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#043 - Exactly How Farmers Can Know If It’s The Time To Buy More Land · Dollars In The Dirt

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  Buying more land isn't always the smartest move for a growing farm. Most
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  producers think that expanding acreage is the key to scaling up
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  and increasing profits. After helping hundreds of farmers secure over a
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  billion dollars in finance, I can tell you that timing and
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  financial readiness matters far more than simply buying more
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  land. So in this video, I'm going to show you exactly how to know
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  if it's the right time to buy more land and set yourself up for success. Let's
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  start with the first point, understanding your true equity position. This
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  is something a lot of farmers overlook when they're thinking about buying more
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  land. You might look at your balance sheet and see a decent amount
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  of equity, but the reality is often more complicated. Equity
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  just isn't about the difference between your assets and liabilities on paper. It's
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  about knowing how much of that equity is actually accessible and
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  how it can support your new borrowings. For example, say you've got a
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  few properties and some machinery and your balance sheet shows about $2 million
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  in equity. That sounds great, but if most of
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  that equity is tied up in land that's already heavily mortgaged, or
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  in assets that aren't easily liquidated, then your real
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  borrowing power is limited. Lenders want to see that you have enough equity
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  to cover the new loan without stretching your finances too thin. Take
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  the case of a beef producer in Queensland with a $4 million turnover.
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  They might own 3,000 hectares spread across several properties.
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  But if 80% of that land is already encumbered by existing loans, then
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  the equity that's truly available to support the new borrowing might
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  be closer to $500,000 or less. And that's a big
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  difference from the headline figure on the balance sheet. It means that
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  even if you're looking at a property priced at a million dollars, you might
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  not be able to borrow enough to cover the purchase, plus the
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  development costs. It's also important to consider the
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  quality of your equity. Some land is more valuable or more productive
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  than others. If the land you're thinking of buying is going to require
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  a lot of work to bring it up to standard, or if it's in a less favourable
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  location, then the equity you're using to secure that
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  loan might not be as strong as you think. For instance, if
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  you're considering buying a block that's further west in Queensland, where
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  the rainfall is lower and the pasture growth is slower, the income
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  potential from that land might be significantly less than
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  your current holdings, and that affects how lenders view
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  the security of the loan. They'll want to see that the new land can
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  generate enough income to justify the borrowing, and
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  if it's going to take years of investment and development before it produces a
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  return, then your equity position needs to be even stronger to
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  support that risk. So before you even start looking at a new block,
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  Get a clear picture of your true equity position. Talk to
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  your accountant, your broker and your bank manager and ask
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  for a detailed assessment. Understand what portion of your equity is generally available
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  to support a new purchase and what that means for your borrowing capacity. This
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  step can save you a lot of headache down the track and prevent you from overextending
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  your business. If you're looking at purchasing a property or growing your business and
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  want someone who's generally in your corner, book a free call. The
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  link's in the description, and I'm here to help you to get the right loan structure that
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  fits your business and your goals. Now, moving on to the second point,
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  which is serviceability under stress. This is a critical factor
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  that many producers don't think about until it's too late. Serviceability
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  means your ability to meet your loan repayments, but the key here is
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  to test that ability under stress conditions. What happens
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  if interest rates go up? What happens if commodity prices drop? Can
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  your business still handle the repayments? Right now, interest
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  rates are on the rise and the agricultural sector is facing some uncertainty
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  with global markets and weather patterns. If you're taking on a
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  new loan to buy more land, you need to be confident your business
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  can handle higher repayments without compromising your cash flow.
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  Let me give you a real example. Imagine a beef producer in central Queensland
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  with a $4 million turnover who's thinking about buying an
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  additional 1,000 hectares. They secure a loan based
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  on the current interest rates and the beef prices, but the interest rate increases
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  by 1.5% over the next 12 months and the beef price
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  drops by 15% due to a shift in global markets. Suddenly,
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  their loan repayments jump up by thousands of dollars, while their income
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  shrinks. If they haven't planned for this scenario, they could find
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  themselves struggling to cover their operating costs, let alone the loan repayments. It's
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  not just about your current income either. You need to model different scenarios.
