Hi everyone, I have been listening to bp for years, have had a couple different primary homes turn rentals and finally took the plunge into farmland. Now this has definitely turned out to be an exceptional deal, likely a large percentage of that being due to luck, I will post some numbers below in case anyone else is looking at this path.
Location: Saskatchewan, Canada. 142 acres grain land (dry)
Purchase price: 170 000 (believed to be far under market value, more on this later)
Closing cost: 2456
Down payment: 42 500, mortgage 6.09% on 25yr amortization
Property tax: 725/yr
Annual rent: 85/ac x 142 = 12 070
Cash flow: 1403/yr
This may not sound like great cash flow, but typically how farmland rentals work is the farmer leasing the land pays the entire year upfront before seeding in the spring and leases tend to be 3-5 years with rental increases built in much like a commercial building. Because of this it is an extremely simple investment, there is no CapX, no maintenance, not insurance requirements, no utilities. Your only expense is mortgage + property tax.
NOW this is where things get interesting.
Much to my surprise, when speaking with a local farmer, I found out that everyone in the area was surprised that I bought the land at such a low price since it was in the irrigation district.
Long story short, I put in an application for water rights with the district, APPROVED, moved on to the ministry of agriculture permitting process, UH OH first problem, turns out that due to some drainage issues the land must be tile drained in order to put a centre pivot on.
So I get some quotes, 235k for dirt work/pumps/pivot irrigation. 65k for tile drainage of the low lying 40 acres. This is a huge expense but I was eager to get the land irrigated, knowing the ARV would be quite high. Luckily we had the room on a HELOC and paid the 300k in improvements.
Since completing the work we have had an appraisal completed. I am still beside myself on this one. The appraisal came back at a whopping 1.2 million dollars! Due to this land now being drained/irrigated rent has gone up to $42 600/yr.
After the refi, the new numbers are as follows
Value: 1 200 000
Mortgage balance: 352 500
Property tax: 725 (may go up)
Mortgage payment: 27 463
Annual rent: 42 600
Cash flow: 15 137/yr
New HELOC on farm: $547 000
I still cannot believe how well this has worked out, I am looking forward to our next investment, fully aware that it is unlikely to replicate a home run like this again in the farmland asset class. Thanks for reading!
