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Land Owners who Lease to Equine Operations--Talk to Me

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  • Land Owners who Lease to Equine Operations--Talk to Me

    My husband and I have the opportunity to buy the property my current boarding/training stable is operating on. The business partnership that owns the farm and runs the facility is looking to sell the property (to generate enough liquidity to buy out a partner) and then lease the facilities to run the breeding/boarding/training operation, as well as the house to live in.

    The horse business is very small, very private. There are 16 horses on the property-- 5 boarded horses, two of which are mine, 7 lesson/ breeding/ personal horses owned by the trainer, and 4 young stock for sale. There are, on average, 6-10 active lesson students coming once or twice a week. It’s a small, quiet, private operation, and the trainer, who is in her late 60s, is looking ahead to her own retirement from active business in the next 10 years, so she's looking for flexibility in her operations and looking to make sure the farm stays a farm and not a housing development...

    Due to our jobs and other commitments, we’re not in a position to move out to the country yet, so we're thinking we'd stay in our (paid for) house in town for several years until the time was right to make additional living arrangements at the farm-- there is room and opportunity for the business to continue, with BO living on site, and us to live there as well. Having horses at home is our ultimate dream, and we’re looking at doing it a bit backwards—instead of moving them to our home, moving our home to theirs. (We’ve both had horses at home before, so we’re absolutely prepared and in full understanding of what we’d be taking on there, in the years after the BO retired and wasn't there caring for the horses.)

    Could those of you who own property that is leased out to equine operations tell me a bit about your situations? Whether you live on premises or not, and what difference you think that makes. Give me a look at the pitfalls, the advantages, what you’ve encountered, what I should be thinking about as we consider the opportunity.

    We can afford the property, and we like it very much. We love the care provided, so would love to keep the trainer on as barn owner taking care of our horses for as long as she wants to do it. I’m just looking for input on what it’s like to be the landlord of an equine facility.

    Thanks in advance for your guidance!

  • #2
    I am going to bump you up to the top & suggest you bump yourself up around 8 or 9 AM. Weekday mornings get the best "play" as far as # of answers on threads.

    Comment


    • #3
      If I am understanding this correctly you are going to purchase a up and runnng facility that has a trainer that acts as BM and lives on the premises. Is the trainer going to "lease: the property from you? Or is she going to be a paid "employee"? These are two very different scenarios as far as insurance coverage goes.

      In scenario #1 - Where property is owned by you and leased to trainer (trailer collects all board, training fees, etc - You just collect from trainer monthly rent at a predetermined amount on a monthly basis) you would look for a "lessor risk" type policy. You would purchase coverage for the "real property" (i.e. structures, equipment, anything that is owned by you) and General Liability based on you being the lessor of the property. Not very expensive compared to scenario #2. No need for WC as you would have no employees working at the farm the lessee (trainer) would have the WC exposure. Trainer has thier own insurance coverage for property (that they own) and general liability for the actual equine operations at the facility with you named as an additional insured/landlord. Just wrote a policy like this.

      In scenario #2 - You own the property and collect all board and fees from clients. In turn you hire BM/trainer to run the facility for you. You then would need property coverage as above and General Liability for the equine operations of the facility as well as Workers Compensation coverage for the empoyees of the facility. This includes trainer/BM and any other people that are hired to do the day to day woirk around the farm. This coverage is going to be more expensive than scenario #1 as now you are on the hook for any and all suits that may arise.

      Comment


      • #4
        We lease our barn and associated land and outbuildings to an operation very similar to what you describe.

        My advice is to do it if that's the lifestyle you want. The economics of a small barn have always been "dicey." They are worse now because the entire horse industry is "in the tank." It's an open question if it will revive any time soon. Even if it does you're left with the "dicey" economics of a small barn.

        Three years ago I would have also advised a "yes" on the theory that land values would counter the questionable economics of a small barn. With the decline in real estate values nationwide I'm not sure I'd make that recommendation today.

        PM me and I'll go into more detail.

