Dec 222012
 

The average value of farmland in Saskatchewan increased by 9.1% during the first half of 2012 according to Farm Credit Canada. Annualized that’s 18.2% growth per year. I heard about farmland being a good long term investment at the beginning of this year but had no idea the momentum would continue to be so strong despite all the negative economic news we see in the media. But it actually makes sense when I thought about it more. As a relatively safe asset class, farmland appeals to all types of investors from those looking for income, to those looking for capital appreciation, to those looking for something solid to invest in that they know won’t go to zero no matter how much money the Fed prints. On average national price of farmland has grown about 9% per year since 2006. And from a longer perspective, from 1972 to 2003 it has grown by 9.4% a year on average.

Usually when something appear too good to be true, it probably is. But nevertheless I was intrigued by this seemingly unstoppable hot commodity. So earlier this year I took a trip to Saskatchewan to do some research. After speaking to many farmers, regulators, lawyers and realtors, I concluded that it was afterall a really compelling investment opportunity, so I started to look through some listings. In October I put in an offer for a piece of land in eastern Saskatchewan. There was some back and forth on the price but the deal is now almost complete.  Later this month I will become the proud owner of this productive farmland below. My realtor took this picture as I wasn’t able to be there.

farmland update

This is a 1 quarter, highly productive grain land located about 30 minutes drive N.E. of Yorkton, SK. How big is 1 quarter? It’s a square about 805 meters on all 4 sides. Or roughly 650,000 square meters. Of course nobody measures farmland in meters squared so that’s why we use quarters instead :0) Anyway, if you don’t like numbers, here’s a visual representation of the farm’s size. I’ve added some popular frames of reference for comparison purposes…. (sorry US readers, I’m getting all metric on you)

Farmland Update

It might seem big, but another way to describe the size is that it will take you roughly 10 minutes to walk along one edge, or 14 minutes to walk diagonally from one corner to the opposite :0) so it’s not THAT big right 😉 This is actually the smallest piece of farmland you can buy in most cases.

The purchase price was $150,000. I have made a 25% down payment and financed the remaining balance. First loan payment should start in Jan, 2013.  Most of the paperwork for this purchase deal is already done. It just needs to go through land title which my lawyer is helping me do, and I should be the new owner of a farm early next week. Just in time for the holidays 😀 Sometimes I get accused of being too frugal, well this year I’m buying myself a Christmas present worth $150,000. Oh I shouldn’t have (*^_^*) But it’s okay to splurge once in awhile heh?

farmland update

I’m not going to quit my day job and go become a farmer any time soon. So I plan to rent out the land. I have a tentative 2 year lease agreement with someone who wants to use my land to grow his crops. The return from rental income isn’t as profitable as renting condos or houses, but that’s offset by the money you save on the cost of owning because there’s no strata fees (HOA), no yard to maintain or roof to fix, no building insurance  (because there is no building lol) and the property tax is super cheap. Being a farm landlord is one of the easiest jobs there is (^_^) The rent will most likely return 3% to 4% on the $150,000 value of the farm. However the real money making opportunity in farmland for me is the capital appreciation later down the road :0) Even if Saskatchewan farm prices increase in the next 10 years at just half the rate it has done historically, I will still be making over $5000 every year of paper money by doing basically nothing :0) I couldn’t stand around any longer and continue to miss out like I have in the past few years. So I’m finally getting in on the action 😀

This post is just a farmland update on my progress so far, but shortly after the deal finalizes I will have another article up with proper details about my farm’s soil quality, any weather risks, all the financial details, and of course how anyone can go about buying their own farmland ^_^

Today I will do what others won’t, so tomorrow I can accomplish what others can’t.”  – Jerry Rice

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25 Comments on "Farmland Update"

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Johnny ca$h
Guest

Very interesting idea Liquid. I’m interested in hearing about how it turns out. Merry X-Mas (indeed).

mochiandmacarons
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mochiandmacarons

That IS interesting.

Curious — what are you assuming will be the capital appreciation and in how many years? Do you have numbers on this?

Also as you took out a loan on this, how much are you paying on the loan as an interest rate?

Captain Awesome
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Captain Awesome

Wow, that’s pretty balsy of you. Good for you. I hope it works out for you.

I did however bought into the farmland capital fund, and the return has been decent – of course I’m not doing anything physically, just hoping for the investment to climb. You went to the source!

Pauline
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Congratulations! I have 370000 sqm here in Guatemala and my price was only 30% cheaper than you, so it seems cheap for Canada. How many months a year do you think it can be used for cultures? Can you build a house on part of the land should you want to?

nursefrugal
Guest

Wow….congrats on the land! That thing looks HUGE!!!!!!!!! That would be a good place for a long run 😉

femmefrugality
Guest

What a creative investment! That’s such a large area. Best of luck with it!!!

$25000 dividends
Guest
$25000 dividends

Wow. I’ve never heard of such an investment before. Will it be difficult to manage? Will you have to carry out environmental assessment or make sure you comply with laws relating to farmland? just curious. Exciting new investment.

101 Centavos
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101 Centavos

160 acres (about the size of your quarter section) is almost standard farm size down here. Hope the tenant farmer takes good care of the soil. Good move.

Financial Independence
Guest

Congrats!

This is a totally unusual investment for the most of the financial bloggers. I hope it wil work out.

Is there an opportunity for expansion if you want some more?

Mo' Money Mo' Houses (@momoneymohouses)
Guest

I absolutely love that you are doing this because I haven’t heard anyone else do this but it sounds like a great idea!

agentfang
Guest

I like how diversified you are in your investments. Keep up the good work 🙂 Happy holidays!

Alex Yang (@yyangalex)
Guest
Alex Yang (@yyangalex)
hmm. i like the idea, and the asset, but not sure i like the focus on capital appreciation. buying assets for the purpose of capital appreciation is highly speculative. this is basically like buying a condo/house for the hopes of price going up, or buying a stock in the hopes the price will go up. 3-4% rent yield is certainly interesting, but its not out of this world attractive. how is the rental demand? will you be able to increase the rent at a rate well above inflation? do you think you can get 3-4% after fees/costs, and increase it at a 3-4% per year? another interesting idea i had is to buy parking spots in my condo building for example. they cost around $30k, and can be rented out for $150 per month, or $1800 per year, or 6% yield hahaha. way better than those 1-2% GICs, but hard to raise prices on parking i think. unless eventually you own all the parking spots in your building and have a monopoly =P i try to compare these income opportunities with stocks and its pretty hard to beat stocks right now. you can get stocks with 3-4% yields and growing… Read more »
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[…] bought a farm in 2012 for $150,000. And then bought another farm for $172,500 in the following year, for a combined purchase […]

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