Earlier this year I blogged about why I was interested about farmland investing. And earlier this month I posted about how I was really close to buying my first farm. Well drum roll please because earlier this week I officially became a farm owner 😉 That doesn’t mean I’m a farmer though. I still live in the city, but I’m the landlord of a farm in eastern Saskatchewan. With farmland prices growing at double digit rates in the United States, Australia, United Kingdom, and pretty much all over the world, Canada is certainly no exception to the global trend :0) Buying farmland as a long term investment is not for everyone, but if you’re interested to learn more about the business, please read on (*^_^*)
About my Farm
Saskatchewan is divided up into small squares called rural municipalities (RMs) Each RM has a number and a name. My farm is in the RM of Sliding Hills (RM #273) Below is a map of Saskatchewan.
And here’s a close up shot of the RM
My farm is used for agricultural purposes to grow grains (wheat, barley, canola, etc) There are no buildings on the land. It’s in the black soil territory of Saskatchewan, the best kind 🙂 Total area of the land I bought is 160 acres, or 1 quarter section. That’s about 7 million square feet. 135 acres is cultivated, and the remaining 25 are bush or slough.
Buying Procedure
Buying farmland is similar to buying a house. I get emails from my realtor periodically about new listings. I also went to the mls.ca website and filtered for “Agriculture” and searched for listings based on my price range. Super easy to do. Eventually I came across the following listing. Except it wasn’t sold at that time yet.
The seller wanted $167,000. I offered $145,000, to which he counter offered with $150,000. And that’s the final price we agreed on. I think it was a pretty good deal (works out to $937.50 per acre) because when my bank did their own assessment of the land they valued it at $154,500 so according to my bank, technically I’ve made $4,500 on my investment already :0) The crop insurance rating of my farm is an “F” meaning it’s Fantastic 😀 Haha. Just kidding. All farmland has a letter grade based on it’s soil quality, ability to hold water, etc. The better the land the better the grade. F is pretty high up there 😀 You might see a C or E but they are super rare and go for a much higher premium 🙂
After I removed my subjects on the purchase agreement I found a lawyer in Saskatchewan for all the legal stuff, and went to my bank to get financing. TD requires a 25% down payment and lent me 75% at 3.89% fixed rate for a 1 year term. Took a Prt Scr of my account details below. Total lawyer and bank fees: about $2,500.
Rental Income
Luckily there was already someone renting the land from the seller when I bought it. I talked with this farmer and he said he is interested to continue farming there. So we signed a 2 year agreement where he pays me $37.50 per cultivated acre of land every year. Right now there is 135 cultivated acres so I will be paid $5062.50 per year. That represents about 3.4% return on the value of the land with no operational risk to me 😉 Payment is to be made twice a year, half of it when he seeds in spring and the remaining half is paid when he harvests in the fall. Pretty typical rental agreement. Anyone can download these lease templates from the government of Saskatchewan website.
Behind the Numbers
Now to tackle the ultimate question. Does this investment make sense from a financial point of view? Let’s go through the numbers.
First, breaking down the cost of $150,000. As mentioned earlier, I needed to come up with a 25% down payment, or $37,500. Notice how I haven’t been blogging about the stock market much lately? That’s because I didn’t buy any new stocks since July. I started researching about farmland back in the summer and decided to start saving as much as possible. I had saved $10,000 in my bank account by the time I bought this farm. I had also mentioned I sold about $10,000 worth of stocks in September. So that’s $20,000. The remaining $17,500 I borrowed from my line of credit.
Downpayment
- $10,000 Savings
- $10,000 Procedes from selling stocks
- $17,500 Line of Credit at 5.25% floating
- Total = $37,500
Farm Loan
- $112,500 loan amortized over 25 years, currently at 3.89%
- Total = $112,500
Total purchase price = ($37,500 + $112,500) = $150,000
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Next, let’s compare the income vs cost of owning. This will tell us whether I’m making money or losing money.
