Farm auction sale season has begun, and a provincial farm financial specialist says a lot of retiring farmers are choosing to sell their land by public auction.
“With interest rates remaining low and the majority of Alberta farms continuing to have a strong balance sheet, the demand for farmland purchase in Alberta remains robust,” said Rick Dehod. “With farm land prices continuing to appreciate, a well-researched financial and ownership plan will guard against ill-prepared land purchases, so do your homework before making a final decision.”
Alberta Agriculture has three documents designed to help producers make the decision on a land purchase. These documents are:
Why do you want to buy farmland?
Land purchases should fit with your business plan and factors such as a planned expansion, bringing in a new partner, or ensure control of productive acres. Is it a business decision or an emotional one?
What is the farm business’s financial condition?
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 more debt and a decrease in cash.
Have you created a pro forma cash flow?
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?
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.
This documents looks at forms of ownership, landowner rights, restrictions, purchase and sale contracts, methods of selling, who to consult about buying or selling, and tax considerations.
It also looks at the sale process, including determining a price and the terms, listing with a real estate agent, understanding the purchase and sale contract, the requirements of a valid sale contract, and understanding the roles and responsibilities of all the professionals involved in the sale.
This document examines the nature of mortgages, registration, priorities and terms.
“Use all of the resources available to do your ownership, financial and cash flow planning,” said Dehod. “Speak to your banker, your accountant, or your farm adviser. 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.”
These documents can be found at the “Farm Manager” section of agriculture.alberta.ca by visiting either the Financial Management section or the Business Arrangement and Taxation section.