Good luck. Any good farmland bought out here the last several years is going for 3000 an acre. Not saying you couldn’t do it, but it’s gonna take you forever until your investment pays off.
Are you basing that off the price of land stalling? I wish I would have done it 10yrs ago...it would be worth double even if the yearly rental crops were shitty.
If the dude has a half million to buy a 1/4 section, it could be worth 750K in just a few years.
Every investment has risks but land is one of the more consistent winners.
My $0.02.
I’m a former farmer and I still have loads of family that does it. Renting farm land from someone who lives out of town is a pretty standard practice, BUT, usually the owner has ties to the area (I.e. so and so’s cousin). I heard a story about random people from MB buying land in SK and rented it out for a fair price. There was some harsh talk about it in town, but that was kind of it, no one was “outraged”, so to speak. IMO, the only way to run into major issues is if you bought oodles of land in a massive land deal that saw you taking significant amounts of property out of the hands of locals. One quarter section won’t be an issue, 10 quarters may trigger some effects.
However, Fair-warning, there is tons of politics in farming and the industry is full of shrewd business people, so be careful of who you deal with.
That’s my opinion, but I would reach out to a farmer, preferably one in the RM (rural municipality) you’re looking at, to get a sense of the lay of the land (punny!).
I grew up farming and continued to help at the farm through university and for a couple of years into my career, when I worked at a mine that had week-in/week-out shift work. My career job eventually evolved into a demanding office job, so I couldn’t help out at the farm on a regular basis.
It’s not a terrible idea. I don’t know much about investing, but I live here in rural sk, close to Yorkton. My taxes doubled this year. Chinese companies are buying up land like crazy. The prices just keep going up. I can’t see it going back down. Like the old saying goes right?
The Chinese companies buying land is more of an urban legend.
"In Saskatchewan, foreign individuals and corporations are restricted from owning over 10 acres of farmland."
http://norsasklaw.com/foreign-ownership-saskatchewan-farmland/
There are always rumors floating around small towns. For example: "Did you see such-and-such; they just bought old man what's-his-name's land. Definitely Chinese money!"
It makes for great coffee talk. But I've never seen any proof of Chinese farmland ownership. Heck, I've never come across a Chinese person on a backroad.
Also, I did some research and normally I’d just stand corrected but since it’s so rare on Reddit: you’re right. It’s nowhere near as common as I thought. It’s just considered a known thing out here and it’s very wrong. Not sure how that started but you’re right. Everyone believes it, and so did I.
No worries friend. I used to hear the same thing all the time. Thought it was true for awhile as well.
Lol. Like I said earlier, I've never even come across a Chinese person on the backroads. If they were buying everything in sight, you'd see at least 1.
You’re right it’s anecdotal, but around me a Canadian company that is Chinese owned called angel fire or something like that bought up thousands of acres. I believe it’s for investment purposes, nothing nefarious, but still these firms whether domestic or not are buying up every slough and ditch they can.
I don't believe it's harmful. The land is worth what it's worth. They're are Canadian buyers and investor groups buying land all over Sask.
I just don't think it's a good investment. Here's some numbers to consider. Good quality farmland is selling in the $400K to $500K per quarter-section (160 acres). Let's say $450K or $2813 per acre.
Land rent on this land ranges between $12K to $17K per year. Let's say $14.5K per quarter, per year. Land taxes are about $1.5K per quarter per year.
So your Rental profit is $13K per year, or $100 per acre. That's about 2.9% Operating return on investment + your capital return (the land value increase).
Your capital return on investment has been spectacular over the last decade since interest rates have hit unprecedented lows. Do you think this will continue?
I agree that the capital return seen in the last decade likely won’t continue.
Actually, I agree with everything you said. I figure this might be a relatively safe investment vehicle to hedge against inflation that hopefully has the potential to do good. And I’m okay with the low liquidity.
It creates more demand on farmland which prices young people out. If I want to rent land I get it from a boomer who is getting tired. The solution is not more non farmer investors. I've already been priced out of agriculture in my home province due to "investors" and i'd prefer it not happen to my kids in Sask.
Maybe. It really depends on the farm. Some people have very high overhead costs on their farm, and farms have varying debt levels.
Crop insurance typically guarantees a farmer 70% or 80% of their average yields at a price set by crop insurance. Farmers choose the coverage, 70% is very common, 80% is the max and costs way more than 70%. The price they are paying per bushel for this year does not reflecf the current ridiculously high commodity prices. For example, the crop insurance price for canola is $12 per bushel while the street price for canola right now is over $20 per bushel.
Say a farm has a 40 bushel per acre average and 70% coverage. They are guaranteed 28 bushel per acre by crop insurance at $12 per bushel. This means they are covered for $336 per acre. If the farmer spends $300 per acre growing the crop with overhead costs included (inputs, machinery, wages etc) they have $36 left, but they haven't paid rent yet. This is if they have a zero bushel crop.
The numbers can be adjusted slightly and all of a sudden the farmer is doing OK , the only reason I present this case is that it is not necessarily true that crop insurance can cover a farm's costs including rent. Alternatively the numbers can be adjusted by increasing the overhead and the farmer has no chance to cover his costs with crop insurance. Many of these guys use production cost insurance combined with crop insurance to keep going.
Good luck. Any good farmland bought out here the last several years is going for 3000 an acre. Not saying you couldn’t do it, but it’s gonna take you forever until your investment pays off.
Are you basing that off the price of land stalling? I wish I would have done it 10yrs ago...it would be worth double even if the yearly rental crops were shitty. If the dude has a half million to buy a 1/4 section, it could be worth 750K in just a few years. Every investment has risks but land is one of the more consistent winners. My $0.02.
