Paydirt: Make money while you wait

If you’ve purchased some land you can still make money on it while you wait for its value to go up.

0

by

From the December/January 2012 issue of the magazine.

0

“Land in Canada will generally increase in value if held for a long enough period,” says software developer and land investor Robert Devenyi. “The downside is the amount of capital required to hold vacant property—and this increases as the value of the land increases.”

One way to mitigate your costs is to rent out your land to farmers. “Farmland is like gold in that it hedges against inflation,” explains one investor. “It holds its value well during a financial crisis and instead of paying to store it, you can receive rent to offset holding costs, and even earn a profit.”

Still, not all farmland is considered desirable. Jim Herder, a farmer near Sylvan Lake, Alta., buys and rents arable land for his farm production. Given a choice, Herder would prefer to rent, so he can avoid taking on more debt. But he has specific criteria: “Any land I rent has to be profitable … so land that’s close to me has more value.”

To determine how much to charge in rent you’ll need to do a bit of digging. Find out what nearby parcels are renting for, and what the lease terms include. Then decide if you want to rent out your land based on a fixed per acre price, or based on a “whole-farm” rental rate. Normally the price paid for whole farm rentals is lower than a per acre charge. You could also charge a fee based on the farmer’s average yield, a percentage based on the gross crop revenue, or a fee per acre based on the expected rate of return of the land. These calculations can get complex, so it would be best to seek out a realtor or accountant who knows the area well and is knowledgeable on the business of farming.

Leave a comment

Your email address will not be published. Required fields are marked *