        G.
        Mangalarga Marchador: Uma Raça, Uma Paixão

        Comment


        • #5
          Good help thus far, everyone, thank you!

          ttldr1-- While both options are open to us, as is the third option of becoming a partner in the operation, we're primarily considering just purchasing the property and owning that, allowing the trainer (BO now, would be BM, I guess in this scenario) to run the business privately and independently, just paying the rent. This appeals to us both as private citizens, not certain we want to get full-on into the business of running a horse business, and as purchasers of the services she already provides-- we're happy as boarders, and think we'd like her to continue to run her business without our interference/input. So, yes, we'd be looking at personal/property liability insurance, lessor insurance, etc., but not WC.

          Guilherme-- sounds like you know just what we might be getting in to! I'll PM you. In ten years, we see ourselves just living out the quiet farm life with our own, and perhaps a couple of privately boarded, horses-- not running a lesson, training, or breeding operation. It's the years in between, while the stable is still in operation, that we're wondering about-- from both a liability and lifestyle perspective. That's why we're looking for feedback.

          Thanks very much for the input so far; keep it coming!

          Comment


          • #6
            I'm bumping this back up because I am interested in more responses as well!

            Comment


            • #7
              Still looking for input from y'all. I've gotten some very good PMs from Guilherme, so thank you very much, sir.

              I should, perhaps, disclose that we're in NY state, where the state motto is "Regulatum Infinitium," so if any of you lease to racing operations or other equine businesses in NY, perhaps you could alert me to the byzantine regulatory/insurance issues I might want to be thinking about?

              (That isn't actually the NY state motto; I think it's something like "Excelsior" which is a little general, if you ask me.)

              I'd also be interested in hearing "the other side" -- from those of you who are lessors-- what do you think are the primary issues to think about as we look at a possible arrangment?

              TIA for all your help!

              Comment


              • #8
                I have absolutely no experience in any of this, but the scenario occurred to me: are you prepared for owning the property and the trainer/BM leaving at some unexpected point? It's important to recognize all "assumptions" and factors you build into the equation of decision making. Try writing out the scenario where everything is the way you want it and the list the components of it (we make money, BM has great relationship with us, we have great hay supplier, we have clients, taxes stay the same etc). Then for each positive imagine the opposite of that happening and see if you a plan for dealing with it. Doesn't mean any of it will happen, but it can be useful when making decisions.

                Comment


                • #9
                  Chall-- great questions and suggestions for a useful exercise-- the best vs. worst case scenario. I think I'll get on that right away.

                  Without having actually done the exercise, I think we're prepared for the trainer to close operations and leave the property; that is, actually, our ultimate (10-15 years from now) expectation & goal-- to live there as private horse-owning citizens, who potentially have a couple of low-key boarders. The opportunity to buy this place now accelerates our schedule-- we'd be ready to move there in about 4-7 years, and live out there either as landlords or private citizens-- but we could weather an acceleration or change of plans.

                  We are already significantly involved in the horse care and upkeep of the facility through our own interest and sense of volunteerism (all that labor is a refreshing change from the desk-jockey work we both do in the day jobs), so we have a fair sense of what we're getting into, and how to juggle it around current schedules. We could handle the trainer closing operations and either taking the current boarders with her, or offering them the option to stay on as our boarders, which would require an entirely different business plan/set of insurances, etc.

                  So, we're going into it for the opportunity to buy our future ("retirement") home now, not have to make significant changes to our current living situations, but to be ready for living there when its ready for us, not really for any sort of perceived income or thriving business as a result of the rental of the property. A reasonable relationship between the rental income and the mortgage (incl. taxes/insurance/etc.) we'LL be paying, but our intention is not to make money here. And, again, we are in a position to purchase and afford said mortgage, without a rental income.

                  My concerns & anxiety just really revolve around what it's like to be a landlord to an equine facility. Never having been a landlord of any sort, that position and relationship are enough to think about managing. I can find a great deal of information out there about those issues, but I'm looking to hear from those who specialize in this sort of operation.

                  Comment


                  • #10
                    I would imagine you have already done what I am suggesting, but, you asked for advice so I will give some, even though it may be all too obvious.

                    Speak with a CPA/EA/tax preparer about the advantages or disadvantages of various types of entities, such as an LLC, an S-corporation, a C-corporation, or a partnership for owning the entire property. Please discuss all your thoughts & possible plans. You are going to have to report your rental income so you will also need to make use of the expenses against the income. Are you ready to do the year-round bookkeeping? Will this increase the complexity & expense of your tax return preparation? What will happen when/if you convert the property to personal use? Or will it ever be personal use? even income from one or two boarders needs to be reported.