Revenues:
- Rent = $37.5 x 135 acres = $5062.50
- Total Revenues = $5062.50 / yr
Expenses:
- TD Farm Loan: $112,500 at 3.89% interest rate = $4376.25
- Line of Credit: $17,500 at 5.25% interest rate = $918.75
- Property Tax: $475
- Total Expenses: $5770 / yr
Net Income/Loss:
- Net Loss = $707.50
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Not sure if that’s the proper way to do a balance sheet. Lol, I’m obviously not an accountant 😛 But basically I’m paying more than $700 out of my own pocket every year. I’m not surprised though. If you think about it, I’m really only putting down $20,000 of my own hard earned money which is about 13% of the land’s entire value. The remaining balance is financed one way or another, we’re talking about serious leverage here. This is what’s known in the mortgage industry as a high ratio loan, lol. Some readers might think I must be high on paint thinner. What kind of loony investor would put $20,000 of his own money into something that clearly will give him a negative return! He would be better off putting that money under his bed. He should at least save enough for a proper down payment like 20% or higher, and not rely on his credit line.
I agree that the conventional way of analyzing cashflow would label my farm purchase as a bad decision. However many of my investment ideas are anything but conventional, and this is yet another example 😛 Despite losing $707.50 a year, I still think this is a good investment. I have 4 reasons for this.
1) The bigger picture
In Chess we sometimes have to sacrifice pawns in order to win the game. In the game of investing, a short term loss is sometimes a necessary part of the longer term strategy. A lot of businesses are not solvent at first but over time they can grow to become very profitable. Farmland is such that investors need to have a long term view of the situation. You cannot buy and flip farms for a profit like you can with houses. I may be losing money now, but the entire loan is amortized over 25 years. And in the second year I will have paid off a portion of my principle, which means I’ll be paying less interest than today. I will probably break even some time in 2014. So for the majority of the amortization period I WILL be making a profit, just not right now.
2)Rent/Income to grow over time
This one is pretty self explanatory.
3) Capital Appreciation
Because farmland tends to hold its value over time we can assume with relative certainty that my farmland will grow in value over the next decade or so if we continue to have inflation. In fact, historically farmland prices have pretty much consistently beat inflation because the global farmland supply is shrinking, at the same time demand is growing. Just to be on the conservative side, let’s assume farmland prices in Canada will increase by only 1% to 2% on average over the next 10 years. Even so, that means by next year my farmland will be worth $1,500 to $3,000 more (1% to 2% of this year’s purchase price of $150,000) That is more than the $707.50 I lose in my first year of operations. Below are what returns will be given 3 likely scenarios of different appreciation amounts.
| Initial Investment | $20,000 | $20,000 | $20,000 |
| Price of Farm | $150,000 | $150,000 | $150,000 |
| If Farm Appreciates by | 1.0% | 1.5% | 2.0% |
| Farm will be worth an additional | $1,500 | $2,250 | $3,000 |
| Net loss from operations | $707.50 | $707.50 | $707.50 |
| Total gain | $792.50 | $1,542.50 | $2,292.50 |
| Net Return on Investment | 4.0% | 7.7% | 11.5% |
Those returns aren’t great, but they’re not that bad either I think. A classic example of sacrificing income, for growth, which is good, because realized wealth (capital gain) is taxed less than realized income anyway 😀
4) Inflation Hedge
With all the money printed by the Fed, there are some people who think we might see inflation reaching 3% or higher in the future. Remember in 2011 when everything from food to gas appeared to have gotten really expensive? That’s because the inflation rate in 2011 was 2.9%. During that same year, the average price of farmland in Canada increased by 14.3%! I missed out that time but there is NO WAY I’m going to miss out on another opportunity like that (>_<)
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Those are my 4 reasons why I purchase the farm despite being cash flow negative 🙂 I choose to assume a modest 1 to 2 percent growth rate so even if prices fall next year my long term view should give me plenty of time to recover. But what if we used some actual numbers, some real data! To the right is a chart that shows how much farmland prices have appreciated over the last 5 years. Source: FCC
Holy macaroni (o_o) those numbers are much higher than the 1%-2% annual growth rate I’ve predicted. Longer term data show similar results with farmland increasing double digits per yer on average over the last 10 or 20 years. If I make 4% return on my investment when my land goes up just 1 percent in value, imagine what my ROI will be if my farmland continues to appreciate next year like it has been doing in the last 5?
