To become successful investors we have to think like burglars, because we must be constantly looking for windows of opportunity 😀 I saw an interview recently on BNN about alternative investing and how buying a farm can be a wonderful long term investment. Of course as any diligent person would do, I did some more research into this topic to see what other pundits and investors thought about the idea. As it turns out Canadian farms are quite the hot commodity these days. I’ve then decided that this was my opportunity, and I had better act fast before the window closes. There are lots of articles out there explaining the benefits of farmland investing. Even Brett Wilson of Dragons Den fame is a big advocate of it. Multi-billionaire George Soros is on board as well.
So why invest in farmland? Because it’s an inflation protected asset that produces income. It is more stable (less volatile) than the stock market, and unlike houses or apartments they aren’t making any more farms. In fact the supply of farmland has declined over time because of changes in the climate, and urbanization (when cities expand, you have less room to farm.)
“It’s the farmers, the producers, who are going to be in the captain’s seat when the prices [of food] go through the roof.” ~Jim Rogers, co-founder of the Quantum Fund
Thanks to Brad Farquhar, co-founder of Assiniboia Capital, we have the following information about farmland performance over the years.
We all know that in 2009 the Canadian housing market hit a temporary snag and home prices took a small dip according to the National Bank house price index, and our stock market was also suffering, as did the US market. But as you can see from the chart above farmland in the prairies continued to defy gravity and didn’t break it’s uptrend during the entire recession! So what is the best province to buy a farm? It depends on who you ask but my best answer is Saskatchewan. For the longest time farm owners in the province could not sell their land to residents outside of Saskatchewan. This artificially kept the price of farmland lower than any other province. Alberta and Manitoba are both right next to Saskatchewan but there was a huge gap in farmland prices. But around 2002 the Saskatchewan government lifted the ban so that any Canadian citizen or resident can buy Saskatchewan farmland (^_^) Wish I would’ve bought some in 2002 because since then prices in Saskatchewan have been soaring and is showing no signs of stopping 🙂
“Because the buyer pool had been restricted for so long the market values for land in Saskatchewan had been depressed, effectively by government intervention, I still see Saskatchewan farmland as a long-term hold – with a limited supply of good, arable farmland and ever-increasing demand for food on a global basis.” ~ Brett Wilson, retired Dragon.
Pretty interesting isn’t it? Wise men have said that farmland is like GOLD, because it doesn’t lose its value over time, but it’s actually even better than gold because you can also generate income from it. Saskatchewan is home to over 40% of the arable land in this country. Its soil is not much different than that in Alberta, Manitoba, North Dakota, or Montana. Yet there is still a price gap between Saskatchewan and its neighbors, so I intend to get in while this arbitrage still exists. The sale price of farmland is usually a multiple of the government assessed value. For example, an assessed value of $50,000 would actually sell for probably $100,000 to $150,000. The 2 to 3 times multiple is because the province values the farm based on an old method to calculate the price based on crop productivity. But just because a farm can produce $50,000 worth of grain a year, doesn’t mean its real market value is that low. However the assessed value is a good way to compare the relative price of each farm. For example, if two farms have different assessed values then the higher assessed farm will likely be worth more.
Here’s a look at the average price of farmland in 2013 across different regions. Click image below to enlarge.
“If you buy an ounce of gold today… a hundred years from now, you’ll have one ounce of gold and it won’t have done anything for you in between. You buy 100 acres of farmland and it will produce for you every year. You can buy more farmland, and all kinds of things, and you still have 100 acres of farmland at the end of 100 years.” ~ Warren Buffett
My plan is to buy some farmland, rent it out to local farmers, and hold it for the long run. So far I’m just looking at farm listings through real estate companies. But I hope to buy one before the end of this year. Of course there are risks associated with investing in farmland like droughts, or flooding, but there are ways to mitigate those risks. Famous investors like George Soros and Jim Rogers are investing in farms. Why not anyone else? Why not me? 😀
Research sources: Agcapita, Re/Max, Assiniboia, Farm Credit Canada
Learn more about investing in farmland:
Intro to Farmland Investing – Page with information regarding basic farmland investment strategies
Farmland Update – I’ve made an offer on a parcel of land in Saskatchewan. Hope I get it!
My First Farmland Purchase – Transaction complete! The offer was accepted after some negotiating and I own a farm now in 2012 😀 Used $20K of my own money, plus took on a big bank loan to cover the rest.
Farmland Price Update – It’s 2013. Prices are way up. My farm is now easily worth at least $20,000 more than my purchase price last year. I’ve made 100% return on my investment so far.
My Second Farmland Purchase – A years after buying my first farm I have decided to buy another! Took out another loan from the bank, but I believe it’s worth it.
Farms Prices Still Soaring – It’s 2014. Farm Credit Canada released its annual report. In 2013 my two farms combined have appreciated more than $50,000 in value! Best investment ever 🙂
Being a Farm Landlord – Rental rates per acre, how cash rent is calculated, investment returns, and other FAQs answered