[dismalaf]

> I probably wouldn't buy them on margin tho.

Yeah, this is the pertinent detail. The whole point is putting down only a fraction of the amount.

When you calculate the rate of return on a financed property, the rate of return is versus the capital you put down, not the value of what you financed. Plus accruing equity in the property is part of the return.

If you put down $1.25 million and you get a $5 million property paid off after 20 years, that's double the rate of return on your bonds.

[skeezyboy]

You say you only calculate rate of return on the "capital you put down"...Im not following here, do you think because youre spending profit from the farming operation that loan for the farm is paying for itself? The tbills pay for themself.... you have to work the farm for 20 years to pay back that 5 million. Its an apples and oranges comparison there.

[dismalaf]

You're right, it's not an apples to apples comparison, just like running any business will yield more than straight investments.

But opportunity cost is a thing. No land equals no farm and no opportunity for that return.

If not farming, what kind of job can the would-be farmer get and how would they accrue enough capital for their return on T-bills + income to equal their farming income paying off the land? Also my calculations didn't consider that the land value would rise, which it almost assuredly would.

[skeezyboy]

he could spend 90% on tbills, 10% on a small farm, and then each year take the 2.5% the tbills generate and buy more farm fields, working the farm as it grows, or something like that, a mix of finance and farming

[dismalaf]

If $1 million in cash means you can get a $4 million plot of land, spending 90% on T-bills means you have only $900k in bonds and a measly $400k farm (25% down). So you have 1/10th of the land and your bonds are yielding $22,500...

What really happens is as you pay off equity on your land and equipment, you leverage that into buying more land and more equipment.

Successful restaurateurs buy more restaurants, successful tech startups hire more devs and buy more servers, successful farmers buy more land.

Actual (successful) business activity yields more than investments, which is why they reinvest in themselves over stock markets.

[skeezyboy]

youve not accounted for the interest on the mortgage, which is probably double the initial figure

[jldugger]

I mean, you _can_ buy 20 year bonds on margin. Reg T just limits you to 50% in most (all?) cases. And it doesn't buy you a job or a demand mountain of insurance contracts!

[smeeger]

thank you