Final Thoughts
As with any investment, past performance is not an accurate indicator of future gains. The boom in global farmland prices will not last forever and there are many risks in the agricultural business. But I believe the potential for profit far outweighs those risks, especially if one has a long term investment view. According to a study by Enquirica Research, Canadian farmland has seen a 10.6% increase in returns over the past 10 years, compared with 3.8% for the Toronto Stock Exchange Index. I don’t believe farmland is a better investment than the stock market. The truth is nobody knows what the price of farmland will do next year. But I already have over $100,000 in stocks, so I’m just looking for ways to diversify my investments. Will my new farm be a good investment or did I just make a big mistake? We’ll just have to wait and find out (~_~)
Sorry for the long post 😛
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[Edit June 2013] All information above was posted in December 2012. Months later the farmland value report came out and Canada’s farmland increased 19% in 2012 😀 Wow, the reality of land value appreciation turned out to be much better than the 1% or 2% I was expecting. See my post about how this investment has been paying off so far. This makes me want to buy another piece of farmland!
I also wrote a FAQ for how to draft up lease agreements, rental rates, free lease templates, etc [/edit]
[Edit June 2014] Okay. In 2013 I purchased another farm for $172,500 with a $20,000 down payment. Now I have 2 farms, yay! According to FCC during 2013 Saskatchewan farmland values increased 28.5%. That means my first farm purchased in 2012 for $150,000 is now worth more than $200,000! OMG! 😀 [/edit]
Now THIS is an awesome post and a fascinating topic! Well done! I love how you’ve got over 100 acres of land now. You can build a tennis court and a paint ball war field for kids! Think about all the possibilities.
I like how you already get a 3.5% yield from owning. Hope it turns out well for you!
HNY!
Sam
The possibilities are endless. I can even make a golf course out there and invite you to come play some time :0) HNY to you too Sam 🙂
Brilliant post, I completely agree about using it as a hedge against Ben Bernanke. My dog knows more about finance than that twit.
I have always wanted to own enough land to be able to grow my own food and be self sustainable (at least for the most part).
Your dog sounds really smart Glen （＾ｖ＾）in Australia farmland is relatively cheap as well. I think it’s about 1/10th the price of land in the UK, and I heard many foreign investors are starting to buy them up :0)
Care to share your information on Australian Farm Land? Do you have a link, like with the Canadian property for me to peruse?
Interesting way to consider a negative cash flow property. As the world population grow and so does the need for food, prices should grow. And if you can subdivide for residential that definitely gives value to your land, some agricultural lands in more populated regions have restrictions on converting them to residential.
Pauline, you are spot on about the world population growth. We are an alternative investments firm, and farmland is by far our most popular offering. A big part of our argument for the asset class is the relationship between population growth and arable land (www.greenworldbvi.com/alternative-investments-options/agricultural-farmland). The reality is that whatever the fluctuations, the long-term (i.e. over one or two decades) of key agricultural commodities and therefore food prices is going to be up. The author is spot-on with his investment. My only comment though is that I believe it is very difficult for a non-Canadian to purchase farmland in Canada.
@GreenWorld
Yes, there are many restrictions for non-Canadians to buy farmland, especially in prairie provinces like SK. However in BC and ON the rules are more relaxed and foreign investment is actually encouraged by the provincial gov’ts. I think for tax purposes it makes sense to buy in your own country. The nice thing about agricultural land though is that it’s a worldwide commodity. There’s a good chance anyone can get in on the opportunity no matter where they live, as long as their country allows for private land ownership. US farmland prices has gone up 15%-26% YoY depending on the State. The UK and Australia are seeing double digit returns as well :0)
@Pauline
Yup yup. The United Nations estimates world population will be over 9 billion by the year 2050. And with the growing middle class in emerging countries who will demand more and better quality food, like protein, which is made from animals that have also eat, the demand for farmland will only continue to rise in the medium and distant future. That’s too bad for some farmers when they have restrictions around subdividing. I think in Canada most requests to break off a piece of farmland for residential use (yard site) gets approved relatively quickly.
