.........reasonable valuation.

[farmaholic]

Wow and my home was 240 new and now close to a million? Who cares we all need a home same with land you need some can’t rent it all even if some BTOs think they can.

Land was 200000 in our area in 1981 then 56000 and now 400000 and your point.

It can drop and it can go down watch if your I. A dry year for three in a row. The BTOs disappear when the big boys from Toronto (TD RBC BofM BofN) call the shots and cut them off.

To big to fail hahahahah ahh

Maybe people have to be long in the tooth and not wet behind the ears to recognize the peril!

[farming101]

Credit isn't a sure thing like the sun that comes up every day.
It's more like the light in your yard. One minute it's burning bright, the next minute all is dark. And we know who's hand is on the switch

[farmaholic]

150 acres @$90/ac=$13,500
ROI Land Cost
3.50% $385,714
5% $270,000
7% $192,857

150 acres @$75/ac=$11,250
ROI Land Cost
3.50% $321,428
5% $225,000
7% $160,714

150 acres @$50/ac=$7,500
ROI Land Cost
3.50% $214,285
5% $150,000
7% $107,142


Resurrected the info.

Ya, I know, where do you get 7% in the bank.

This might be a bit of backwards thinking but its based on knowing how much you can get for cash rent and what ROI you expect if you can buy land for cash.

One for wiseguy:

150 acres @$110/ac=$16,500
ROI Land Cost
3.50% $471,428
5% $330,000
7% $235,714

[farmaholic]

I can't edit in wider spaces in between the "ROI" and "Land Cost" values, sorry...

[hobbyfrmr]

At the end of the day it is a productive asset and it will all depend if you are thinking of leaving a generational asset or putting it into cash.

Nothing wrong with putting it into cash but cash is easily spent by heirs on nonproductive assets.

Iceman Out

Agreed. I recall oldtimers saying “you can’t spend land”, meaning it would require considerable thought, then the action of selling it for cash in order to use the money.
More than ever we have unlimited access to consumer goods and a spending/buying/getting attitude. Younger generation doesnt seem to care too much about assets but more about getting something really good to make their lives interesting for the short term.
I have friends who took a home equity loan to buy a $62,000 fifth wheel camper to sit at the lake for 3 months per year. Finance for 20 years to make affordable payments year round. I suspect that camper will be destroyed by weather before it is paid for no matter how well it is cared for.
I think (not exactly positive) I am jealous because they definitely enjoy lake time as a reward for their work. I like visiting them because they are usually drinking and in a relaxed, happy mood.
Buffet is all about buying stock that will create value for him. Its very interesting how he stays with simple principles and has accumulated so much wealth.

[farmaholic]

Lets see land was $30 an acre in the 50's now its $3000. Geeze can anybody see a trend?

Biglentil, at the current land prices it feels like I'm paying, or have paid, for my own "future" appreciation.....LOL.

Edit: inserted the word "future".

[sumdumguy]

Lets see land was $30 an acre in the 50's now its $3000. Geeze can anybody see a trend?

Yeh, we lived to see many trends - like ten years of drought followed by ten years of no possibility of making a profit. Been there - not fun.

Farming used to be functional only as a means of making a living. Many speculation would have been a better way to look at it, but time will tell.

[GDR]

150 acres @$90/ac=$13,500
ROI Land Cost
3.50% $385,714
5% $270,000
7% $192,857

150 acres @$75/ac=$11,250
ROI Land Cost
3.50% $321,428
5% $225,000
7% $160,714

150 acres @$50/ac=$7,500
ROI Land Cost
3.50% $214,285
5% $150,000
7% $107,142


Resurrected the info.

Ya, I know, where do you get 7% in the bank.

This might be a bit of backwards thinking but its based on knowing how much you can get for cash rent and what ROI you expect if you can buy land for cash.

One for wiseguy:

150 acres @$110/ac=$16,500
ROI Land Cost
3.50% $471,428
5% $330,000
7% $235,714

I don't disagree at all with your thought process land is too high to farm, really confused where it's going in the future and am in the same situation as you with land coming up across the fence with a steep price.


But.... Most would look at the appreciation in values over the last 20 years and add that to your calculation. Depends what tine frame you use for land value increase but say you used 8% a year increase:

150 ac, $90 rent @ 3.5% ROI is $385714, add 8% increase of $30857 add to rent of $13500 you get $44357 return or about 11.5% on your money. Now the savy investor thinks land is a secure hard asset and he can make due with 5% return since that is double what he can get at the bank. So now 5% return or $44357 makes that quarter worth $887140.

Not saying that's right but that's why land prices are where they are, only thing that will change that is drop in rental rates which will require a significant correction in farmer profitability. I believe there is a fair bit of room for profit to fall before renters will pay less or walk away.

