How to Evaluate Farmland Before You Buy: Soil, Water, Leases and Location
Two farms with the same acreage and asking price can be very different investments. One may have deep, well-drained soils, secure water and a reliable tenant; the other may have drainage problems, uncertain water and a lease that ends next year. For long-term investors focused on preserving and growing wealth across generations, careful due diligence is where value is protected. This guide walks through the main factors to evaluate before buying farmland.
1. Soil: the foundation of value
Soil quality drives what can be grown and how productive the land will be. Start with the USDA Natural Resources Conservation Service Web Soil Survey, a free online tool that maps soil types and provides ratings such as land capability class, drainage and suitability for different uses. Then confirm on the ground:
- Soil tests for pH, nutrients, organic matter and salinity
- Drainage, including any tile, ditches or areas that pond after rain
- Erosion, slope and signs of past conservation practices
- Productivity history, such as yield records from the current operator, if available
Salinity and sodium problems can quietly reduce productivity; our sister company Universal Agriculture focuses on soil salinity assessment and management.
2. Water: availability, rights and quality
In many regions, water is as important as soil. Questions to answer:
- Source: wells, surface water, irrigation district delivery or rainfall only.
- Legal rights: water law differs by state. Confirm what rights or permits come with the property, whether they transfer with the sale and any limits on use. In Florida, for example, many agricultural water uses require a permit from the regional water management district.
- Reliability: history of shortages, well depths and regional groundwater trends.
- Quality: a water test showing salinity, sodium and other constituents.
- Infrastructure: condition and ownership of wells, pumps, pivots and drip systems.
3. Existing leases and operators
If the property is leased, the lease becomes part of your investment. Review:
- Lease type (cash rent, crop share or flexible), rent amount and payment timing
- Term, renewal rights and notice requirements for termination
- Responsibilities for repairs, taxes, insurance, fertility and conservation practices
- The operator's experience, reputation and payment history
State law can govern how farm leases are renewed or terminated, so have the lease reviewed by an attorney familiar with agricultural law in that state.
4. Location, access and market
Location affects both income and long-term value. Consider road access and easements, distance to grain elevators, packing houses, processors or other buyers, availability of farm labor and services, and pressure from nearby development, which can raise land values but may also bring zoning changes.
5. Price: comparable sales and income
Farmland is typically valued with comparable sales and an income approach. Gather recent sales of similar land in the area, and calculate the ratio of expected net rent to price (often called the capitalization rate or rent-to-value ratio). An independent appraisal by an appraiser experienced with agricultural property is standard for significant purchases. USDA's annual Land Values report provides state-level averages that offer helpful context, though individual properties vary widely.
6. Legal, zoning and environmental review
- Title and survey: confirm boundaries, easements, mineral rights and any encumbrances.
- Zoning and land use: agricultural zoning, conservation easements and any restrictions on future use.
- Environmental issues: past chemical storage, fuel tanks, dumping or wetlands that may limit use. A Phase I environmental site assessment may be appropriate.
- Government programs: participation in USDA conservation or commodity programs and whether contracts transfer.
- Property taxes: many states, including Florida, offer agricultural classification for property tax purposes when land is in bona fide agricultural use; confirm current status and requirements.
7. Improvements and permanent crops
Barns, storage, housing and irrigation systems should be inspected for condition and remaining useful life. For orchards and vineyards, evaluate tree or vine age, variety, health, spacing and expected productive life, since replanting is costly and income is lost during establishment years.
8. Think in generations
For long-term holders, due diligence includes planning how the land will be owned and managed in the future: the ownership entity, succession plans, and who will oversee leases and stewardship. We discuss these themes in our earlier article on farmland and generational wealth.
A simple due diligence checklist
- Web Soil Survey report and soil tests
- Water source, rights or permits, and water quality test
- Lease review and operator interview
- Comparable sales and independent appraisal
- Title, survey and zoning review
- Environmental screening
- Inspection of improvements and permanent crops
- Ownership, insurance and succession plan
Questions investors often ask
How long does farmland due diligence take?
It varies with the property and the market, but appraisal, title work, environmental screening and lease review commonly take several weeks. Build that time into your purchase contract with appropriate contingencies.
Should I visit the property?
Yes. Maps and reports are essential, but walking the land, ideally after rain and during the growing season, reveals drainage, weed pressure and crop condition that documents can miss.
Who should be on the due diligence team?
Typically an agricultural appraiser, an attorney familiar with farm transactions and water law, a farm manager or agronomist, and a tax adviser.
About Forever Investments
Forever Investments, part of Kingdom Holding Group, focuses on farmland fund sponsorship, wealth preservation strategies and sustainable asset management for enduring, multi-generational value. For a closer look at income-focused farm investing, see our affiliate Farm Income Fund. Learn more about Forever Investments or contact us.
This article is general educational information. It is not investment, tax or legal advice, and it is not an offer to sell or a solicitation to buy any security. Farmland investments involve risk, including possible loss of principal.