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.
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)
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?
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