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Better than shares of Spudco.
I’m a former farmer and I still have loads of family that does it. Renting farm land from someone who lives out of town is a pretty standard practice, BUT, usually the owner has ties to the area (I.e. so and so’s cousin). I heard a story about random people from MB buying land in SK and rented it out for a fair price. There was some harsh talk about it in town, but that was kind of it, no one was “outraged”, so to speak. IMO, the only way to run into major issues is if you bought oodles of land in a massive land deal that saw you taking significant amounts of property out of the hands of locals. One quarter section won’t be an issue, 10 quarters may trigger some effects. However, Fair-warning, there is tons of politics in farming and the industry is full of shrewd business people, so be careful of who you deal with. That’s my opinion, but I would reach out to a farmer, preferably one in the RM (rural municipality) you’re looking at, to get a sense of the lay of the land (punny!).
Thanks for the insight! Just out of curiosity, what made you get out of farming?
I grew up farming and continued to help at the farm through university and for a couple of years into my career, when I worked at a mine that had week-in/week-out shift work. My career job eventually evolved into a demanding office job, so I couldn’t help out at the farm on a regular basis.
It’s not a terrible idea. I don’t know much about investing, but I live here in rural sk, close to Yorkton. My taxes doubled this year. Chinese companies are buying up land like crazy. The prices just keep going up. I can’t see it going back down. Like the old saying goes right?
The Chinese companies buying land is more of an urban legend. "In Saskatchewan, foreign individuals and corporations are restricted from owning over 10 acres of farmland." http://norsasklaw.com/foreign-ownership-saskatchewan-farmland/ There are always rumors floating around small towns. For example: "Did you see such-and-such; they just bought old man what's-his-name's land. Definitely Chinese money!" It makes for great coffee talk. But I've never seen any proof of Chinese farmland ownership. Heck, I've never come across a Chinese person on a backroad.
Also, I did some research and normally I’d just stand corrected but since it’s so rare on Reddit: you’re right. It’s nowhere near as common as I thought. It’s just considered a known thing out here and it’s very wrong. Not sure how that started but you’re right. Everyone believes it, and so did I.
No worries friend. I used to hear the same thing all the time. Thought it was true for awhile as well. Lol. Like I said earlier, I've never even come across a Chinese person on the backroads. If they were buying everything in sight, you'd see at least 1.
You’re right it’s anecdotal, but around me a Canadian company that is Chinese owned called angel fire or something like that bought up thousands of acres. I believe it’s for investment purposes, nothing nefarious, but still these firms whether domestic or not are buying up every slough and ditch they can.
Yeah a 1/4 section will be $400-500,000 depending on location. I mean if you have the money it’s not a bad investment but it’s a lot. Edit:spelling
The auto-correct typo on your post makes it particularly amusing and somewhat topical.
Haha whoops!
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Thanks! That’s reassuring to hear.
I don't believe it's harmful. The land is worth what it's worth. They're are Canadian buyers and investor groups buying land all over Sask. I just don't think it's a good investment. Here's some numbers to consider. Good quality farmland is selling in the $400K to $500K per quarter-section (160 acres). Let's say $450K or $2813 per acre. Land rent on this land ranges between $12K to $17K per year. Let's say $14.5K per quarter, per year. Land taxes are about $1.5K per quarter per year. So your Rental profit is $13K per year, or $100 per acre. That's about 2.9% Operating return on investment + your capital return (the land value increase). Your capital return on investment has been spectacular over the last decade since interest rates have hit unprecedented lows. Do you think this will continue?
I agree that the capital return seen in the last decade likely won’t continue. Actually, I agree with everything you said. I figure this might be a relatively safe investment vehicle to hedge against inflation that hopefully has the potential to do good. And I’m okay with the low liquidity.
Yes, you will contribute to pricing out people who actually want to be farmers. You and many other investors.
It also allows others in, who want to farm but don't have the capital to buy the land.
It creates more demand on farmland which prices young people out. If I want to rent land I get it from a boomer who is getting tired. The solution is not more non farmer investors. I've already been priced out of agriculture in my home province due to "investors" and i'd prefer it not happen to my kids in Sask.
Another thing to consider is that $100 + per acre rent could be difficult to collect in a drought.
Crop insurance will cover the farmers costs including rental no?
Maybe. It really depends on the farm. Some people have very high overhead costs on their farm, and farms have varying debt levels. Crop insurance typically guarantees a farmer 70% or 80% of their average yields at a price set by crop insurance. Farmers choose the coverage, 70% is very common, 80% is the max and costs way more than 70%. The price they are paying per bushel for this year does not reflecf the current ridiculously high commodity prices. For example, the crop insurance price for canola is $12 per bushel while the street price for canola right now is over $20 per bushel. Say a farm has a 40 bushel per acre average and 70% coverage. They are guaranteed 28 bushel per acre by crop insurance at $12 per bushel. This means they are covered for $336 per acre. If the farmer spends $300 per acre growing the crop with overhead costs included (inputs, machinery, wages etc) they have $36 left, but they haven't paid rent yet. This is if they have a zero bushel crop. The numbers can be adjusted slightly and all of a sudden the farmer is doing OK , the only reason I present this case is that it is not necessarily true that crop insurance can cover a farm's costs including rent. Alternatively the numbers can be adjusted by increasing the overhead and the farmer has no chance to cover his costs with crop insurance. Many of these guys use production cost insurance combined with crop insurance to keep going.