Investing in farmland?

[Frederic Babeux]

Hello all, 

My name is Frederic and I've been reading the forums for a few days now.

I currently work in the investment industry as a mutual fund sales representative and am looking at investing in real estate within a year or two. I currently own a house with my fiance and would like to diversify my assets into real estate as most of my income/assets is linked to financial markets. 

I was looking at buying some farmland in one of the western provinces as an investment. I was wondering if anyone had experience doing this? 

Here's a couple of stats for you. 

List price: 130000 (25% down over 25 or 30 yrs) 

Annual rent: 40$/acre x 160 acres =6400$

Annual taxes: 800$

Vacancy: not sure it'll ever be vacant

Lease would be paid upfront before growing season and generally on a multi year term with built in increases. 

Just looking at some pointers or things I might have missed? This would be a buy and hold and mostly counting on appreciation. 

Thanks in advance for your help! 

[Roy N.]

Originally posted by @Matthew Moore:

So you’re telling me that you’re gonna rent it for $40/acre for a whole year?

 That's typically how it is done.

@Frederic Babeux

Both of my parents are flat-landers (Manitoba) from farm families.   On both sides, the family farm was rented, then sold ... in one case to a farmer from Europe who paid an unbelievable amount per acre (and thought he was getting a steal).

Given these farms had been in the families since homesteading, financing was not involved, however in one instance, the rent was used to sustain my Grandmother into her 90s.   After her passing, the farm was sold.

The rent amount per acre will vary depend on the quality/location of the land and the percentage of the land which is workable.  A hundred years ago, most homesteads were quarter sections (160 acres) but frequently only a portion of that (perhaps 80 - 100 acres) was available for planting (the rest being consumed by ditches, sloughs, bluffs/shelter belts, farmyard and pasture).  Since the 1960s, the amount of "farmable" land per quarter or section has increased dramatically in some areas {at the cost of fire separation, soil heath & erosion, and habitat for wildlife} and can be as hight as 80-90%.    Farming operations have scaled correspondingly and what was the family farm of my grandparents is no longer sustainable ... in the areas where my parents grew-up, many "family" farms today are working  6 - 10 sections annually - a task that requires millions of dollars in capital equipment.

There are also farmers who are specializing in organic and/or non GMO crops (both of which may require maintaining a wide border strip between their fields and their neighbours crops).

There were (and likely still are) two principal ways of renting farm land in that area: a) straight rent per acre/quarter/section or b) a share cropping arrangement with the farmer working the land.   The latter has more risk and {potentially} more reward, but as my uncle would say: unless you grew up farming, you probably shouldn't consider share-cropping  [The same would apply to renting pasture for live-stock on a per-head share].   Even with a straight rent, you may not see a steady monthly cheque, but will receive an amount up-front, some mid-season and the remainder when the crop has been taken off.

Owning and renting farmland on the Prairies can be profitable, but you need to know what is being farmed in the area; the suitability of the land you are purchasing to the various crops; the amount of the land which can actually be planted and what the going rate is for comparable land.   I'd find an old, retired farmer in the areas and talk to her/him.