Kick off your rural lifestyle with a hobby farm – and then finance your equipment!
The rural life calls for a lot of people. Calm, peaceful, open spaces, no neighbours, and the beauty of Australia’s unique nature. What more could you ask for? Well, you have to consider that any kind of farm is going to take an amount of work. Not just to maintain it, but to improve the land and make it an actual farm!
To make these jobs easier you’re going to want to purchase some equipment – examples include tractors, mowers, runaround vehicles, water pumps, air compressors, fuel tanks, and even light earth moving equipment such as a bobcat to clean up the place. All of these machines and equipment fall under the hobby farm finance category.
But does your farm and how you are or plan to operate it count as a hobby farm? Let’s talk about….
Equipment and machinery finance for your hobby farm!
So, how is a hobby farm classified?
Size and use are the main factors that are considered. How big is the farm in question and is it used for generating profit as part of a business operation?
Hobby farms are considered to be on the smaller side, are designed for casual or living uses primarily, and do not produce large amounts of products. As opposed to a commercial farm which can be geared for big production and is designed as such.
However a hobby farm, or even just a smaller sized rural property, can still offer it’s owners an income depending on what they choose to do. For example some crops are very valuable and can generate a substantial return while needing comparatively smaller amounts of space and resources to farm. This means starting smaller can be a wise choice as well as being a great way to get into the farm game.
When is a rural property classified as ‘income-producing’?
Typically there are some guidelines for a hobby farm to meet before it’s considered to produce an income from business activities and whether this income covers any losses or costs involved with owning and running the farm. These are the benchmarks to go by –
– Your turnover exceeds a minimum of $20,000
– You have paid tax on any profits in the previous 3-5 years.
– The property’s value where the business is located exceeds $500,000
Owners of hobby farms with small income generating activities, such as cattle, agistment (homing other people’s animals on your land), or growing small amounts of produce allows owners who earn over $20,000 to claim any expenses against their other sources of income.
Other reasons that your farm might be classified as income producing are –
– Whether your plans for the property and it’s facilities include improvement for agricultural activities.
– Is the income from your hobby farm going to be used to repay the loan, or at least show you can afford a borrowed amount?
Is a hobby farm a smart investment?
Well, it really depends! There are a variety of factors to consider outside of whether the investment will make a worthwhile return besides just financial return. Is it what you really want in life? Are the lifestyle benefits worth your health and happiness? Because those things can be invaluable and in truth a hobby farm is more like a lifestyle choice than a job for many people.
But that doesn’t mean you should undervalue the importance of properly researching and understanding your business’s potential. You need to consider the market for your hobby farm’s produce just like you would with any product. Then weigh up your costs and profits. If it’s better than what your current income situation is then it might make sense.
But as with any investment you need to make an informed decision.
You also want to consider how much of the job you can make easier or quicker with machinery or specialised farm equipment. If you can improve the efficiency of your operation and produce more with less then you can potentially save time and generate a better return on your investment. It also helps you understand the long term feasibility of your business and how much work it will take you to operate.
Is there anything I should specially consider when looking for a hobby farm?
Of course! Buying a hobby farm is much like buying any piece of real estate, though there are extra considerations relating to the property’s agricultural potential, as well as what it will be like to actually live on.
Number one is water – you’re going to need a quality, uncontaminated, unpolluted water source. Lakes, rivers and dams are what you are looking for. This often adds a lot of value to a property so be prepared. But if a property is otherwise suitable you do have the ability to add water facilities to the land. Man made lakes and dams are a great way to not only collect water. They can also add a nature haven which is good for animals while being good for you too. Be sure to consider the topography of the land if you are considering adding a dam or lake – the location must be in a catchment that allows it to naturally fill up with rain. You’ll also need a pump which is suitable, especially if you have a long distance to move water from.
Next, consider the quality of the land. It’s no good to buy a farm that has poor soil quality. While it’s not impossible to grow things in ‘normal’ dirt, you will have the best results by choosing a property in a more fertile area. Check the geography – mountainous regions are generally more fertile due to the volcanic origins of the soil. You can always look to improve the soil in future but it is best to start off with something of better quality if possible. will struggle to grow anything without improving the soil This is especially true for a lot of Australia
Thirdly – power. If the property does not have a power source you may need to install something suitable to meet your business’s needs. This can be costly so be sure to use it as a negotiation point.
Lastly – consider the property’s location and whether the property is a good investment. Close to schools, services, shops, town? Use normal real-estate thought processes here.
Why does it matter whether my hobby farm is income producing?
The simple reason is that it effects the kind of loans you have access to if you are operating as a business. Of course different types of loans can be used for different items which would be used in the course of your business.
Most importantly, depending on the type of finance you choose, it can also enable you to extra benefits such as tax deductions and industry concessions. There are several types options available – we explain everything in this article – Best farm equipment finance types – Explained the EASY way!
In short your options are – chattel mortgage, paying with savings or cash, commercial hire purchase, lease, or alternative finance through a non-bank lender (our favourite option).
If you want the most freedom and flexibility you should certainly consider a non-bank lender. They are often very flexible and can cater to your financial situation and needs, including allowing to choose your repayments options to suit your business’s cash flow.
Lastly, remember to shop around. If you don’t have the time to check all of the options, then your best bet for is to work with an expert finance broker like Equiplend who knows the options and can present you with suitable options of the the best deals on the market.
Remember, lending from a bank isn’t the only option.
Depending on your financial situation you may be able to get a loan from a bank, though for some people it can be quite difficult. If you have had financial difficulty in the past then you might find that they are not willing to grant you a loan for a variety of reasons.
This may be due to having a bad credit score or insufficient income to make repayments over the loan’s term, which can make you look like a risky candidate for a loan. Perceived risk and bad credit scores generally result in an applicant being offered a more expensive loan. So, on top of difficulty getting approved the a potentially high cost from the bank means you may be better off looking elsewhere.
We hear about this kind of situation all the time. Many of our customers are established businesses who are simply looking for a better deal on their finance. But a large portion of our other agricultural customers are either looking to upgrade their operations with their already owned property, or are looking to move into an agricultural lifestyle after coming from other industries and lines of work.
Being declined by their bank often leaves them feeling many emotions as they feel like their options have run out. But that’s not the case and we are glad to be able to help people make their dreams become a reality by connecting them with the finance that can enable their business to get running.
How do I apply for a loan for farm machinery or equipment?
Applying for hobby farm finance is the same as applying for any loan. You’re going to need financial documents, bank statements, identification, and details of your current debts.
It’s not necessary to have the machinery or equipment picked out and ready to purchase – you can simply get a pre-approval for a certain amount of money so you know what your budget is.
Lastly – just fill out the form below or give us a call – we’ll be happy to have a chat and give you a quick bit of advice to get you started.
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