According to Farm Credit Canada’s Annual Farmland Values Report, values are up 7.3 per cent across the province. “Moving into the growing season, producers may be examining their situation and considering upcoming purchases of farmland,” says Joel Bokenfohr, manager of business structures and financial policy with Alberta Agriculture and Forestry (AF). “With farm land prices continuing to appreciate, a well-researched financial and ownership plan will guard against ill-prepared land purchases. With the increases it is even more important to do your homework before making a final decision that will be right for both you and the farm.”
AF’s webpage has three documents designed to help producers make the decision on a land purchase. These documents are:
16 Questions to Consider before Buying Farmland
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, ensure control of productive acres, etc. Determine if the decision is a business decision or an emotional decision, and if business partners are in agreement.
What is the financial condition of the farm business? 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.
A Legal Guide to Plan Farm Land Ownership and Sale in Alberta
What is land - What is included and excluded, forms of ownership and the rights of a landowner.
Buying and selling considerations - Are there restrictions, purchase and sale contracts, methods of selling, whom should I consult about buying or selling, and what are 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 and what are 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.
A Guide to Agricultural Security Agreements in Alberta
Land Mortgage - understand the nature of mortgages, registration, priorities and terms.
“Buying land is an important investment decision, ultimately affecting the working capital, profitability, and equity of your farm business,” says Bokenfohr. “The more highly levered you are through debt, the greater the impacts of market fluctuations can be to your business. Be sure to scenario plan and 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.” For more information, visit the Farm Manager Homepage or call the Alberta Ag-Info Centre toll-free at 310-FARM (3276).
Source : https://www1.agric.gov.ab.ca/