How to Invest in Canadian Farmland: A Guide

How to invest in farmland? One type of real estate that will never be in short demand is farmland. As the world’s population grows, of course, the need for food supplies increase. And Canadian farmland is the world’s fifth-largest exporter of agricultural products.

So if you are thinking about investments, you might want to look at Canadian farmland investing. Yet, before jumping in with both feet, you will want some tips on farmland investment. There’s more to farmland investing than you might think.

So keep reading for a guide that will help with strategies for positive returns. Learn how to invest in farmland to add vital assets to your portfolio.

How to invest in farmland?

Where to Look for Canadian Farmland Investing

The most considerable amount of farmland in Canada exists in two of the prairie provinces. Saskatchewan has 40% of the countries farmland while Alberta has 31%. Manitoba also has a significant proportion of farmland. 

Once a more prominent place for farmland, Ontario has dropped by half over the last eighty years to only 8% in Canada. And yet another sizeable agricultural center in Quebec. Around half of all Canadian farmland gets used to produce crops.

Of course, several other regions of Canada have valuable farmland of its size. So there are many Canadian farmland investing advantage opportunities. 

Investing in Canadian Farmland 

About four percent of Canada’s labor force works in the agriculture industry. Yet, that 4% feeds the country and exports around the world. As a long-term commitment, a farmland investment can yield dividends in several ways.

First, land value appreciation is becoming more prominent with urban growth. Canada is the second-largest country in the world by landmass.

Yet, only one-twelfth of that land is suitable for agriculture. So it’s no surprise that land values in Saskatchewan and Alberta rose 7.4% in a year.

The demand for Canadian farmland continues to grow even through the pandemic. Farm values rose almost 4% in the first half of 2020 due to high gains in Saskatchewan and Alberta.

Confidence in these gains remains strong partly because of low-interest rates. High returns on Canadian farmland staples like grain and oilseeds are another reason. Canadian farmland investing interest is also high because of limited inventory.

All these factors together make farmland investing potential to win for many years. In addition, the short supply of land is driving land value upward.

As economies change over time, food production is a constant need. So productive Canadian farmland continues to produce dividends as a farmland investment. In general, row crop yields expect to generate 4 to 8% in income.

Then, if you can afford to own Canadian farmland outright, there is an income opportunity in leasing. Many established farmers are looking to add workable land if you, the investor, don’t wish to farm the land yourself. But there are tips on farmland investment with varying risks. 

Buying Direct

Of course, the shortest route for farmland investing is to go straight to the source. People in the farming industry themselves look for opportunities to grow their holdings. Long family histories with experienced farmers often look to more farmland investment.

Farmers are entrepreneurs who see the value in more workable acreage. Adding connected land is usually a good fit when neighbors are ready to sell. Yet, capital is the most challenging part of growing their enterprise for most farm owners.

So Canadian farm owners who work their land will often look for other arrangements. Canadian farmland investors then form partnerships with farmers as one solution. But if you don’t know enough about the farming industry, there are certain pitfalls to know first.

For the working farmer, acquiring more land is also an emotional investment. Many farms in Canada have gotten handed down for generations. So there are times when the cost of farmland investing won’t match the actual value.

More research needs to go into every farmland investment to become a better investor. Unless you’re ready to get your hands dirty and farm the land, you’ll also have to learn more about the farmer. The potential exists for higher returns, but there are risks to leasing deals with a single tenant. 

Money Markets

There are funds available in the stock market that focus on farmland investment. Farmland REITs give the investor a piece of the agriculture market. An advantage to this type of farmland investing is the diversification of your funds.

Instead of owning one tract of land, the REIT provides portions of several assets. Again, there are two ways these funds pay returns to investors.

First again is the increased value in the farmland holdings. And income gets generated from rental payments and crop yield cash. So several of these REIT funds have been producing significant results.

The REIT farmland investment isn’t as volatile as the traditional stock market. Agriculture funds don’t move in the direction of the market. So, for example, if the trading platform is down, the farmland REIT is still making positive returns.

As a hedge against inflation, REIT farmland investing is safer than most. Canadian farmland is consistently producing crops. So value is getting taken from consistent yields.

Emerging Market Trend

A relative newcomer to farmland investing is participation in crowdfunding. It’s much easier today to make a farmland investment through online sources. Yet, there are criteria that you must have to invest this way.

Most crowdfunding sources for farmland investing accept only funds from accredited investors. To meet this standard, you will need to show a net worth of over $1 million. But with accreditation, there are several funds with different forms of investment.

In Canadian farmland investing, capital corporations work like hedge funds. Much like leasing by the single investor, the funds go to acquiring an asset for rental. The fee structure is set up to make the fund managers as investors earn more.

It’s important to note there are restrictions to foreign investors in Canadian farmland funds. Generally, those restrictions refer to how much of the land a foreign investor is allowed to own.

For example, non-residents can own up to 20 acres of farmland in Alberta. Other provinces like British Columbia and Ontario have no restrictions on outside ownership.

Risks in Farmland Investing

Of course, there is no such thing as a sure thing. So there are factors about farmland investment that can produce negative results. The vacancy is a genuine concern, although it is rare.

But if a tenant moves out and leaves the land unattended, immediate income is gone, and there’s an effect on the land.

But if you use representation to invest, you have some protection. Farmland investing through a broker will facilitate action to replace tenants faster.

Political risks are evident in some countries that trade with Canadian farmland producers. As we’ve seen recently, tariffs can get imposed for a variety of reasons which affect crop prices.

Selling a farmland investment when you want to get out can take time. So if you buy as a private investor, be aware of that risk to liquidation.

And, of course, mother nature is always a factor when it comes to agriculture. Excessive moisture or drought can affect crop yield at any time. A poor growing season can hurt the crop cash, but tenants still have to pay rent.

As mentioned earlier, the threshold for entering the farmland investment market is high. And restrictions to Canadian farmland investing for foreigners is a barrier. In addition, farmland investing requires accreditation of people entering the market. 

Tax Advantages

Once you know how to invest in farmland, it’s helpful to know the other aspects that work in your favor. Some of the best tax advantages occur when you make a direct farmland investment.

For example, depreciating the property and mortgage interest are both deductibles. Costs for repair and maintenance are also tax deductions. Then there is the cost of utilities and rental property management to claim.

Then, some deductions are related explicitly to farmland investing. For example, the land itself cannot depreciate, but structures built on the property can. Yet, some crops can depreciate because of their growth cycle.

There are zones of opportunity and tax incentives in some farmland investments. Canadian farmland investing sites will also give you better access to research.

Investing Tips That Work for You

Canadian farmland investing can a rewarding part of your portfolio for several reasons. The financial opportunities are clear with the world’s growing demand for food. As a long-term plan, farmland investing is one of the most consistent holdings.

Yet, the greatest reward might be your contribution to positive change. After all, what can be more essential than feeding people?

Our experts are here to guide you through the steps you need to make Canadian farmland a positive choice. Check out our guide today for a brighter future.

Andy

Andy is the author behind most posts AlternaInvest.com, a web site analyzing and simplifying alternative and traditional investment vehicles.

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