Also don't think interest rates will play much of a roll here either unless we start seeing attractive returns for money to go elsewhere, it's more about that than the cost to borrow. Most investors are not borrowing to buy and a lot more land is bought by farmers with cash than most think.

[farmaholic]

GDR.... I don't think we can assume an eight percent year over year appreciation. That is very cocky. I think that ship may have sailed. Things could plateau, fall a bit or climb slower.....

Agree on interest rates (I think).... others alot smarter than me need to weigh in with their "opinions" on that.

My analysis was based on somebody buying for cash and renting it out.

Renting land: I hate working for everyone else and nothing for me.

I'm only trying to be realistic, last year was an eye opener for us here and the year before that was an anomaly for us.... even at average years...

[blackpowder]

Warren B bought his son Howard's farm for him (late 80s early 90s?) with a stipulation it paid back a proper % return.

1966 $100/ac
1971 $100/ac Rent 1/3
1981 $1000/ac Rent 1/3 or $25+
1991 $700/ac Rent $50
2001 $700 - $900/ac $50
2003 $1000/ac Rent $50
2011 $1600 - $2300/ac $70
2017 $4350/ac Rent $100++ - %25

Based on appraisals done over the years. Cultivated acre.
Bubble? Likely.
Too high to support rental income? Yup, when grain goes down.
One year in memory with no crop. Many years with uber low prices.
Ceiling for now, I think so. Correction? Not yet. Crash? Never say never.
We all have area specific histories and drivers. Not to mention operational abilities.
A supply/demand shift in this area to effect a %50 correction always possible.
Quite possible in fact given enough time.
But as history shows, a "buy" opportunity could be further out in time than I have available.

Never has been an investor component here. Although a few locals made millions in the Sask vacuum.
Possible opportunity for Sask locals when Bay Street bails.

Point is that obviously your numbers SHOULD work for you to make sense.
They don't HAVE to work for the market.

Good Luck in your decision Farma.

[GDR]

GDR.... I don't think we can assume an eight percent year over year appreciation. That is very cocky. I think that ship may have sailed. Things could plateau, fall a bit or climb slower.....

Agree on interest rates (I think).... others alot smarter than me need to weigh in with their "opinions" on that.

My analysis was based on somebody buying for cash and renting it out.

Renting land: I hate working for everyone else and nothing for me.

I'm only trying to be realistic, last year was an eye opener for us here and the year before that was an anomaly for us.... even at average years...

I'm not predicting 8% future but would throw that out there as a guess on average over last 20 yrs in our area. I'm just saying that's what investors including farmers cause we are investors too look at when justifying values.

My prediction is that the run up is over and will not continue other than general inflation. Disclaimer here is that I've thought that every year for the last 10 yrs and so far been wrong every time.

The economics of the equation are basically the same if you are buying as a farmer or as an investor. Doesn't have the same feeling I know but the numbers are the same. Still have to value the land cost in COP.

[blackpowder]

One more thought.
Not to rub salt in anything. But were it me. (It's not)
Tax problems. Early 50s. Good health. Son on the farm. Low overall debt.
Open up a fence line and go. Long term vision.
If it's that close?.... Depending on size of parcel of course. And competition.
Giv 'er

Again with respect, just me.

[farmaholic]

Thanks for your post BP. Your numbers also point out the 80's-90's drop.... like I preach about. I hope we don't see a 30% correction..... not that I have anything to "protect", I just hate to give up any un-earned appreciation gains, that I had no intentions of "crystillizing" anyway. Even if it does correct I will still be way ahead of the game, but some people who showed up to the party late might be licking their wounds though...lol.

I just don't want to buy a bubble either. Seems toppy to me. Actually land prices here seemed to have stabilized somewhat, or at least don't seem to be running up as hard.

[farmaholic]

One more thought.
Not to rub salt in anything. But were it me. (It's not)
Tax problems. Early 50s. Good health. Son on the farm. Low overall debt.
Open up a fence line and go. Long term vision.
If it's that close?.... Depending on size of parcel of course. And competition.
Giv 'er

Again with respect, just me.

Absolutely right.....

I can afford to be "wrong" on a bit.

Edit: Thanks everyone who contributed their two cents. Or is if Five cents with inflation and a redundant penny....

[AlbertaFarmer5]

But as history shows, a "buy" opportunity could be further out in time than I have available.

.

And therein lies the problem. Roughly 50 years between previous crashes. Anyone farming during the 30's who waited for the next inevitable crash would have needed very good health to take advantage of it at their advanced age.

I was born too late to take advantage of the cheap land prices of the 80's and early 90's(here) And There is no guarantee that the next opportunity will come along while I am still alive, healthy, motivated or in a position to take advantage of it. Or it may happen tomorrow, trouble is, the overly pessimistic experts in my life have been not only promising the immediate crash, but also skyrocketing interest rates for my entire adult life. While at some point their advice will be a business saver, except if I heeded those warnings all along, I'd have no business to save.