It may seems like a weird question, but what do farmers do 7 months of the year when the land is frozen? Do they usually have a second activity or just wait and are subsidized by the government?
Perfectly normal question 🙂 For animal farmers cows have to be milked, chickens and pigs need to be fed, etc. But grain farmers can’t do much during the winter. Some of them grow winter wheat, which is a cold crop that is seeded in September, and harvested in the summer of next year. But for other farmers they can use the cold down time season to do other things like repair or maintenance work on their equipment to get them ready for the spring. Or pick up side jobs like transporting hay. Lots of ranchers need hay during the winter since it’s too cold for cattle to graze outside. Other farmers who may not have children living with them just go south for vacation during the winter months. I’m not sure if farmers are paid or not by the government during the winter, but they get subsidies in other ways for example discounts on gas to fuel up their vehicles :0)
Great detailed post!
Congrats on the land…and I think this was a good move as long as you intend to hold the land for many years. It will certainly appreciate over time.
Your purchase is an excellent, long-term hedge against inflation. Just like some solid blue-chip dividend paying stocks are 🙂
Mark
It’s interesting, because investors can also get exposure to the agricultural sector by buying blue-chip dividend paying stocks that deal with farmers like Deere, Potash, and Monsanto. It’s good to make a diversified portfolio too.
Great stuff! We have the same mentality with our rental condo in Vancouver. We are slightly below cash flow positive as you are. But fit the same reasons we think it is a good investment. For someone that doesn’t want to put out the cash it takes to own a rental house or condo, this id a great alternative. I kind of want in, but we are already quite leveraged!
Your guy’s condo will do excellent in the long term as well. Vancouver can’t get any bigger, but it’s population is still growing every year :0) Same concept. There are some funds and other indirect ways to get in on farmland though, which I’ll post in the future.
Very interesting investment! Can you eventually breakeven with rental income or is it all capital apperciation?
My rental should cover my expenses in about 2 years 😀 And from that point on, it will be growing profits :0)
Wow congrats! I’m very impressed! It’s gotten me interested in farmland.
Lots of farmland out there for sale :0) A big trend now is farmers are consolidating. So most farms are at least 4 times larger than the one I have. The more land you have the more efficient your operations will be. ∩( ・ω・)
Very cool of you to share your experience and you dreams with all of us! and great you are already coming out ahead! By the way Mr. CBB sent me over here!
Thanks, I’m doing alright (~_~) Mr. CBB is quite a stand up gentleman :0) I like his frugal recipes.
Yes he does have great recipes! I cook rather simple but every now and then I just throw caution to the wind and go crazy! 🙂 Like I made homemade granola this past week!
So is this just like a rental property in terms of tax advantages. The rent is regular income and you have regulations tax deductions like loan interest and property taxet. Also if you fly to Saskatchewan or drive to check in with your farm tenant, will all or most the the things of the trip be tax deductable?.”Things” included meals, hotels, transportation expenses.
Yes, you can treat it like a rental property if you like and all the tax rules of a rental home applies, so you can deduct interest on loans and property tax. But I chose to run this as a small business instead, a sole proprietorship. The tax benefits are almost identical, except the finances are just treated separately as its own business, and then any gains or losses from operating the farm, is added on top of my income from my work. One benefit of running it as a business though is that, because of how the accounting is done, more expenses can be deducted like the cost of traveling to Saskatchewan and staying at a hotel. However if it was a personal rental property I would not be able to do that 🙂
I didn’t read your whole post as it was lengthy.However in my life time I have NEVER lost money on investing in property. The value always goes up. here in Ontario if you have a tenant farmer work your land and signs the government papers that he works the land your taxes drop 25%. That is a large sum over a lot of land. Also here in Ontario farm land is going for big bucks right now because of grain failures all over the world. Seems that farming is cool once again. What most forget is that farming is hard work, 24/7. That said, get a tenant farmer, he does the work your get the tax break. and in the long run a good buck for the resale in years to come.
