What is a healthy allocation percentage for improvements on small acreage?

Asked April 1, 2014, 9:17 AM EDT

If my 25% undivided ownership interest earns an annual cash lease of $2,600 on our 600 acres (farming, grazing, and hunting), what percentage should I limit for budgeting any annual improvements. In 2013, we began a 2 mile fence project by hiring a maintainer and fencing crew to complete 1/4 mile of new 5 strand barbed wire fence. My cost was a total of $900. The suggestion for 2014 is build 3/4 mile of new fence and expect to double or triple our expected investment cost. What budget limit should I set for myself?

Potter County Texas

1 Response

In talking this voer with a co-worker, I am not sure I would look at it from the standpoint of an allocation percentage. The important issue is whether the improvements will increase the rent in the future or increase the value of the property. If the improvement will increase rents over time then you may want to compare the cost of the project vs. the increased rent over time to determine if it is a profitable investment. You may be willing to spend well over your annual share of the current rent if the improvements are profitable over time.