Apr 132017
 

Farmland Update – Small Price Increase

Farm Credit Canada just released its annual Farmland Values Report which provides a yearly overview of provincial and national land values trends across the country. As usual, it is this time of the year that I adjust the value of my Saskatchewan farmland using the average change of this report and the inflation rate (CPI.)

Unfortunately farmland values in east-central and southeast Saskatchewan remained unchanged in 2016. This is where my plot of land is. The FCC report points to the oil and gas industry slowdown as the main reason for the lack of appreciation. However, other parts of Saskatchewan did see increases. 🙂

There was 0.00% increase in value to my farmland according to the report. The overall inflation rate in Canada was 1.43% in 2016. The average of these two numbers is 0.715%. Therefore I will be adding $3,000 to my farmland value from $433,000 to $436,000 in my April net worth update. 🙂

Ever since I started to invest in farmland, the FCC reported values is SK have always appreciated faster than CPI. This is the first year where the inflation rate has surpassed that of the annual FCC report.

Despite the stagnation in some parts of Saskatchewan, the overall appreciation in Canadian farmland was pretty good. Each province saw positive growth in aggregate, and the average increase across the country was 7.9% for 2016.

Luckily my farmland operation is profitable and I have a rental contract for the next 2 years so I am not too concerned that my farmland did not appreciate in 2016. I just hope it retains its value for the next 4 years, at which time I will probably sell it to free up capital for other, more liquid investments.

I bought my farmland in 2012. If I had to grow my own crops I would probably start with fruit farming. I think I would be berry good at that. 😀 But for now, I am happy just being a landlord.  My tenant always pays on time and the land’s value has gone up a lot so far.

But as we can see, the growth has been slowing since 2013. I believe the hay-day of farmland investing is behind us. Interest rates can’t go much lower than it already is. A weakening of the Canadian dollar and more foreign investments can spur a little more growth in the farmland market, but it’s not a guarantee.

 

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Oct 132016
 

Slow and Steady

A reader recently asked for a farmland update. So here’s the latest. I’m collecting $8,500 a year from my tenant who is growing canola on my 310 acres of farmland. He pays me twice a year, half the total amount in the spring and the other half in the fall. Here’s the latest cheque that I deposited into my bank account last week. This amount includes 5% GST.

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My farmland loan outstanding is about $193,000. The interest rate is 3.4%. Property tax was about $1,500 this year. No insurance or other cost is necessary for owning farmland. So my total expenses came to $8,100. I’m rounding these numbers to the nearest $100.

Thus I’m able to make a $400 profit on my farmland in 2016. Slowly but surely, the financials are improving each year. 🙂

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I think farmland returns are starting to dry up in North America. Commodity prices still haven’t recovered. So unless crop receipts increase by a substantial amount it’s hard to see any reason for the underlying land to become more valuable. Maybe farmland will continue to keep pace with inflation for the foreseeable future so it’s still a good store of wealth, but I don’t see much more appreciation from here.

It’s too bad the Canadian prairies is so cold. Many plants like hemp can’t grow out there. Since marijuana will soon be legalized there will probably be a lot of new cannabis growers by this time next year. Not to be blunt, 😄 but this obviously creates opportunity for investors too. For example, last year I blogged about buying some shares in Canopy Growth Corp, a supplier of medicinal marijuana. So far the stock has doubled in price! Not bad. 😀

Free eBook Download

Maybe I just got lucky with that marijuana stock. You shouldn’t get your investment advice from an amateur finance blog anyway. 😉 But my acquaintance David Chilton, who runs his own financial planning business is more than qualified to offer quality advice. I use the term “acquaintance” loosely because we’ve only corresponded by email a couple of times. 😛 Anyway, he’s teamed up with Tangerine bank to give away the eBook edition of his latest work, The Wealthy Barber Returns. 

