Farm Auction sale season has begun, and an Alberta Agriculture and Forestry (AF) specialist says a lot of retiring farmers are choosing to sell their land by public auction.
“With interest rates remain low and the majority of Alberta farms continuing to have a strong balance sheet, the demand for farmland purchase in Alberta remains robust,” says Rick Dehod, farm financial specialist, AF. “With farm land prices continuing to appreciate, a well-researched financial and ownership plan will guard against ill-prepared land purchases, so do your homework before making a final decision.”
AF’s webpage has a three documents designed to help producers make the decision on a land purchase. These documents are:
- Why do you want to buy farmland? This question relates to the business plan and overall farm or investment strategy, and should fit with planned goals to expand, bring in a new partner, insure control of productive acres, etc. Determine if the decision is a business decision or an emotional decision, and if business partners in agreement
- What is the farm business’ financial condition? Consider needed investments, expected expenditures, and crop conditions to determine if buying land is the best use for your cash, or if other opportunities would provide a better return. Be sure that the farm is financially healthy enough to handle the increase in debt and decrease in cash from the proposed purchase.
- Have you created a pro-forma cash flow? Research the expected revenue of the potential land to determine if the purchase fits into your plans. It is important to confirm that the potential return will meet your goals and objectives, and that the farm can service the additional debt. Know the risk this purchase will put on your current equity.
- Given your revenue forecast, are you overpaying? If you are paying a premium land price, calculate how long it will be until you recoup your investment. Determine how much debt your farm can prudently service, and the total revenue required to service that debt. Be sure to stay within your limits, land purchase is a long-term commitment and investment.
- What is land – What is included and excluded, forms of ownership and landowner rights.
- Buying and selling considerations – Are there restrictions, purchase and sale contracts, methods of selling, who to consult about buying or selling, and the tax considerations for the buyer and the seller.
- Understanding the sale process – Determining a price and the terms, listing with a real estate agent, understanding the purchase and sale contract, the requirements of a valid sale contract, and understanding the roles and responsibilities of all the professionals involved in the sale.
- Frequently asked Questions – Dower rights, foreign ownership, existing leases, why list with a real estate agent.
- Land mortgage – understand the nature of mortgages, registration, priorities and terms.
“Buying land is an important investment decision, and will impact your farm businesses working capital and profitability,” says Dehod. “Use all of the resources available to do your ownership, financial and cash flow planning. Speak to your banker, your accountant or your farm advisor. Speak to your lawyer regarding issues that could affect title ownership. A strong purchase plan will aid in making the purchase of land a good investment.”
Source : Agriculture and Forestry