That’s pretty cool how your province offers that tax incentive to farm owners. Which is probably a relief to many because ON has some of the most expensive farmland in all of Canada, about 10 times more expensive than in SK where I bought, so I imagine the ON property taxes are also pretty high. ON also had the biggest price increase this year so far In the first 6 months of 2012 :D, farmland value shot up 16.3%, almost double the national average! Sounds like you’ve been in the property business for a long time, hope it’s working out well for you :0) Thanks for dropping by.
Congrats on the farm land !!! Sooooooo you can sell me 10% of that farm for how much ? 😛
You get the friend discount, so whatever you think is a fair price :0)
Very thorough and interesting post! It shows that you spent a large amount of time on it. Good job!
Glad you found it interesting (^_-)
Wow this is amazing. Sometimes you have to think outside the box – this is certainly doing that. I look forward to reading your updates on this throughout 2013
Thinking outside the box is the only way average middle class people like us can become millionaires one day :0) I plan to give updates bi-annually.
Wow! Congrats! We look forward to reading your updates!
Thanks Greg, I’ll keep everyone posted.
Super interesting! What a great deal! I learned a lot…never knew about letter grades for land!
Yeah, usually you don’t want to buy anything less than an “H” :0)
That was a very interesting post, thanks for sharing in such detail.
No prob. At first I wasn’t sure if I should break it up into 2 separate posts, but then I thought it flows better just making 1 long one :0)
Great post! I learned a lot from it, Thanks so much!!
Thanks for the feedback. My first check from the farmer should be coming in next month. I’ll update the blog then 😀
Thanks for sharing that, I started on a similar journey a year and a half ago, I also have negative cash-flow. I’m expecting that appreciation will make up for it over the long term. The post is long but well worth the read, love your humour as well.
Very cool how you started so early. Your land probably already got re-assessed by now and is worth a lot more than when you bought it 🙂 We can be negative cash-flow buddies ;). But no matter we are losing money out of pocket, because capital appreciation will make up for it soon enough.
Next time you are looking for a farmer to rent your land, (or if you know other investors who are looking to find a tenant) check out rentthisland.com.
The website is free for the landowner to list their land, and have offers made on the property.
Once your listing closes, you pick the famer that best suits what you want, at no cost to you. Our process is a great way to make sure you are testing the market value of your land, plus it’s simple and free!
We just lanched and are getting the word out. Contact us through the site if you’d like more information.
Thanks. I’ll keep your site in mind when the lease agreement is up for my tenant and I next time.
I may have missed something while reading through…
You list your yearly loan cost as $4376 but your bank screenshot shows the monthly payment as $584. This skews your income vs cost calculation heavily away from -$700/year.
Great question 🙂 Yes, my monthly payment on the farm loan is $584.33, or about $7012 a year. Out of this $7K, about $4376 is interest which is lost forever, and the remaining $2636 goes towards the principle. Some people count the principle amount as an expense as well, but I see it as forced savings because it’s building equity for myself. What I’ve heard is when one buys property and rents it out as a business I believe only the interest portion of the loan, taxes, and related maintenance costs are tax deductible, principal payments are not. Which I suppose makes sense because repaying the principal lowers one’s liabilities, which is on the balance sheet rather than the income statement. Same thing with my line of credit. Every year I get charged more than the $918.75 I stated as the interest/cost so that in 3 years my line of credit will be paid off. The thing with a LOC though is it’s very liquid and if I run out of money to pay back a monthly installment I can just borrow more from the same account at any time. It sounds risky, and it is, but I’ll do what… Read more »
Very interesting posts about farmland investing. I’m exploring ways of diversifying my portfolio beyond the volatility of the stock market and this is very informative. The question I have is what about liability insurance for your land? Do you have a policy? For example if some kids on an ATV, Dirt Bike or Snowmobile injure or kill themselves on your property then you could be sued for millions. It would put a bit of a dent in your ROI.
