UPDATED 9/20/10 by Jerry Mahan
We have a lot of bank barns, storage sheds, and cattle or hog barns located around Ohio. Many of these structures are in relatively good condition but for various reasons are not being used for their original purpose. The bank barns were designed for housing livestock, hay, and grain. The stone walls depended on the heat from the livestock in the winter to compensate for the freezing temperatures and the expansion and contraction of the walls and soil. Without livestock some barns have deteriorating barn support walls especially on the “bank” side of the barn. Many of these barns were also designed for farm machinery long since out of use. The farm machinery used today is larger both in width and height. Some counties in Ohio are long known for hog production but with contract feeding of hogs we have fewer people raising hogs. Thus many hog barns sit empty as does some cattle feeding facilities.
Knowing what to charge or pay for these buildings if used for storage is not easy to figure. Some guidelines revolve around the DIRTI five – depreciation, interest, repairs, taxes and insurance.
Depreciation is figured based on the remaining value of the building. Many structures have been depreciated to “zero” for tax purposes but you can estimate the value of the building and divide it by the expected remaining life. For example a bank barn might be valued at $15,000 and have an expected life of 15 years – so the annual depreciation would be $1,000. You can get a value of the building from your insurance agent or property tax statement. Keep in mind your insurance policy may deal with a replacement value verses a functional replacement building, i.e. replacing a bank barn with a pole barn of comparable square footage. The replacement value for a bank barn might be as high as $100,000 or more where as a pole barn with 2000-2400 square feet useable space might cost $20,000-25,000 to build.
Interest rate on intermediate loans can be used to estimate interest costs on capital investments. The current value of existing building multiplied by the rate selected can establish a value for current annual interest costs. Using our $15,000 building example listed above and a 5% intermediate interest rate we would have an annual interest cost of $750.
Repairs are the average annual costs of keeping the building in good repair. This may be higher or lower than past records might indicate depending on the new use. Generally we could use a 2% figure which equals $300 in our example building.
Taxes include those property taxes paid annually and can be retrieved from tax bills. For our example I am using .5% figure or $75. Insurance is the cost of insuring against fire, storms, etc. Your insurance policy should give you this figure. Again I am using a .5% figure for a cost of $75. Total all of these DIRTI costs give us $2,200 per year or about $180 per month. This is a starting point for negotiation. Most leases include additional rent when major damage is done to a building by the leasee. Electricity use above and beyond general use lighting might be added to the lease agreement as well.
Caution – If you plan to rent your barn for non farm uses like boat or truck storage check with your insurance agent. These types of non-farm uses will change your insurance coverage and insurance costs. Likewise the owner of such vehicles or equipment should carry their own insurance.
For more information on this topic consult with your insurance carrier and you can print Factsheet FR-007-02 titled Leasing Farm Buildings & Livestock Facilities:
Other figures can be found also through Iowa State University at http://www.extension.iastate.edu or the Ohio custom rates found at:
http://aede.osu.edu/Programs/FarmManagement/MgtPublications.htm for grain bin storage information.