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I’m looking at a property with minimal acreage but it has a huge barn on it since it was formerly a boarding facility in the city. The plan is to knock out about half the stalls, keep my personal horses and mayyyyybe a friend or two. We’ve gotten the pre-approval for a “normal” jumbo loan, but what I don’t understand is how banks look at the other things on the property (there’s a second house that generates rental income) for appraisal purposes.

No, we don’t need to have the income to afford it, and we might not even keep the second house, but I’m strictly wondering about the appraisal value. Are the additions (barn, arena second house etc) seen as a negative, positive, or neutral?

Also, I keep pinching myself. I had my horses at home growing up but not since I’ve been an adult. It’s a long time in coming!

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from our experience finding comparable properties to validate the appraisers findings will be nearly impossible

We are on acreage in the middle of large city, the bank allowed the appraiser to go back a very long time (more than a decade to find three transactions) to find similar properties that could be used as a bases for a comparable value.

As for the barn… our barn is clear span and was built in a way that it could be a workshop garage or a barn. The building appraised at two and half times the value as a garage virus a barn. The appraisers reasoning was very few wanted a barn but many people want workshop/garage… and the bank agreed with the appraiser.

The second house will be looked at as for the value it adds to the property and the income stream it can produce. There are many places around us that had guesthouses that now used as a rental property.

For you with multiple structures on a common piece of ground you might want to talk with your attorney about setting up separate corporations to hand those parts of the farm. We did that as a firewall to protect our personal assets from the business uses

That’s a good idea, thank you - and thank you for the guidance on how to set it up. I will contact our attorney for sure.

I was trying to find info online and most of what it was discussing was rural properties (which this clearly isn’t!). It’s definitely a unique property in this day and age. It was built back at a time when big lesson barns were still common.

just a little more, the following worked well for us but might not for others… just set down with your CPA and tax attorney to make sure you set up the operations in the proper manor. We used these operations to legally shield income from taxation.

We set the “farm” up as a C corp as we wanted to provide scholarships to the employees (actually used General Motors corporation as a guideline) The “farm” leased from us personally all ground and related structures since the farm had income (we were using the farm to take care of my business’s horses which were used in advertising) (lease income is taxed differently than regular income which may be come very important soon)

The “farm” awarded to its employees and their families educational scholarships which was an expense for the company and nontaxable benefits to the repentant if used at an eligible institution and the money is used to pay for qualified expenses.

We ran this for about seven years, each company was profitable, paid their taxes and were never questioned by IRS or state. Each company was completely separated with its own bank accounts and board of directors (which made some otherwise costs business expense rather than out of the pocket costs such as having a board meeting at a National horse show.)

Eventually my personal business was sold and I went to work with some of my former suppliers in commissioned outside sales. The horses were sold to my kids at that time and the corporations were dissolved.

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Thank you!! This is the kind of info I have always wondered about but couldn’t get clear answers on. I’m involved enough to understand that people do it, but I couldn’t figure out how :slight_smile: I’m toying with all of the possibilities!

Now just crossing my fingers that everything else works out the way it’s supposed to!

well I had to use that MBA for something worthwhile LOL

We had a very good tax attorney who practice was in Farm and Ranch tax law and a CPA who was good

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Ha! I’m working on mine but started with the squishy stuff. I guess I should have taken the finance classes first!

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Are there still horses on the property? I am sure you have done this but make sure you can still have horses on the property being a new owner.

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I have a minor in Finance, even worked for the professor who was head of the department grading papers for him under some government program… missed the Finance major by not taking his finial class which was one of the classes that I was grading papers for LOL

I know just enough to know when to bring in the professionals who are more specifically focused … but I must say the accounting minor I got paid great dividends later in life as I could glance at a balance sheet and memorize it, much to the dismay of the managers of projects I oversaw LOL

Back to your prospective farm, having acreage within a city has several obstacle primary is just how does the property tax board tax the place. Until recently where we are a building lot was a building lot with an assigned “value” by the board of adjustments. I asked them are you sure as our lot is many acres and you say it is valued the same as 5,000 sq/ft building lot? they said then Yes.

Recently their opinion has changed, but I am grandfathered and also being over 65 have a freeze on the property appraisal value by the taxing district, but it is something you need to check.

