Potential risks facing absentee ownership
Imagine a passive revenue stream providing additional income from a real estate investment. Sounds nice, and many absentee owners reap the benefit of owning a property that generates additional income. But the road to being an absentee owner can be filled with obstacles that can be difficult to overcome, especially for the uninitiated. So as with any investment venture, it’s important to understand the risks and rewards. Continue reading to learn more about how to work with your clients and get started by visiting the Farmland Ownership Protection Agency Guide.
Farmland Ownership Protection Agency Guide
What is Absentee Ownership?
Let’s first define the term absentee owner. At its most basic, the phrase absentee owner refers to a person or a corporation that owns real estate (either residential or commercial) without actively managing or residing at the specific property. An absentee owner could be a company that owns and manages an apartment complex, or a landowner who rents out their land for agricultural production.
Absentee ownership allows the property owner to generate income through a lease arrangement for a set period of time. The tenant, or renter, pays a set fee for the period of the lease. Included in the lease are details on each party’s responsibility. For example, the absentee owner can be responsible for taxes and general upkeep, while the tenant may be responsible for lawn care, utilities, and snow removal.
Risk Factors for Absentee Owners
As with any investment, there are risks. And being an absentee owner can present its own set of risks that one might not encounter every day. The obvious obstacle is finding someone to occupy the property and pay a rental rate that covers expenses. That can be difficult if the property is unique, in need of a high level of upkeep, or is far away from the owner. Then there’s the issue of managing the property as a business. Management firms can be used to do this work, but that comes at a cost. Absentee owners also need to ensure they have the right liability coverage to protect their investment.
Here are some common risk factors an absentee owner might face:
- Trespassing is always a concern. A building or property could have a feature that invites unwanted guests. For example, a property that has a hill used for winter sledding, or a tract of land with a pond.
- Absentee property isn’t immune from acts of theft, vandalism, or even illegal use of the property.
- Buildings need regular maintenance to avoid any possible liability issues.
- Finding the perfect renter isn’t always easy. Sometimes, the perfect renter turns out to be something else entirely.
Risks for Absentee Farm Owners
Absentee farmland owners account for about 30% of all U.S. farmland in production. Many absentee owners have inherited their land, which means they may or may not have been actively involved in the farming operation. That ultimately means they may not be aware of the specific risks that absentee farmland owners can shoulder. Because working farms have different needs, property and liability protection for farmland often goes well beyond what a homeowner’s policy will cover.1
Active farmland is more than just a piece of ground. There are maintenance issues such as drain tiles, fencing and land improvements that are required as part of a working farm. Some improvements or repairs will require outside experts who may sustain equipment damage or physical harm as a result of the work. Large tracts of land are difficult to monitor, which leaves the property susceptible to curiosity seekers: the hunter looking for a field to walk, the neighboring kids looking for a place to swim, or someone looking to climb a grain bin. These scenarios can open farmland owners to liability issues.
Farming involves a myriad of activities throughout the year, many that can be dangerous or possibly impact others. A sprayer could inadvertently damage a neighbor’s field, or livestock could wander on a busy highway, or even a harvest-related fire could spread to other farms.
All these activities can put farmland owners at risk for liability suits. Beyond the inherent risks involved with Farmland ownership, farmland is more than an investment. It can be a legacy, passed on from generation to generation. Protecting that legacy is critical, and that’s where we can help.
How to Help Absentee Owners
Knowing your client’s situation and needs is the first step in identifying the resources for protecting their investment. As an agent, you should:
- Have a clear understanding of how the property is being used, including the physical makeup of the property, whether any farm programs are being used, and/or what the rental agreements look like.
- Review all activities on the property, including the nature of farming activities, commercial activities, and recreational opportunities to identify potential hazards and liabilities.
- Ensure a lease is in place to transfer risk from the farmland owner to the renter. The local extension office can provide a wealth of information. Landowners should consult an attorney for all legal documents.
- Provide the correct coverage. The right liability protection may often include specific farm policies. Read more about what absentee landowners should know about renting out farmland.
- Share stories and resources from the Ag Insight Center including the Farmland Ownership Protection Guide.
To get you started, please review the Farmland Ownership Protection Agency Guide. This guide will help you understand the special needs associated with absentee farmland owners to create a plan to protect their investments, for themselves and future generations.
U.S. Department of Agriculture. Economic Research Service. Farmland Ownership and Tenure. May 16, 2022. https://www.ers.usda.gov/topics/farm-economy/land-use-land-value-tenure/farmland-ownership-and-tenure. Accessed July 19, 2022.