asking price of 57,000 a hectare at your own rate of 8 percent over 20 years, with 600 of tax and upkeep and the land holding its value, owning costs 5,160 a year against 3,600 to rent, and the two accounts can still point opposite ways.

What says whether the price is fair is the rent the land leaves against its value: the Kansas State agmanager service reports a historical rent-to-value ratio between 5.5 and 6.5 percent for crop land, a yardstick the tool prints next to your own so the offer is read against something outside the farm’s opinion.