Ask the experts
You have to be totally realistic when it comes to buying a rural property to run as a business
NAME: Casey and Scott Deery
STATUS: A couple with two children who want to buy a rural property.
QUESTIONS: We belong to industry superannuation funds but are thinking of setting up a self-managed fund so we can buy a rural property breeding goats as a business venture. What is the best avenue to ensure a bank will lend us the maximum amount of money using our funds in an SMSF to purchase a rural property? Who are the best lenders?
ANSWERS: You won’t be able to use your SMSF in the current investment climate. The big four banks, plus AMP and St.George, aren’t lending to SMSFs at the moment, but this may change. Also the tax office is cracking down on funds with only one asset in their portfolio. But goat farming is a good choice as it is well suited to western NSW, where you want to live.
Scott and Casey grew up on rural properties that ran sheep, pigs, beef cattle and goats. They currently live in Broken Hill and would love to return to a farm.
“It is in our blood,” says Scott, who is looking at properties around Tamworth, Armidale and Cobar in NSW as well as Texas and Miles in Queensland. Because of the drought, there is a lot to weigh up. Farm prices have dropped, so is it a good time to buy?
Scott is a qualified electrician and has worked on a fly in, fly out basis at mining sites. Casey and Scott have renovated houses, but say they have run up a small debt by over-capitalising. “Renovating houses is not the answer,” says Scott.
Instead their plan is to breed goats because, compared with sheep and cattle, they require less maintenance, breed faster and are not lazy eaters. They are also interested in earning an income from carbon credits by planting trees or buying a property with carbon credits.
Their main asset is their superannuation and they would like to use it as a deposit to buy the property, but do not want to jeopardise their financial future. They both have reasonably well-paid government jobs and imagine they may need two incomes to support their purchase of a farm.
“We feel this is one of our last attempts to secure our dream lifestyle and home as we both grew up as kids enjoying the farm life,” says Scott.
Given some tightening around rural SMSF loans, how do they go about using an SMSF to purchase a property and what would be the lender’s typical loan-to-value ratio (LVR) and term for a rural loan?
“We spoke to an accountant who said that we can potentially achieve this through creating a trust fund and an SMSF, and we are looking for some advice to clearly outline all steps to ensure this can be achieved,” says Scott.
Which organisations can assist with buying a farm and explain how farmers live on an overdraft to buy stock and equipment?
Goat farming is well suited to western NSW, where Casey and Scott are looking to buy a farm. Around 35% of Australia’s total national goat production of 1.9 million comes from the rangeland of western NSW covering Bourke, Cobar and Broken Hill.
When looking for the right property: •
Assess the suitability of the land for a goat enterprise by taking into account shelter, soil type, climate, feed availability, access to water, topography, the threat from predators and established infrastructure such as fences. •
Consider the scale of your operation, such as the size required to be economically viable. •
What are the associated labour and infrastructure requirements? •
What is the quality and quantity of feed and water on the property? •
Is there room for expansion? • Water supply and fencing are the greatest infrastructure costs for most goat production enterprises, particularly those in the rangelands. Goats are better adapted to limited water intake and shortterm water shortages than sheep or cattle. Sheep and cattle yards can usually be modified to handle goats and need to be designed to accommodate goat behaviour, which can differ significantly from that of sheep. •
You need to match a goat farm with your own business and personal goals by considering your lifestyle preferences, financial needs and skills. Be realistic with your expectations.
Don’t lose sight of the fact that if the farm business is the major source of family income and consumes most of your time, then it should generate sufficient profits to: •
Cover all operating and finance expenses. •
Adequately compensate its owners for time spent in the business. •
Still have profits left over for capital expenditure and provide for retirement, succession and other requirements.
If all this can be achieved, it’s well on its way to becoming a sustainable business. MEAT & LIVESTOCK AUSTRALIA WEBSITE