Ways to Build Wealth ?

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Caustic Burno
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Re: Ways to Build Wealth ?

Post by Caustic Burno » Sun Jan 20, 2019 4:05 pm

bball wrote:
Brookhill Angus wrote:
Bright Raven wrote:
You are asking how to build wealth without incurring an annual income tax burden. The only way I know is what I referred to in the profitability thread. That is: increasing the value of your estate. This can be done in several ways.

1. Infrastructure. Barns, shops, handling facilities, fences, etc. During active operation, these capital investments can be depreciated against your annual revenue thus reducing your tax burden. Over the period of depreciation, the investments are written off. Thus, when the estate is sold, the value of the improvements are unencumbered.

2. Land improvements. Such as clearing low value land and converting it to pasture. Thus, the land value increases. Improvements to land productivity also increases land values.

3. Building your cattle herd. It is like putting money in the bank.

Items 1, 2 and 3 build wealth without the annual tax burden, however, at the time of estate sale, the increased sale price of the estate is going to result in capital gains tax.


I think you just about covered it A to Z Ron, but you forgot "GENETICS". That's almost an intangible, but let's say a rancher says to himself/herself "Hey, I'm going to AI 50 cows/heifers this year versus letting the bulls do the job" then let's assume that said rancher gets serious and AI's all 50 using sexed semen from ST Genetics, SAV Raindance, for example. Let's then assume that maybe 40 settle, and out of the 40 let's assume 38 make it. You now have 38 Raindance daughters, which are, as you said "money in the bank", and easily marketable.

Let's compare that to "let the bull get them" which results in calves on the ground, but calves that have a far different value proposition than the calves mentioned above.

That is one way I see to increase your "net worth" with marginal capital expenditure.

$75 x 100 straws (for good measure) $7500
AI Tech (not sure what you pay, assume $50 per AI) $50 x 100 tries $5000
Lutalyse, synch etc (not sure how much, I don't use this)
Labor (not sure how much you are worth per hour)

All told you might invest $15k give or take $1k

38 Raindance heifers are probably worth a minimum of $2k, so let's stick with that assumption.

38 x $2000 equals $76k. A registered Angus heifer around here from Stone Gate brings a minimum of $2k, but closer to $3k, and that is not even for a heifer from AI.

$15k to $76k???? Try that day trading on Etrade, harder than it looks, you can't turn real estate from $15k to $76k in the same time period, at least not under normal conditions. Maybe day trading Bitcoin, flipping muscle cars, etc. You asked about ranching wealth however, I digress.

Now let's assume you keep those super nice heifers and AI them, now you are ready to double your money and make it stack.

Don't forget, that semen, AI tech, and everything else is most likely a deduction. Now this idea is looking even better.


Devils Advocate here for a moment. I appreciate the time, effort and love the math in your post. Reality is this: for commercial guy to throw his hat in the registered ring here, you're not selling all those 40 daughters for that 2k dollar premium your first several years. You're just the next 'Johnny come lately` with no reputation selling in an area ( I will be the first to confess) that does not have an overly strong cattle market.
Do like the improve pasture/soil ideas..
Many aspects of maintaing a beef operation, while depreciable, also do not hold up for 40 years. To maintain and build that estate does require some spending and time. Just drive around and look how many are not kept up with; overgrown, broked own fences, corrals, old iron, abused pastures with no legumes or poor pH, etc. I believe building wealth in ranching is a very tricky proposition- can be done, but is not the norm. One more thought on cattle: back in the 90s in Tx, an old cattleman told me this, "Son, no matter what papers a cow has behind it, when times get hard, she's only worth her salvage value." I have always remembered that, probably cause I just really enjoyed the old fart that told me that.


B-ball he was absolutely correct on the value of a cow. The only for sure buyer for a bovine on any day is the salebarn.
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Re: Ways to Build Wealth ?

Post by Stocker Steve » Sun Jan 20, 2019 6:45 pm

Don't like Wolf Brand Chili. I am Hormel man.
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Re: Ways to Build Wealth ?

Post by Stocker Steve » Sun Jan 20, 2019 6:52 pm

Got a neighbor who buys undersized bred heifers and bred chili cows.
He never retains a heifer.
His cattle cash flow because
- he has a home made squeeze set up and likes to use the chains on heifers
- he is an ex dairyman and likes to milk bad bags

But

He does not do well with Wealth Building. It takes a different mindset, and he is too miserly.
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Re: Ways to Build Wealth ?

Post by TexasBred » Mon Jan 21, 2019 3:58 pm

Caustic Burno wrote:
Lucky wrote:
Caustic Burno wrote:Doesn’t look near as pretty when you see the true outputs.


I see your line of thinking..... This was shaping up to be an excellent thread.....maybe you can start one on how every dollar you spend on the farm is waste and how the sun never shines. Lets get this one back on track.

No just reality apparently it hit home pretty hard.
Ok I bought a Massey 265 in 1977 for 18k sold it last year for 3k.
That is a loss of 15k along with 41 years of upkeep.
Every piece of equipment you buy devalues and has incurred cost besides the purchase price.
Again the deduction is a great deal if you need the equipment.
Your fooling yourself to the poor house spending thousands to save hundreds on a 1040 form .

