Updating Your Rental Rate
Updated: Jun 26, 2020
Note: this post should not be viewed as a substitute for legal advice.
I have to give all credit to Tiffany Dowell at Texas A&M for giving me the idea to post on this topic with her recent blog post Average Rent Prices in Texas. June is the time of month many of you will be thinking about renewing your lease. Maryland is no different than Texas in one sense, many you also like to ask me “What is a good rental rate?”. My candid response is well I’m not really an economist I just pretend to be one from time to time. But in all seriousness this is something many of you often struggle with. So how do you go about calculating a fair rental rate, regardless of if you are a landlord or a tenant?
My first piece of advice is always go to aglease101.org which was created by and is maintained by the North Central Farm Management Extension Committee. The site hosts many guides related to different leasing arrangements used in ag (housed there are livestock leases, building leases, and land leases). Inside the guides for all the leasing arrangements are worksheets to walk you through what a cash rental rate, a flex cash rental rate, or a crop share rental rate would be for your operation. The worksheets will have you determine the rental rates under a multiple of conditions to help you understand what the lowest rent and the highest rent you can handle to aid you in negotiations with the other party.
Another valuable resource would be USDA’s National Ag Statistic Service (NASS) which collects the average cash rental rate for counties in Maryland. One thing you should remember is this is an average which means some rents will be higher and some rents will be lower in the county. Navigating NASS’s website to get to this information can be a little difficult and with that in mind the UME’s Grain Marketing website has a nice table of cash rental rates by county over the past 10 years.
Other things to consider when setting the rental rate would if you are a landlord does the tenant do extra things. Does the tenant pay the rent on time, help you out on your own farm for no money, make repairs and not ask to be reimbursed? Well in those cases, if you are a landlord you may want to consider a discount on the rental rate. Other factors may also come into play as to why rent should be lowered or raised.
Why do you need to think about changing your rental rate? Well many of you may have not renegotiated your rental rates in years (5 years or more) and if you are a landlord your tenant maybe getting a sweetheart of a deal. Others of you may have set rental rates within the past few years that took higher crop prices into account and may need to consider lowering the rental rate for the next year. For more information on leasing, check out the UME Grain Marketing page on ag leasing that includes a lot of helpful information and will also provide you with some crop budgets to help you determine your own costs of production.