Real Estate Farm Land as Investment

Transactions involving agricultural land are intended mostly for business purpose. The due diligence process will take longer and could require soil sample analysis on the fertility of the land. The buying, selling and the leasing of farming land is becoming an increasingly important part of the Canadian real estate market. There are some real estate brokerage that specialize in this market segment, but there are not special real estate license specifically for farm property.

Traditionally, the participants in this market has been solely farmers or organic farming enthusiasts. However, in recent years, the agricultural land real estate has attracted an increasing number of high-net-worth individuals and hedge fund investors, who aim to capture the substantial return potential from the land’s value appreciation.

This trend brought in excessive buying pressure into this niche market and drove up the valuation for many land properties. Unfortunately, it also made the land valuation unaffordable for some farmers, as a result, they are forced to lease the land for their farming activities. As a land real estate agent, this presents great opportunity for your service, as there will be demand for the land purchase, and demand for the lease of the land.


Why Land?

Margaret Mitchell wrote in his masterpiece “Gone with the Wind” that land is the only thing that matters, because it is the only thing that lasts. In recent years, due to falling energy prices and increasing stock market volatility, many asset management firms have begun to diverse a portion of their investment portfolio into buying up raw and farm land. This popular strategy would involve the outright purchase of a land lot, then have it leased out to a farmer for continuous rental income stream while still maintaining ownership, with the intention to capture any appreciation of land value in later years.

There are agriculture investment hedge funds out there who execute the strategy with a slight twist. They omit the rental part entirely. Instead, they would employ farmers to cultivate the land and retain the profits generated from selling crops. This strategy is based on the logic that the demand and the price of agricultural products will be ever more expensive in the future. This notion can be explained by a simple analysis on supply vs. demand. The world population is growing at a steady pace; However, the world is losing more arable land each year due to rapid urbanization.

Challenges

Real estate agents in this field face some unique challenges such as the need to learn the area’s water quality, average sun level, wind speed, temperature and the impact of seasonality. The steep learning curve also includes knowing soil quality, such as soil moisture, humidity, concentration of nutrients and minerals. The agent should obtain sufficient knowledge in aforementioned factors as they play an important role in the negotiation process, and would be vital to a successful cultivation. Aside from acquiring knowledge in farming, one should also consider the opportunity cost that comes with dealing in land real estate. Since most of the land real estate is located in remote community, the travel time and expense associated with conducting a land real estate deal far exceed a traditional real estate deal. Despite the challenges, farm land real estate stands to offer great reward to those who are diligent and determined to thrive in the industry.

The below chart lists some of the most common farm products raised in Canada.

The amount of agriculture farm lands in Ontario are abundant, but the market is much bigger in the Prairie Provinces such as Alberta, Saskatchewan and Manitoba.

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Further Reading

  1. Ultimate Canadian Real Estate Guide
  2. Fast Track Real Estate License Course
  3. Real Estate Agent Tax Tips and Advices

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