Earlier this week Farm Credit Canada, the leading agriculture lender, released their farmland prices report for spring of 2013. FCC appraisers estimate market value using recent comparable sales. These sales must be arm’s-length transactions. Here’s a summary of the report. During the second half of 2012 Quebec experienced the highest average increase at 19.4%. Saskatchewan, where my farm is located, experienced a 9.7% increase. Remember folks these are not annualized appreciation. The changes were only during the span of 6 months ending December 2012.
Last year I wrote about my experience buying a farm near Regina, SK and included all the details like working with a tenant, the rental rate, the financing process, etc. Near the end of that long post I wondered if my new farm would be a good investment or not. Well now we can find out 😀 With this FCC report I can finally adjust the price of my farm to reflect its more current value by taking the average of the FCC report and the inflation rate. This valuation method is designed to keep my net worth less volatile, and curb the effects of false signals such as speculation. Since I bought the farm in October which was right in the middle of this reporting period, it wouldn’t be fair to use the full 9.7% appreciation for Saskatchewan farms. So let’s use 3% instead to stay on the conservative side. Meanwhile inflation (CPI) was about 0.3% during the same Oct to Dec period. Average = 3.3% ÷ 2 = 1.65%
So the farm I purchased last year for $150,000 should be worth at least 1.65%, or roughly $2,500 more at the beginning of this year. Woot! So yes, my farm HAS turned out to be a good investment so far. It feels good when an investment pays off like that!
Anyone who followed me into the exciting world of farmland investing last year probably have also done pretty well, especially if they bought in Quebec haha. $2,500 return in 3 months is not too shabby 😀 This is why I love investing! After making the initial investment I literally did nothing with my new farm except sit back and watch it appreciate. This was the easiest $2,500 I’ve ever made, at least on paper anyway 😉 The stock market had a bad start this week, especially resource companies 🙁 but that’s why it’s important to diversify 😀 When one investment fails to perform it’s good to have others to fall back on.
And thank goodness for leverage. By using other people’s money, I was able to purchase the farm with just $20,000 of my own money. A subtle 1.65% increase in the value of the land is like a ($2,500/$20,000) 12.5% return on my initial investment! I’m so thankful for people who keep large deposits and emergency funds in their bank accounts instead of investing that money for themselves. These generous people with their rainy day funds deserve more recognition for saving hard every day to keep our financial institutions well capitalized and filled with liquidity so that banks can continue to lend money to investors like myself 😀 TD would have never lent me $130,000 to buy the farm if we didn’t have such a supporting and robust financial system in this country 😉
[Edit on Aug 24th, 2013] Just read a news release from last month that Ontario loses about 100 acres of farmland every day. This is part of the reason why agricultural real estate is a great investment right now. When supplies diminish, people are willing to pay more for it. Farmland in other provinces are going through the same trend. Good news for farm owner 🙂 [/edit]
[Edit on Sept 29th, 2013] Just read a recent RE/MAX report on the latest Canadian farmland price trends. The average price of Saskatchewan farmland is now well over $1000 per acre. A huge change compared to previous years.
The location of my farm is in East Central Saskatchewan. According to this report prices in 2013 are 6% to 25% higher in that region than last year. Jumping jellybeans! That’s great news for farmland owners 🙂 You may download the full report in PDF format here. [/edit]