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@candyappy has a very valid point.
Even if the place has horses now, that may use not be grandfathered to a new owner.
Or if it is, make sure the number of horses you intend is allowable.

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There are, it’s an active boarding facility now and we are ensuring that - it is a good point!

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Another good point! Who knew their opinions could change! I’m used to rural land, this city stuff is a whole ‘nother kettle of fish (as they say). I definitely don’t want to get stuck with a super high tax rate because of the size of the acreage. It is fairly small, but still - not worth taking a huge hit.

Yes. We do fully intend to check on this. We would have less on it than currently (there are stalls for 20 and 15 existing boarders we want no more than 4 or 5 including our own - tops).

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We bought our place nearly forty years ago, at that time this area was not really a highly desired area… but after adding a few more million people and two or three zillion cars the pastures we bought for the horses is now valued by the square foot.

We did double fence the property where it has easy public access on the advice of our insurance carrier. We have three public schools within 1/2 mile and sidewalks in front of the pastures, so we needed to limit/restrict kid’s access to the horses.

Every time a new visitor comes the first thing they do is just stand to look around and then ask where am I as they know they are in the city but then here is this open ground with horses and goats.

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This is going to depend on the mortgage product requested and the proposed occupancy. You mentioned a Jumbo, presuming you mean a conventional conforming Jumbo loan. If your application has been reviewed as a primary residence then typically the value established by the independent appraiser will need to be based on the value of the main home, the second homes, the outbuildings and I believe the first 5 acres of grounds. All as if being solely used as one primary residence. Value created by income generated by renting secondary homes on the property typically will not be permissible as part of the appraised value on a primary residence. Ditto for the value of additional acreage. Barns themselves typically have low appraisal value unless it’s very easy for the barn to be a garage.

Other products may have very different guidelines. I could be a little off on the acreage number as I don’t typically work jumbo loans beyond initial credit and income approval.

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@Alterration Funny (to me) story:
I needed 2 variances to build my indoor arena. 1 for height, 1 for total sf.
Letters went out to nearby neighbors, inviting them to the Zoning Bd hearing to protest if they were so inclined.

Hearing went well, Commissioner asked how many horses I wanted to keep on the property.
I answered just my 2 (legal limit).
Another Bd member questioned the height - 14’ @ rafters < advice of builder for jumping.
When I told him this he grumbled no horse ever jumped 14’.
I bit my tongue.

Bd asked attendees for any questions/objections.
Neighbor from just across the road (I had yet to meet her, but she had 2 horses in a pasture) stood up & asked how many horses I intended on keeping in the structure.
Before I could answer, crabby Bd guy asked her if she had been listening.
Almost LOL’d.

I got both variances.
Neighbor turned out to be a beyotch, though her husband was nice.
Years later she called AC on my chickens. Who crossed the road - :smirk: - to scratch her mulch.
AFTER I apologized with a dozen eggs.
She has since moved.

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A neighbor that had a problem with his cattle always out said once, when asked why did his cow cross the road?
The chickens were busy and someone had to do it. :innocent:

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It sounds like you’re buying a primary residence with the intent to use it for personal use… That’s good because usually whenever you mention any income streams to a mortgage broker, you’re automatically talking about an investment property which has a much higher required downpayment and higher underwriting standards. You can always choose to rent out stalls or the spare house after the mortgage has closed but I’d probably prefer to go through a primary residence process if I were buying :slight_smile: a benefit to you often sounds like a liability to a bank

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Thank you! Very good to know :slight_smile:

You might run into trouble with the loan if they decide it is a horse farm and not residential. We were preapproved for our loan, but somewhere in the process someone got squirrely and said we can’t give you a loan for this property, it’s a farm. So I said OK give me a farm loan. Then they said no, we can’t give you a farm loan, it’s not a farm. I ended up getting a loan from a company that specializes in rural properties because this did not qualify as residential because we have too many acres.

Then we had the runaround with tax assessor… After we bought it, they claimed property was not Ag anymore and tried to call us Rural Residential (much higher rate). Had to submit tax returns to show income from boarding to get back to Ag assessment.

And the last thing you should make sure you have covered is insurance. Since we board, we can’t use same type of policy we used to have, so had to go through broker to get the appropriate coverage.

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