What's It Worth?

From average yields to soil ratings, discover practical ways to calculate cash rent.

- By Cassidy Walter Business Management Editor [e-mail]

If you are considering a new rental agreement or looking to renegotiate an existing lease, there are several factors to take into account when it comes to negotiating the rental rate.

How Is Rent Being Calculated?

A fixed cash rent agreement is the simplest rental arrangement there is. But it is not as simple as it first seems.

“Determining a fair rate is not easy,” said William Edwards, a retired Iowa State University (ISU) Extension economist. “Cash rents are likely to be too low during periods of rising prices and high yields, and too high during periods of declining prices and low yields.”

Here is the crux of the problem: “Rates often reflect the results of the past few years more than the upcoming year,” Edwards said.

Here are eight different methods of computing a cash rent to consider:

1. What Others Are Charging/Paying

Edwards said the most common way to establish the amount of cash rent is to base it on what other people in the area are charging. However, he said there are potential pitfalls with this approach such as:

• Simply charging what others are charging may not be appropriate for a particular farm.

• Rumors about cash rental rates may be quite different from the actual rates, especially in a rapidly changing market.

"Differences in the quality of land should be taken into account when comparing your rental rate to those of others. Landlords who are unfamiliar with farming often assume that all land is of equal productivity," Edwards said. An ISU article authored by Edwards and Extension Program Specialist Ann Johanns notes conservation practices and land stewardship are other factors to consider.