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]
Congrats on your nice return! I would love to buy some land, but it isn’t in the cards right now.
Hope you find some nice land when you buy some in the future. The good thing about this asset class is they’re not making any more of it but farms are an essential part of our society.
Nice job! That’s a great return and hopefully it should keep increasing for you. I can’t see it ever decreasing, worst case.
Thanks Brian :0) I think the long term prospects are pretty good too. Based on my research of food supply/demand, soft commodity price trends, and current farmland yields from rental income there’s a relatively good chance land prices will get pushed even higher in 2013. We probably won’t see double digit growth but I’m expecting at least 2 to 3 percent annual appreciation over the next few decades which I wouldn’t mind seeing at all 🙂
That’s a pretty good return! Congrats!
Thanks. Almost makes me regret not buying a bigger piece lol.
Given the wording of the tables, wouldn’t the gains be multiplicatively cumulative? So 2012 annual gain = 19.5% instead of 18.6% since 1.086*1.10 = 1.1946
Or am I misreading? Either way, it’s nothing to sneeze at, but I love accuracy =)
Good catch. I completely missed that. This is why you’re the real estate expert 😉 I have changed the post to read 19% (rounded down) to reflect the new gain. Yeah either way it’s pretty crazy lol. I’ve looked at farmland around the corn belt region of the Midwestern US and prices there have shot up dramatically over the last few years too. With Japan, the Fed, and other central banks printing billions of dollars every month I like the feeling of owning something tangible that will keep its value despite global monetary policies 😀 From what I’ve seen Canada has some of the cheapest land still out of the G8 countries, and is probably why we’re getting a lot of demand not just from fellow Canadians like myself, but also investors from Europe and Asia as well.
That is phenomenal appreciation. Does the farm produce any passive income as well?
Only about $5,000 a year from a tenant who’s using the farm to grow crops. We have a 2 year lease that ends in 2014. The income isn’t as high as renting a condo or a house, but it’s better than nothing 🙂
Awesome! Nothing like a little appreciation! How will your most recent purchase look in combination with the $5,000 per year you are earning in passive income on this property? Is it bigger or smaller? This is truly fascinating for me to read about!
Both farms are relatively the same size and same number of cultivated acres. The new one has slightly better soil though so I could probably get $5,200 per year from that. Still have to negotiate with the tenant though so nothing is set in stone yet. The presumed roughly $10,000 passive income will be a nice support to help with the farm loan payments I’ll be making, but the bigger opportunity I’m looking forward to is the appreciation on the land in the future years to come. I don’t anticipate we’ll see 19% annual price increases like last year. Historically farmland values have gone up about 9% per year on average over the last couple of decades. But even at a very modest estimate of just 4% growth rate for the foreseeable future I would still be more than happy, because 4% of the current value of both properties combined would be over $10,000 already 😀 And this dollar figure will go up over time as the land becomes more valuable.
Nice indeed!!! Yeah!
Can’t wait until next year’s report :0)
Wow, that is a pretty sweet return! I can understand why you’d be happy with it. 🙂
Yup, looks like grain prices are staying strong this year so I’m predicting a nice return at the end of 2013 too.
You make me wanna buy some farmland 🙂
Thanks, I’m trying to find easier ways for investors to into farmland without going through the work of buying the property itself.
12.5% return on your inital investment is nothing to sneeze at! Congrats Liquid!
Leveraging for the win 🙂
Since reading about investing in farmland during the past few weeks, it’s become an investment that intrigues me. Thanks for sharing this and congrats on the jump.
I was only recently intrigued myself last year. Before 2012 I didn’t even think about investing in the agricultural space. I think it’s good to have some exposure to farmland, for diversification purposes if nothing else :0)
How’s the investment doing now, I am seeing farms selling for $500 an acre in the area where your farm is
Investment is doing pretty well. If the listing you mentioned is online can you provide a link? I’m not saying you’re mistaken. I’m just curious to see the quality and circumstances surrounding a $500/acre land. 🙂