Yeah, if the suit was in the millions I think it would make more than just a dent 🙂 lol. I’ve never really thought about insuring my land to be honest. I know other types of properties such as retail shops, restaurants, and parking lots have to account for insurance and maintenance because if someone slips and falls outside a store for example (because the snow wasn’t properly removed or something) then the property owner can get sued 😡 I’m not sure about Saskatchewan laws but in the US, the landlord is only deemed responsible for an injury if his negligence is what caused the accident. For example if a crack in the ground was large enough for someone’s foot to get caught in and twist an ankle, the property owner must do his best to fix it. But if there’s nothing wrong with the ground or the property in general, the owner is not responsible for injuries caused by someone just being careless. For instance, if someone falls simply because he was not looking at where he was walking, he cannot recover compensation against the property owner if the owner was in no way at fault. I assume the… Read more »
Any progress on finding out if you need insurance? If so, what was your decision?
It appears only farmers need general liability insurance, not the landowner. I have decided not to buy any insurance for myself regarding the farm at this time.
Question on your bank financing with TD:
I contacted TD for financing and they mentioned they do not give Long Term Farmland loans for such a type of investment. How did you negotiate with TD? I contact several branches and office across the country and could not locate an office who was doing these. Note the rationale from TD was that they dont offer financing for these type of investments. Has nothing to do with my personal sitution.
Thanks
Oh, that’s strange. I’m not sure why the TD representatives would tell you that. It clearly shows on their website that one of the services they offer is a Long Term Farm Loan, which is described to have a 25 year amortization period. Maybe the people who spoke with you aren’t aware of it 😕 You should show them that website, or my bank account screenshot haha. What I’ve found in general is that mortgage professionals at banks often have very little knowledge about financing for agricultural property. I would try to contact the bank again but ask to speak with a business manager or business associate instead, and you’ll probably have better luck. And if you haven’t tried already, try to contact a local branch around the same area as the farm you’re looking to buy. Rural branches should have more experience dealing with farm loans than ones in large cities like Toronto. At other banks like CIBC, for example, they have something called a demand loan, which is similar to a mortgage as well, amortized for 25 years with comparable interest rates. There’s always the option of financing with Farm Credit Canada, which finances 50% of secured farmland… Read more »
Thanks for the info. I also tried local rep but no luck (also pointed to long term farm loan on their website). Is there a way to private message you so that i can provide more detail? I prefer not to list my email address here as it contains my full name.
Thanks!
No prob. You can contact me directly using the contact page. Just send me a message and we’ll discuss through email 🙂 Also just a quick note to other readers, the email address required for anyone to post a comment on the blog is not shared publicly.
We as farmers should squash guys like u….well the Harper goverment is putting any end to guys like u..useing the system to get out of personal taxes..
There is no need for that kind of attitude on the internet. Don’t you know this is a respectful supportive community 🙂
It is true that outside investors have drastically inflated farmland values here in Saskatchewan making it harder and harder for young farmers to get established in the farming business.
I like the thought process behind this, but it’s very poorly executed. In 2013 the average purchase price of farmland in SK was $550/acre and average rent $33/acre. http://www.westerninvestor.com/index.php/news/55-features/764-land-values You paid $937.5/acre (70% above average) and rent for only $37.5/acre (14% above average). You either overpaid for the land, or are under charging for rent – likely both. I own a quarter of land in SK valued at $120k and rent it out at $44/acre. This type of investment can be good if you find a good deal on land, and then aggressively negotiate the rent. This instance is a case study in over-leverage, particularly the debt at 8.75% for the down payment – just awful. You’re very exposed to interest rate increases which are likely given that the US is now into a tapering mode, and that you didn’t lock in for a reasonable length term. A well executed deal in this space looks like this: Land Purchase Price – $112k Land Rental Rate – $6k Tax – $400 Down payment – $28k Financing terms – $84k – 5 years closed at 4% – $5377 total payment ($3360 interest, $2017 principal) You should renegotiate the rent as soon as… Read more »
edit…my info on land prices was a bit dated…looks like SK land prices are now closer to $900/acre.
