Escaping to a secluded property in the country is many people's dream. If you are looking to fulfill your dream by investing in the purchase of a horse ranch, there are some important things you must consider before making your purchase final.
Here are three things to keep in mind as you start looking for country horse estates in the future.
1. Land Use Classification
Before you make the decision to place an offer on a piece of property that is suitable for a horse ranch, it's important that you consider the land use classification of the property. Municipal governments use a classification system to identify the primary use of each piece of property within their boundaries.
The land use classification assigned to your potential ranch could affect your ability to obtain financing. If the property has been classified as agricultural rather than residential, you may not be able to obtain financing from a residential mortgage lender.
Be sure that you take the time to identify the land use classification of any horse ranches you are interested in, then speak with your lender to ensure that financing the purchase of the property will not be an issue prior to submitting an offer.
2. Future Business Plans
Maintaining a horse ranch can be costly, so you may want to consider boarding horses for others to help offset the maintenance costs of your property. Boarding horses can be big business, with the Pennsylvania Equine Impact Study showing that $42.1 million was spent on boarding horses in the state in 2002 alone.
It's important that you take the time to consider whether or not your future business plans include a boarding operation prior to purchasing a horse estate in the country. Since business activities (like a boarding facility) conducted on your property could cause the property to be considered a commercial facility, it's essential that you take into account how potential boarders will affect your mortgage options prior to purchase.
3. Commercial Loan Requirements
If your plan is to create a show barn after you purchase a horse ranch in the country, you likely know that your property will be considered a commercial venture. Understanding how the commercial loan underwriting process works prior to submitting an offer on a horse ranch can be beneficial.
In order to qualify for financing, a lender will consider a property's loan to value ratio (LTV). This number is calculated by dividing the requested loan amount by the appraised value of the property. Since land is considered higher risk, lenders will typically have lower LTV requirements for rural property.
Talk to your lender to determine if the horse ranch you are thinking of purchasing will qualify for a commercial loan.
Investing in a horse ranch can be exciting. Be sure that the purchase process as simple as possible by taking the time to consider land use classification, potential business activities, and commercial financing before making an offer on aestate country horse ranch of your own in the future.