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Buying Farmland for Fun and Profit

Buying Farmland for Fun and Profit

For those old enough, the catchy into tune of the TV series Green Acres resonates with people when they tell friends they are considering a purchase of farmland real estate. If you don’t know what we mean, Google it after reading this article.

With regards to real estate, what exactly is agricultural real estate property? When does a vegetable garden become a farm, for example?

In Canada, it depends the local zoning laws. Basically, any piece of real estate that is designated or permitted to perform agricultural activity can be considered to be agricultural real estate property. But while anyone wanting to have their suburban property re-zoned so they can raise cattle is probably going to find an open-and-shut case against that likelihood ever occurring.

Simply having property outside the urban area does not an ag real estate property make. If zoned, as such, to be more than a rural home, the agricultural real estate must consist of a parcel of land or have a structure attached to the land where 1) it is used to produce at least one agricultural commodity or product; 2) have a minimum acreage; 3) used to produce minimal annual receipts.

Agricultural real estate could also consist of a single-family residence in a rural area, but it can not be within a community of greater than 2,500 inhabitants.

Others determine it by size of property or the physical or dollar amount of a product produced.

To be sure, it is best to confirm with the local zoning commission where you are contemplating a land purchase, as each local zoning commission has its own ideas over what constitutes an agricultural real estate property. Better yet, your real estate representative will be able resolve any concerns you may have regarding zoning.

For those seeking a life in the country—and not participate in farm culture—well, there’s always going to be the sights, the sounds, and yes, the smells of surrounding farms that will impact on your so-called serene country life.

And, for those who want to purchase property and become a farmer with chickens, pigs and a garden to make your suburban friends envious, there are also issues to consider besides zoning. For one, not every one of your neighbours will like the sights, the sounds and the smells emanating from your farm.

Agricultural property is designated as A-1 land or A-1 zoning. Such designations are created by local government to protect the farm property et al from non-compatible non-farm uses. For example, a church may be built on A-1 zoned land, but a bowling alley may not. Probably. Schools, hospitals, B&B inns, feed and chemical shops, etc. may also be built on A-1 zoned property.

So, even if you want to give up the noisy city life, make sure you can handle noisy rural life—roosters like to get up early.

While more of a concern in the western climes of Canada, water rights are an important issue to examine, as is water certificates, irrigation, and soil type. Your real estate agent can advise.

Investment: Farmland Vs Commercial  

Is agricultural farmland a good investment? Traditionally, yes it is.

For those who want to work an established property, a better investment can be created for themselves. Those looking to invest in agricultural farmland have found the higher initial point of purchase to give pause.

But not all investors. Consider Bill Gates, one of the richest persons in the world, who prior to his divorce this year was the number one investor in American farmland. His farms produce a variety of grains and vegetables, including potatoes for McDonalds’ fries.  

But why purchase farmland over real estate – either as an investment or as a place to actually live?

There is no clear-cut answer, but consider that as global population continues to grow, so too does the need to provide food to feed it.

Playing the long game, farmland has provided higher returns over commercial real estate ventures, and usually with less price volatility. In the U.S., for example, since 1990 commercial real estate has provided an average return of 8.3-percent annually, while farmland is at 11.5-percent.

Continued urban sprawl eats into the amount of agricultural real estate available making the remaining land more valuable—in theory.

For those looking to purchase an agricultural property to reside in—the benefits are obvious: getting away from it all—the urban strife, fresher air, the noise, whatever reason you believe in, it’s probably true.

You don’t even need to farm the surrounding area—that can be rented/leased back to other farmers, providing you with additional income—plus lower taxes since your land is rated as a working piece of agriculture. Of course, tax breaks are also available for real estate investors.

Conclusion

As pointed out, farmland investment properties in the US offered 3.2-percent more return than commercial real estate on average. But if that’s all there was to it, farmland properties are all people would buy. It still depends on the old adage of “location, location, location.”

Living in a rural area versus living in a farmland property that also offers an agricultural income is a choice for the individual. Not everyone can it as a farmer or even be happy living in a more rural setting—some people “get allergic smelling hay.”

Do your due-diligence homework about the type of rural property you want. Each property and property type comes with its own individual set of pluses and minuses, just like any urban or suburban real estate.

Make a list of what you want from your property, and then ask others for their opinion—there’s always something you didn’t consider for yourself.

Only when duly armed should you contact a real estate professional specializing in rural properties—look around our website—to help you find a farmland property that checks off many or, ideally, all your “want” boxes.

Then you can say “goodbye city life.” You really should listen to that catchy theme song.

Photo by Eric Chen on Unsplash


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