Still I just found 3 quarters for sale online for $450k with a four year land lease at $7k/quarter.
Thanks for the tips RJ 😀 I didn’t do a very good job negotiating the rent this time. Hopefully I can get a better deal when the lease agreement is up for renewal next year. I’ll try to ask for at least $44/acre like you are 🙂
If your lease is up for renewal you should seriously look at RentThisLand.com – it’s an online blind tender process that is free for landowners. It is designed to help you figure out the market value of your land. Friendly folks too!
I know I bought a quarter same year guy was asking 80,000 offered 40,000 got it for 48,000 now it is worth over a 100,000 ? not only that I bought it when they were in a drought cycle he was getting 57 bales of hay off it. That same year I purchased the rain never stopped and when I cut the hay I got 600 large round bales sold them for 40 dollars each payed for my tractor, haybine ,baler and all expenses to cut it . So every year since have been averaging 250 bales a year and the price of feed (hay) just continues to rise. From 0.03 cents a pound to 0.06 cents per pound just cutting the hay has payed for the land itself. Only have to be there to cut and bale and stack it. About 10 days. Then even sell it where they load it them selves. Best investment ever. ?
Question on your financing; interested to know why you went with a long term farm loan rather than a conventional mortgage for the land?
Since the farm didn’t have a house on it the bank couldn’t do a conventional mortgage because they had no way to value any buildings or property. So the long term farm loan was the next best available option. Good question 🙂 A traditional mortgage would have been a lower interest rate.
Hi Liquid, I found your blog for the first time a few days ago and have been soaking up all the information you put down like… well… a liquid 😛
Was wondering if you know where I could learn more about farmland investing (soil grades etc)?
Really refreshing to find a finance blog that isn’t about “go back to college, get a good job, live below your means and save for retirement”
Thanks Olivia 🙂 The best way to learn more about farmland is to find some local listings around your area through realtor.ca, and go look at them with a real estate agent. You can ask the agent all sorts of questions and he or she will have up to date information for you like expected yield if you want to rent it out. You don’t have to buy anything right away but I found it was very educational and effective when I used this research method myself. I spoke with half a dozen realtors and learned different things from each agent but ultimately purchased my farm using only one of them.
Other than that a really helpful resource I use is SAMA’s website, which is only useful for researching Saskatchewan farmland. The site gives you access to farm specific assessment information like soil texture, acres cultivated compared to sloughs, topography type, and rating in $/acre. It also compares the assessed value of farms in the province. This video shows how to use the site. samaview.sama.sk.ca/SAMA/help/Map%20Search/index.html
Real life farmville!
I used to be a big fan of the Harvest Moon series, actually. 🙂
There is a quarter in Rm #274 (which is right beside the rm your land is located) that is listed for $275000 it only has 123 cultivated acres which is very similar to what your quarters have. This looks like it has been a very good investment for you!!
Thanks for pointing that out, Ian. Wow, I had no idea the farmland value in that area had appreciated so much. 🙂 It makes me a little nervous about how sustainable this growth is. Hopefully it’s not a bubble lol.
Is there a “better” farm to buy when it comes to renting it out to farmers, like animal, cash crop, hobby farm, vineyard?
Animal farms require a lot of constant work but they make good money.
Cash crop is what I’m doing. It pays well, similar to other real estate investments. And it’s mostly hands off if you want.
Hobby farms don’t earn a lot of money, but most people do it to grow their own food or raise animals for personal use and consumption so it’s beneficial in a non-financial way.
Vineyards are very lucrative. You could make millions of dollars. It’s serious business. At the same time you also need deep pockets to buy one. In terms of per acre value, vineyards can be 10 to 20 times more expensive than grain farms.