CB don't forget that you wrote off every penny of that upkeep over that 41 years along with depreciating the purchase price down to a point that your basis was far less than $18K when you sold it thus avoiding most if not all the taxes that might have been due otherwise. Kept a lot of wear and tear off your old butt over the years as well having that overpriced hung of junk to ride around on and do all the hard and heavy work. Hard to put a value on that.
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Re: Ways to Build Wealth ?

Post by Caustic Burno » Mon Jan 21, 2019 4:05 pm

TexasBred wrote:
Caustic Burno wrote:
Lucky wrote:
I see your line of thinking..... This was shaping up to be an excellent thread.....maybe you can start one on how every dollar you spend on the farm is waste and how the sun never shines. Lets get this one back on track.

No just reality apparently it hit home pretty hard.
Ok I bought a Massey 265 in 1977 for 18k sold it last year for 3k.
That is a loss of 15k along with 41 years of upkeep.
Every piece of equipment you buy devalues and has incurred cost besides the purchase price.
Again the deduction is a great deal if you need the equipment.
Your fooling yourself to the poor house spending thousands to save hundreds on a 1040 form .

CB don't forget that you wrote off every penny of that upkeep over that 41 years along with depreciating the purchase price down to a point that your basis was far less than $18K when you sold it thus avoiding most if not all the taxes that might have been due otherwise. Kept a lot of wear and tear off your old butt over the years as well having that overpriced hung of junk to ride around on and do all the hard and heavy work. Hard to put a value on that.



That’s my point that hunk of metal has cost me for over 41 years.
I let a young man starting out in the hay biz have it for a second tractor. It’s still cutting hay. Plus it has cost me in all the free maintenance training to the young man. I’m still working on it.
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Re: Ways to Build Wealth ?

Post by Stocker Steve » Mon Jan 21, 2019 4:56 pm

Hard to buy stuff that appreciates, but I have not given up!

Saw a good deal on Jersey heifers last week, but then I would have had to buy a Char bull for my newest herd. :cowboy:
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Re: Ways to Build Wealth ?

Post by Dave » Mon Jan 21, 2019 10:56 pm

Stocker Steve wrote:Hard to buy stuff that appreciates, but I have not given up!

Saw a good deal on Jersey heifers last week, but then I would have had to buy a Char bull for my newest herd. :cowboy:


About 5 years ago I was shopping for a new to me trailer. Steel trailers just don't last in Western Washington so I was shopping aluminum. All the use aluminum trailers I found were 20 years old and cost only about 2K less than new. I figured that they were selling for more dollars than they cost new. So I bought new. I depreciated it out. I figure in 20 years it will be worth what I paid for it. Also in 20 years I will be 87. I also figure by that time my memory will be so bad that I will forget to tell the IRS that I sold it.

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Re: Ways to Build Wealth ?

Post by ddd75 » Tue Jan 22, 2019 5:32 am

the only ways to build wealth are to sell the equipment and cows and get a town job.

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Re: Ways to Build Wealth ?

Post by shaz » Tue Jan 22, 2019 9:01 am

Stocker Steve wrote:
hurleyjd wrote:I have a net loss every year with the cows. Several years ago I had farm expenses of $24000. Come tax time had to pay about $15000. I posed this question to our accountant? How much more taxes would I pay without the farm loss. He went into his calculator and came back with the answer about $1800. Still losing every year and taxes on the land is going up every year. Land values in the area are in the $4000 range. So with CD's paying out about 2% now the land would have to generate over $80 and this would be an added expense. Does not make any difference if your real estate is worth 5 million you still h.ave to sell to realize it.


OK
We are building wealth.
So what was the percent increase in net worth per year?


I'm seeing land price increase of 5% per year based on the tax assessor value of land I own. If others are seeing this then we can use 5% as a baseline.
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Re: Ways to Build Wealth ?

Post by TexasBred » Tue Jan 22, 2019 10:19 am

Dave wrote:The best way to build wealth if that is your plan/issue is to keep money in your pocket. I have a good friend who is a self made millionaire. He never has bills smaller than $100 in his wallet. You will think twice before breaking a $100. Smaller bills are spent without thinking. He says that you will really think about before spending $10,000 yet most people will spend $5,000-$10,000 a year on nickle and dime stuff. Buying a soda from a convenience store when filling a bottle of water from the tap at home is free. The best way to build wealth is to watch carefully how you spend the wealth you have.

I'd rather enjoy my time here in this life rather than just exist.
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Re: Ways to Build Wealth ?

Post by Lucky » Tue Jan 22, 2019 4:17 pm

ddd75 wrote:the only ways to build wealth are to sell the equipment and cows and get a town job.


Might seem so but that’s the worst idea ever. How many rich town workers do you know? I have a really good town job that pays the bills but provides very little wealth building. I have a business, land, and cows that just barely pay their own bills but look outstanding on the balance sheet. Eveyone needs to do a balance sheet every year to see where you are really at in life. I tell my neighbor all the time he’s rich and doesn’t know it. It’s all in how you count the money.I can’t imagine trying to get rich by saving my paychecks from my job in town. Money needs to be working for you at all times.