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If you’re interested, just go to this Tangerine page and use one of the download links on the right. I’ve read the paperback before and recommend it for anyone who likes personal finance. The book covers a lot of core investing topics like index funds and the stock market. You can download it to your computer, or mobile device. It also supports the Kindle App. Enjoy! 😀

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Apr 142016
 

To become a successful farmer you have to be outstanding in your field, if you know what I meanBut as most investors know, commodity prices have been in a slump over the past couple of years. This means many grain farmers have to live a very tough life. Perhaps some of them barley survive from wheat to wheat! But things may not be as bad as they seem because crop sales in 2015 were some of the strongest Canadian farmers have ever seen, and was cited as a contributing factor to growing farmland prices.

 Canadian Farmland Values Grow 10.1% in 2015

The national agency, Farm Credit Canada, recently released its annual farmland value report about the previous year’s farming landscape. As it turns out in 2015 the average Canadian farmland price increased 10.1%. This is absolutely incredible! 😀

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Farmland prices are assessed using recent comparable sales. These sales must be arm’s-length transactions. All provinces saw their average farmland values increase and Manitoba experienced the highest increase at 12.4%. The full report is on FCC’s site.

After this year’s adjustment using the 9.4% Saskatchewan increase from the new FCC report my farmland should now be worth $129/acre more than last year. Since I have about 300 acres of Saskatchewan farmland, that’s almost $39,000 of capital appreciation in one year. Whoop Whoop!

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Farmland Historical Performance

Here’s a look at historical farmland values in Canada from 1985 to 2015 according to FCC.

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Apr 162015
 

Canadian Farmland Values Up Again

Okay, it’s that time of year again when the national agency, Farm Credit Canada, release its farmland value report about the previous year’s farming landscape. As it turns out in 2014 the average Canadian farmland price increased 14.3%. 😀

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Meanwhile residential real estate prices increased only 5.2%, according to the Canadian Real Estate Association. Of course the most strategic way to invest in a portfolio of properties is to be exposed to both residential, and agricultural real estate. Farmland prices are assessed using recent comparable sales. These sales must be arm’s-length transactions. The highest price increase was an incredible 18.7% in Saskatchewan, the land of living skies. The full report is on FCC’s site.

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As luck would have it I decided to buy some Sask farmland a few years ago. 😉 Back then I had blogged about why land in Saskatchewan was the bee’s knees because of how undervalued it was compared to other provinces and neighboring States.

 

The Greatest Advantage of Real Estate Over Stocks: LEVERAGE

I leveraged 8:1 to secure my position as a farm owner. This meant I borrowed $7 of the bank’s money for every $1 of my own money to invest. So an increase in Saskatchewan’s farmland value of 18.7% last year actually means a redonkulous 150% rate of return on my capital. Not too shabby. 😉

My farmland was worth about $1210/acre last year, so after this year’s adjustment it should be worth $226/acre more now. Awesome sauce! 😉 $226 doesn’t sound like a lot of money to get excited about, but since I own 310 acres it all adds up pretty quick. 🙂

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Investing in farmland isn’t for everyone but hay, maybe I have it in my jeans. 😀

As much as I like to feel wealthy on paper, when one particular asset class consistently outperforms all the other ones I’m faced with an asset allocation problem. Farmland now represents about two-thirds of my financial investments (all assets except primary residence.) This means I am not very diversified anymore. 🙁 Although I realize this must be the ultimate first world problem, lol. 😛

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Apr 282014
 

Earlier this month Farm Credit Canada published its annual farmland values report 🙂 Across the country farmland values on average increased 22.1% in 2013. Great Scott! 😯 Saskatchewan farms experienced the biggest jump of 28.5% Blimey! (゜o゜) That represents an 89% increase since 2011.

A couple of years ago I explained on this blog why Saskatchewan had the most investment potential due to its growing resource economy and past government regulations which artificially limited market demand.

14-04-2013 Canadian farm price change farmland values

The full FCC report can be found here (PDF.)

Right after I bought my first farm in 2012 some readers asked me if it’s too late to invest in farmland. I told them it’s never too late to buy land as long as you have a long term investment horizon 😉 I’ve never heard of anyone who has held onto good quality real estate, whether it be in the city or in the countryside, for over 10 years and somehow lost money during that time. And I would give the same opinion to anyone today in 2014 if they asked me that question again 🙂

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