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[…] you might recall when I first bought my farmland I was losing money on it. Well, after a few years I am finally in the black! 2015 represents the first year my farmland is […]
Great information! Thank you for the awesome post! I’m interested in investing in farmland, and feel so lucky to run into your post.
I have one question here, do you own the farm yourself or your set up a company to own it?
Thank you!
I have a small business (sole proprietorship) that I use to run the farmland activities. The business is under my personal name.
I am in process of buying a farm land in SK and have some questions. Is there any email/phone to contact you?
You can ask here directly or use the contact page to email me your questions.
Hi Liquid,
Thanks for your posts. Just found something very interesting. Looking at Realtor.ca I see that RM 273 is up for sale for an asking price of ~ $80,000.
realtor.ca/Residential/Agriculture/17426622/DUC-Stiglitz-Land—RM-273-Rhein-Saskatchewan-S0A3K0
Did you sell your land? It also says the land was last seeded in 2000 and not grazed for several years. Did things not work out with the farmer who wanted to rent the land?
Hope things are good with you.
Best,
Ak
I still have my farmland. The one in the listing you mentioned is interesting but I would not buy it myself because it has too many ditches and will flood easily. RM 273 is a section of land in Saskatchewan, but there are hundreds of individual farms within RM 273 which ranges in quality and irrigable land area. Farmland without many woodlands or lakes would sell for $200,000 or more per quarter, while low productivity farms may only go for $50,000 or less. It mostly depends on how much annual income a farmer can expect to get out of the farm. Alfalfa is not a particularly high margin crop. It’s mostly used for animal feed. The farm you referenced may grow better crops, but a lot of money and labour would have to be invested to get the ground ready first. Not many buyers are willing to do that. I think that’s part of the reason the asking price is only $80,000.
Hi Thanks for all the detail. It was very informative. Sounds like your land is not far from one of our farms in Pelly. We were fortunate that we purchased our first farm for $250 per acre just over 9 years ago and even acquired the mineral rights which turns out to have been a major bonus. Last year a company took an option on the minerals, which will eventually result in about $65,000 in today’s dollars for 21 years. The one thing I did want to mention is that an investor should always expect a return and a decent one on their own capital, because that is the highest risk portion of the investment. Another point of consideration is that farmland is low risk so makes an excellent investment for estate planning. This is because you do not usually have a problem with a farmer paying the rent, there is little to no maintenance headaches and as you pointed out the rent over time increases to make up for the initial low return. You also have that security if the country went to hell in a hand basket you could always go feed yourself off your own land (mass… Read more »
Hi Liquid,
Thanks a lot for such a detailed blog .. it cleared lots of doubts I had in my mind. I am seriously thinking about buying Agri land in Sk. Would you be able to mentor/provide consultation to me to buy a right land in today’s market ? I can pay you the fees for the consultation. I currenty live in BC and as you might know prices in BC is sky high now a days with all types of real estate options.
Please let me know what you think !!!
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farm investment
Project financing program. We offer flexible financing for various projects by following the usual rigorous procedures. This funding program allows a customer to enjoy a low interest rate repayment for as low as 2% per year for a period of 2-20 years. We can approve a financing for up to $/EU50,000,000.00 or more depending on the type of business. Reply us with the following email: medallionfinance@financier.com
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[…] For simplicity, we’ve cut out some of those details. If you want to read more, see his original blog post for full […]
Congratulations on becoming a farm owner! 🎉 Your journey into farmland investing is truly inspiring, and it’s fascinating to see your detailed breakdown of the buying procedure and financial analysis.
Your dedication to researching and understanding the market is commendable, and it’s clear that you’ve made a well-thought-out investment decision. The insights you’ve shared about rental income, capital appreciation, and inflation hedge are invaluable for anyone considering farmland investment. Your long-term perspective and willingness to embrace unconventional investment strategies are admirable. Wishing you all the best with your new farm venture! 🚜🌾