Author Topic: Farmland- sell or rent? Any farm experts around?  (Read 513 times)

PharmaStache

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Farmland- sell or rent? Any farm experts around?
« on: November 08, 2017, 07:22:04 PM »
Any farmland experts here? 

We will eventually be inheriting 480 acres of farmland on the Canadian prairies.  I am told by the owner of this land that it rents for $50/acre or sells for $2000/acre (either is easy to do). 

Rent = 24k/year (minus expenses like taxes, around 5k/year, minus tax on the income...I would guess we would net around 12k/year)
Sell = almost 1 million

So...netting 12k/year on land that is worth 1 million seems like a poor investment, right?  Doing some googling on farmland prices in Canada all the numbers sound correct.  Can anyone explain why we would not just sell this land? 

Initially I liked the idea of owning it to diversify our holdings, so I'm hoping there is some good reason not to sell!

HeadedWest2029

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Re: Farmland- sell or rent? Any farm experts around?
« Reply #1 on: November 09, 2017, 01:25:57 PM »
Not a farmland expert, but I am a farmland owner.  I would say the one important missing element in your analysis is expected appreciation of the land value in addition to land rent, which is a more complete picture of total return.  I can't speak to Canadian farmland prices, but there should be data available to back test appreciation over the years to give you a better picture.  The productivity of the land is also a big factor here with your land yielding a more modest rent I'm guessing the land is not considered high productivity.  If you can truly net $2,000 per acre, I would agree other investments would probably give you a better long-term return (with higher volatility).  Keep in mind you'll lose a big hunk in transaction costs.  The major pro for farmland is it doesn't really correlate to equities so it provides portfolio diversification (even though it is very geographically concentrated) and tends to be very stable, with modest growth.  Where I'm at, farm land has had a steady rise other than the early 80's (when farmers were going bankrupt left & right) and more recently with commodities taking a dive and interest rates creeping back up slowly (after a ridiculous run of appreciation for a decade).  Check for any farm land appraisal organizations in your area for more information.  I have one in my state that puts out a fairly comprehensive PDF every year.