                    Having discussed these issues from the tax standpoint, you need to discuss them from the legal standpoint with an attorney. Some attorneys love LLCs, some feel they are not advantageous & so on.

                    If you choose to use an entity to own the property, you should speak with a commercial banker as to how this will affect the purchase (unless you are purchasing with cash). You may find commercial loans carry a higher interest but you may already have been planning to get a commercial loan because even a sole proprietorship is a business. I will add that if you purchase the property jointly, I am not sure you can report your income & expenses on a schedule C or schedule F because generally a sole proprietorship is looked at exactly that way by the IRS - one person.

                    Of course, if you choose to use an entity such as an LLC or a C-corp, you will need to decide whether to incorporate in NY or in another state such as DE.

                    Will any personal property (such as horse trailers) come as part of the purchase? Those raise other issues such as where to register - I would suggest Maine as opposed to NY, a perfectly legal move if the trailer is owned by the entity & not by you personally.

                    Just a few random thoughts that probably don't make much sense.

                    Comment


                    • #11
                      Originally posted by LandBaron View Post
                      . . . . My concerns & anxiety just really revolve around what it's like to be a landlord to an equine facility. Never having been a landlord of any sort, that position and relationship are enough to think about managing. I can find a great deal of information out there about those issues, but I'm looking to hear from those who specialize in this sort of operation.
                      Well, of course, my prior post really did not address your central concern. I have not been a landlord but my parents did own a few rental properties over the years. Being a landlord did not agree with my mother at all. She was a person who was on the perfectionist side - terribly concerned about how property was cared for so no tenant ever suited her. No one will do everything your way. I would look within myself to see if I think I will be comfortable with how other people do things. Being a landlord requires a lot of flexibility, a lot of being able to see there is more than one way.

                      Comment


                      • #12
                        Originally posted by Evalee Hunter View Post
                        I would imagine you have already done what I am suggesting, but, you asked for advice so I will give some, even though it may be all too obvious.

                        Just a few random thoughts that probably don't make much sense.
                        Not at all, not at all! Excellent input-- even if some things are reiterations of ideas already going (call the lawyers! call the CPAs! call the insurance guy!), it's incredibly reassuring to find that, yes, I am thinking down the right lines, so thanks!

                        The additional assets (tractors, manure spreaders, trailers, etc.) is a grey area right now, so purchase/non-purchase of these items is important to explore. Current plans for current trainer are retirement after this facility closes, so she's not sure she needs them, but we're not sure we want to buy them yet. Perhaps as a later purchase? Thoughts or advice from anyone about what would be a smarter way to go about it?

                        Comment


                        • #13
                          I have a friend who recently bought a farm and leased it out to a trainer. #1 can you afford to the mortgage on the farm without any income from trainer and/or boarders? if so then you are on to a great start.

                          2. work out a good contract w/ the current resident BO/BM. have the place inspected - particularly an electrician to make sure all the wires etc in the barn are hooked up and functioning correctly - then negotiate any necessary repairs in the sales contract (it might be that you want to do it yourself w/ your own contractor and deduct from sales price vs a just get it done) My friend had to have her barn re-wired - it was scary...

                          3. is the house far enough away from the barn so people driving in and out will not be disturbing to you - maybe not now but think ahead...

                          Work out who is going to pay for what - like fencing repair, mowing fields, general maintenance. Work out the payment/income structure. Will you charge per stall or one lump sum for the current boarders?

                          Also be prepared for possible hostility/resentful from people - it's amazing how nice people can turn mean or resentful particularly if you decide to change some things.. amazing that improvements can be met w/ hostility - I guess it's because some people get insulted like it wasn't good enough before or something - so just be prepared if that should happen

                          Also make sure you have appropriate insurance coverage; the friend above insisted trainer take out Care, Custody and Control in additional to professional trainers liability - you should insist on that as well. You might also take out Care Custody and Control. Check the laws in your area to make sure you are fully covered - things like a loose horse hitting a car etc.

                          the other thing is - some insurance companies give discounts for storing hay and shavings outside the barn. If this is not done, is it something you can build? An inexpensive steel building maybe?As we all know hay & shavings can both spontaneously combust so the best thing is to keep that stuff out of the horse barn if you can..

                          I hope it works out for you and best of luck - very exciting

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