Need some help with land rental, Regina region.

[AlbertaFarmer5]

How much more do you want for $120??
Give me a call.

My most recent two purchases work out to $123 and $135 per farmable acre. Rents are roughly half that, but are closer to $100 not much further east.

At $120 per acre, and using the accepted value that payments should be 2.5 times rent, that works out to either side of $800,000 per quarter (using 3.5% interest). What is the land worth that rents for $120?

[VK58]

My most recent two purchases work out to $123 and $135 per farmable acre. Rents are roughly half that, but are closer to $100 not much further east.

At $120 per acre, and using the accepted value that payments should be 2.5 times rent, that works out to either side of $800,000 per quarter (using 3.5% interest). What is the land worth that rents for $120?

Here (south central Manitoba) rent like that is on land that would sell for $4-5000/ac

[AlbertaFarmer5]

Here (south central Manitoba) rent like that is on land that would sell for $4-5000/ac

$120 rents, and 3.5% interest would make the annual payments on those prices (average $4500) only 2.25 times the rental. Which according to the experts is on the lower end of acceptable range.

A ratio of 2.0 or lower is usually a good deal.
A ratio of 3.0 is usually the tipping point for most farms.
A ratio higher than 3.0 is generally not a good deal.

From this source https://www.gov.mb.ca/agriculture/business-and-economics/business-management/print,best-time-to-buy-or-lease-farmland.html https://www.gov.mb.ca/agriculture/business-and-economics/business-management/print,best-time-to-buy-or-lease-farmland.html

[Marusko]

S3 makes the comment on buying if rent is 140. This can work if you have some cash reserve or maybe if you have some paid for land to leverage against but many don't realize that payments on at $140 rented quarter now become well over $200 assuming the purchase price is relative to the rent.

Where I farm 70-80 per acre rent is the high and if borrowing for most of the purchase of one of these qtrs my principle and interest pmt plus taxes gets over $160. If i am tight on cash flow before purchase I am going to be in bigger trouble if I buy more than 10% of my land base

At $120 per acre, and using the accepted value that payments should be 2.5 times rent, that works out to either side of $800,000 per quarter (using 3.5% interest). What is the land worth that rents for $120?

My area, land that sells for 5-6000/ac will rent for 100-130/ac
Say purchase price is 5,000/ac and you finance the whole thing, interest will be around $170/ac at 3.5%. Principal about $130/ac if mortgaged over 25 years.

at 6,000/ac, interest 205 and principal 155.

This is wheat & canola country, with oats, peas, barley present... no corn or edible beans

Ratio a bit high.

Does it make sense to buy land that costs you more in interest alone than it would cost in rent?

[AlbertaFarmer5]

My area, land that sells for 5-6000/ac will rent for 100-130/ac
Say purchase price is 5,000/ac and you finance the whole thing, interest will be around $170/ac at 3.5%. Principal about $130/ac if mortgaged over 25 years.

at 6,000/ac, interest 205 and principal 155.

This is wheat & canola country, with oats, peas, barley present... no corn or edible beans

Ratio a bit high.

Does it make sense to buy land that costs you more in interest alone than it would cost in rent?

Do you mean interest averaged over the life of the loan, or in the first year? I would draw the line at paying more interest than rent in the first 5 year term. You have to be relying on appreciation or some other type of income from the land to justify that.

[Marusko]

Do you mean interest averaged over the life of the loan, or in the first year? I would draw the line at paying more interest than rent in the first 5 year term. You have to be relying on appreciation or some other type of income from the land to justify that.

Good point, that's first year.

5 year average for the 6,000/ac example is 195/ac interest, 164/ac principal.

25 year total interest would be 3,000, averaging $120/ac. Which doesn't sound so bad, but the principal is 240/ac at that point!

AF5 your recent purchases of 123 and 135/ac, is that full purchase price financed? or down payment? That makes a diff too... I'm currently at $205/ac of payments on owned land. 30 and 35 year loans though.

Judging by your rental rates, you are sweating about payments as much as I am.