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Re: Ways to Build Wealth ?

Post by shaz » Tue Jan 22, 2019 4:26 pm

Lucky wrote:
ddd75 wrote:the only ways to build wealth are to sell the equipment and cows and get a town job.


Might seem so but that’s the worst idea ever. How many rich town workers do you know? I have a really good town job that pays the bills but provides very little wealth building. I have a business, land, and cows that just barely pay their own bills but look outstanding on the balance sheet. Eveyone needs to do a balance sheet every year to see where you are really at in life. I tell my neighbor all the time he’s rich and doesn’t know it. It’s all in how you count the money.I can’t imagine trying to get rich by saving my paychecks from my job in town. Money needs to be working for you at all times.


The city folk will have a better night than me.
1) find out what's wrong with the pre-heater on the track hoe
2) fix wiring harness on the Mule after I tow it 1/4 mile back to the shop with no headlights
3) feed heifers check new calves
4) haul a load of firewood
5) check fences on north side of property (not going to happen)
6) check on the main herd (probably not going to happen)

I'll hear the city folk talking tomorrow about stuff they saw on TV.
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Re: Ways to Build Wealth ?

Post by True Grit Farms » Tue Jan 22, 2019 5:29 pm

shaz wrote:
Lucky wrote:
ddd75 wrote:the only ways to build wealth are to sell the equipment and cows and get a town job.


Might seem so but that’s the worst idea ever. How many rich town workers do you know? I have a really good town job that pays the bills but provides very little wealth building. I have a business, land, and cows that just barely pay their own bills but look outstanding on the balance sheet. Eveyone needs to do a balance sheet every year to see where you are really at in life. I tell my neighbor all the time he’s rich and doesn’t know it. It’s all in how you count the money.I can’t imagine trying to get rich by saving my paychecks from my job in town. Money needs to be working for you at all times.


The city folk will have a better night than me.
1) find out what's wrong with the pre-heater on the track hoe
2) fix wiring harness on the Mule after I tow it 1/4 mile back to the shop with no headlights
3) feed heifers check new calves
4) haul a load of firewood
5) check fences on north side of property (not going to happen)
6) check on the main herd (probably not going to happen)

I'll hear the city folk talking tomorrow about stuff they saw on TV.

But just think of all the fun your having.
If we'd of know this we'd of picked our own cotton.

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Re: Ways to Build Wealth ?

Post by Lucky » Tue Jan 22, 2019 5:33 pm

shaz wrote:
Lucky wrote:
ddd75 wrote:the only ways to build wealth are to sell the equipment and cows and get a town job.


Might seem so but that’s the worst idea ever. How many rich town workers do you know? I have a really good town job that pays the bills but provides very little wealth building. I have a business, land, and cows that just barely pay their own bills but look outstanding on the balance sheet. Eveyone needs to do a balance sheet every year to see where you are really at in life. I tell my neighbor all the time he’s rich and doesn’t know it. It’s all in how you count the money.I can’t imagine trying to get rich by saving my paychecks from my job in town. Money needs to be working for you at all times.


The city folk will have a better night than me.
1) find out what's wrong with the pre-heater on the track hoe
2) fix wiring harness on the Mule after I tow it 1/4 mile back to the shop with no headlights
3) feed heifers check new calves
4) haul a load of firewood
5) check fences on north side of property (not going to happen)
6) check on the main herd (probably not going to happen)

I'll hear the city folk talking tomorrow about stuff they saw on TV.


Are we talking about building wealth or making life easier? Any one of us can sell the farm move to town get a job and take it easy. All you need to do is call a realtor and start looking for job that you think you would like. I gotta admit some days I’m envious of my coworkers that just watch tv and go on a vacation every 3 months. If you decide the town life isn’t for you can always buy another farm and go back to sleepless nights.

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Re: Ways to Build Wealth ?

Post by JMJ Farms » Tue Jan 22, 2019 8:06 pm

I’ve got it figured like this.
1) My ‘real’ job pays the bills
2) Cows pay their own way
3) Cows have allowed me to buy things, (farm, equipment) that otherwise I couldn’t have justified owning.
4) Cows provide a way to get some money up in a hurry if the need arises.
5) Cows give me a justifiable reason to ‘leave the house’ at any time (when their is a little friction at home there’s always a fence that needs fixed)
6) I THINK that at the very worse, the cows are a savings account.
7) If I were to liquidate tomorrow , I would realize a profit over what I’ve put in, not accounting for labor of course!
8) I don’t know of one piece of equipment that I own that would bring more than 10% less than what I payed for it. Most is worth more than I payed for it. Equipment has been a better investment than the cows. But I don’t buy new equipment. It was all bought used and it’s all been fixed or improved and well taken care of.
9) No matter whether it’s land, equipment, cows, housing, or a gallon of milk.....the money is made when you buy it and it’s of no real value unless you sell it
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