In 2012 I found a farm I liked on the MLS website, and bought it for $150,000 🙂 I was so happy with my purchase I decided to buy another farm in 2013 for $172,500 at an auction. This one is a 150 acre, class F, grain farm. It’s located adjacent to my first farm, and both properties are rented to the same farmer 🙂
But you know what? My second Saskatchewan farm is even more cash flow negative than my first. I’m currently losing money on both properties. But it’s no big deal. I don’t mind because YOLO 😀
I’ve already broken down the numbers of my first farm in a previous post. So today I will share the financial details of my latest purchase.
Breakdown of purchase price.
- $10,000 Personal savings
- $10,000 Proceeds from selling stocks
- $17,500 TD Line of Credit
- $5,000 CIBC Line of Credit
- $20,000 HELOC
- $5,000 Margin account
- $5,000 Credit Card
- $100,000 Long term farm loan, amortized over 25 years
Total amount = $172,500
To be honest it was a bit challenging to procure all the financing I needed, but luckily everything worked out. Just like the first farm, I raised $20,000 in cash from savings and selling stocks. The remaining balance of the purchase ($152,500) was all thanks to using other people’s money as listed in detail above 🙂
Next, let’s compare the income vs cost of owning this farm.
- Rent = $40 x 120 acres = $4800
- Total Revenues = $4800 / yr
- TD LOC: $17,500 at 5.25% interest rate = $919
- CIBC LOC: $5,000 at 5.75% = $288
- HELOC: $20,000 at 3.5% = $700
- Margin Account: $5,000 at 4.25% = $213
- Credit Card: $5,000 at 1.9% = $95
- Long Term Farm Loan: $100,000 at 3.89% = $3890
- Property Tax = $600
- Total Expenses = $6,705 / yr
- Net Loss = $1,905
Oh well 😐 This is what I get for only putting up a 11.5% down payment 😕 ($20,000/$172,500)
In order for this investment to be cash flow positive I would need to have saved a larger deposit. However, if the value of the farm continues to grow then I would always be playing catch up trying to save more and more. That’s why I feel it’s better to make the purchase as early as possible, and benefit from any future appreciations 🙂 Between the 2 farms I have I’ve borrowed over 1/4 million dollars, but I believe my strategy will pay off in the long run.
Chronological Order of Events: click on any documents below to enlargify 🙂
April 16th, 2013: Purchased the farm
April 17th, 2013: Borrowed $17,000 from my Line of Credit to help with the 10% deposit because I didn’t have enough cash.
Sept/13: Amendment to push the closing date to November to give the seller more time to subdivide his yardsite
Nov/13r: Everything is complete 🙂 The farm appraisal results turned out better than I expected. Set up pre-authorized payment with TD for the $100K farm loan.
Jan/14: Official government document showing title details and the bank’s interest.
Many people would advise against buying a rental property that loses money in the beginning because what if the property doesn’t appreciate over time? But for me life is too short to worry about what if scenarios 😉 I believe that despite losing money at the moment, my farms are still great long term investments (^_^)
[Edit, May 2014]
The FCC reported Saskatchewan farmland prices increased 28.5% in 2013. I may be sacrificing $1,905 of losses each year on income, but I just made $49,163 in capital appreciation on my farm that I purchased for $172,500. I think that’s a pretty good trade off because it means I’m still $47K richer overall 😉 With investments it’s better to buy and wait instead of wait to buy. [/Edit]
[Edit, July 2016]
Farmland prices rose 14% in 2014. www.freedomthirtyfiveblog.com/2015/04/canadian-farmland-value-increase-2014.html
Farmland prices rose 10% in 2015. www.freedomthirtyfiveblog.com/2016/04/farmland-returns-make-jaw-drop.html
Wow, my farms have appreciated more than 50% since my purchase! [/Edit]
Related post: April 2014 net worth update. Biggest gain ever!