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  For example, what if the beef prices drop by 20%? And what
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  if you have a drought year and your production falls? Can you still cover
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  all your loan repayments, operating costs, and have enough working
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  capital to keep the business running? Queensland producers know
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  droughts can hit hard and they hit fast. A drought year
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  can reduce your current capacity by 30, 40, 50% depending
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  on the severity and that means less cattle to sell, lower income
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  and higher feed costs if you need a supplement. If your loan
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  repayments are fixed and you don't account for these lien periods, you
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  could be forced to sell assets or refinance under pressure. And
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  this is where working with a broker who understands your business, the
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  agricultural sector can make a huge difference and they
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  can help you run these stress tests and structure your loan in a way that
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  gives you some breathing room. Maybe that means a longer loan term,
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  interest-only period at the start, or a buffer in the repayments. For
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  instance, a broker might recommend structuring your loan with a 12-month interest-only
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  period. This will allow you enough time to develop the land, build
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  the income streams from before principal repayments kick in. or
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  they might suggest a loan with seasonal loan repayments that
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  can align with your cattle sale cycle so you're not stretched during the months
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  when cash flow is tight. The third point is about market timing versus
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  business timing and this is a subtle but important distinction. Market
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  timing is trying to buy land when prices are low or sell when
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  prices are high. Business timing is about buying when your business
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  is ready to absorb the new asset or make it work. A
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  lot of producers get caught up in the market timing. They see land prices
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  dropping and think it's a great opportunity to buy. Or they see
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  prices rising and rush to buy before they go higher. But
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  if your business isn't ready, buying land just because the market looks good
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  can be a costly mistake. Let me take a Queensland beef producer for
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  example. He noticed the land prices dropping by 10% during
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  a market downturn. It might seem like a bargain, but if
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  their herd size is already at capacity, their infrastructure is
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  stretched and their cash flow is tight, buying more land can
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  backfire. They may not have the resources to develop the new property
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  or working capital to support the increased operational costs. In
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  this case, waiting until a business is ready to expand makes
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  more sense than chasing a market opportunity. Business timing
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  means looking at your current operation, your cash flow, your
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  management capacity, and your long-term plans. Do you have
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  the resources to develop the new land? Can you manage more livestock or
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  crops? And do you have the labour and equipment to handle the expansion? For
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  example, if you're running a $4 million beef turnover business with
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  a team of just a few full-time staff, Adding another 1,000 hectares
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  might require hiring more workers, investing in new machinery, and
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  if you don't have the management systems in place to oversee that growth, you
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  could end up overwhelmed, which can lead to more mistakes, inefficiencies,
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  and financial strains. Sometimes the market might
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  be offering a good deal, but your business isn't in a position
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  to take advantage of it. Other times the market might be tough,
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  but your business is strong and ready to grow. In that case, buying
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  land can be the smart move. So always prioritize
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  your business timing over market timing. Make sure your business fundamentals
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  are solid before you commit to buying more land. That way, you're
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  not just chasing a good price, but you're setting yourself up for sustainable growth.
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  And finally, the fourth point is about deal structure and working capital
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  for the new block. Buying land isn't just about the purchase price.
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  There are the ongoing costs, investments needed to make sure the
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  new block is productive. This includes fencing, water infrastructure, pasture
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  improvements, and sometimes land clearing or earthworks.
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  When you're negotiating finance, you need to factor these costs into
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  the loan structure. If you only borrow the purchase price,
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  you might find yourself short of cash to develop the property, which
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  can delay your plans and put pressure on your existing operation. Let's
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  say you purchase a 500 hectare block in Queensland for $1.2 million.
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  On top of that, you need to install fencing to manage the paddocks, establish water
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  points, possibly improve the pastures to support the cattle. These
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  costs can easily add 10-20% to the purchase price. If
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  you don't include this in your loan, you'll need to find this cash elsewhere. A
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  well-structured deal will include enough working capital to cover these development costs.
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  This might mean a loan that's a bit bigger but gives you the flexibility to
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  invest in the new block right away. It also means thinking about
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  the timing of repayments and how they fit with your cash flow cycles.
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  For example, if you know it will take a year or two to get the new land fully
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  operational, you might want to negotiate an interest only period during this
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  time or you might want to align your loan repayments with the seasonal
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  income so you're not stretched during the lean months. Working
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  capital is also important because unexpected costs always come
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  up. Maybe a water pump breaks or you need to repair fencing after
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  a storm. Having a buffer in your loan or access to
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  an overdraft can help you manage those surprises without having to dip into
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  the personal funds or sell assets. So in summary, buying more land
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  can be a great way to grow your farm, but it's not a decision to take
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  lightly. You need to understand your true equity position, test your
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  serviceability under stress, and prioritise business timing over
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  market timing, and structure your deal to include working capital for
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  development. If you want to make sure you're ready to take the next step and
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  get the right finance in place, book a free call with me. I'll
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  help you work through your options, find a loan structure that fits your business
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  and your goals. Thanks for listening, and if you found this useful,
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  please share it with your other producers in your network. And don't forget, if
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  you're thinking about buying more land or growing a business, book a free call.
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  The links are in the description. I'm Brecon Curtis, and I'm here to help you grow