One of the perks of having children is that once in a while we get to help them avoid the same mistakes we make. That is, of course, if they listen.
Our oldest son has decided it is time to invest money in some land of his own and wants to buy agricultural land. It’s very exciting because we are revisiting what it is like to buy land for the first time. He has the advantage of being more prepared than we ever were.
GET A GST NUMBER
The first thing a person needs to do before they go shopping for farm land is to apply for a GST number (sometimes called a business number. Visit: www.cra-arc.gc.ca/E/pbg/tf/rc1/rc1-10e.pdf). This can save thousands of dollars because land that is used for agriculture is GST exempt. It only takes about twenty minutes online and about four days for the number to come in the mail, but it’s well worth it. When the land is purchased the number is given to the lawyer and it is registered appropriately. Then it is not necessary for him/her to collect the money from the purchaser. It is then reported on the first remittance the landowner makes as if it has been paid and claimed back.
Once the GST number is in place it is necessary to decide on a lawyer and a bank that is willing to deal with farm properties. Our son’s goal is to purchase open land and eventually build. This type of property, in Manitoba at least, is not easy to finance. He has found a credit union that is willing to mortgage open land but requires a thirty per cent downpayment on the purchase price. Some require as much as fifty per cent. He does have a few cattle of his own also so the financial institution is comfortable that he has intent to profit from the land. Once a financial institution, whose rules can be lived by, is chosen then it is prudent to meet with the mortgage officer and be pre-approved for a mortgage. Then shopping can begin.
DO YOUR DUE DILIGENCE
With GST number in place and the price bracket established, it’s time for real estate research. The
local real estate office is a great place to start. In minutes they can use their computer to search land sales in the area for land parcels that are comparative in size and quality to what you’re shopping for. When my son did this he came home with a package that allowed him to drive around and visit other properties that were for sale or had been sold in the recent past. Buying in our own area is one thing because we can bring our own knowledge to the experience. But for those buying further from home I recommend shopping at a time of year that the land can be seen and take some time to talk to the locals. If the land has been rented out the most valuable conversation is the one had with the farmer that has been renting it. You will need to know how he has farmed the land because it can influence your use. For example, if your intention is to establish an organic farm you will need to know what he has been using on this land when you buy it. An idea of how productive the land is, to be able to extrapolate how much profit could be expected, to offset the purchase price is also important.
DOUBLE CHECK THE LAWS
It is also important to learn about the local municipal laws before purchasing a piece of land. There have been a lot of changes over the last few years about land usage and many new buyers have been burned by not educating themselves. Just because the previous owner was allowed to own livestock on the land does not mean that the new owner will be allowed.
There is also the option of shopping for a turn-key operation instead of open land or a retired farmstead. When we bought our farm that option would have made the initial purchase price many thousands of dollars more. We also didn’t have a lot of personal farming experience to tap into. For us, starting small and working to where we are now was the best idea. We have made plenty of mistakes, yes, but at least the financial impact has been manageable. This is why it is important to not only know how much money you can afford to spend but what your immediate goals for your land are before you go shopping. For many families if the turn-key operation is available and a farm business professional agrees with the profitability of the venture this would be the preferred method of getting into farming.
When purchasing a turn-key operation instead of open land or a retired farm the questions to ask of the previous owners are much the same. When we purchased our farm it was retired but it had been a cow-calf operation. We were very glad to be able to meet personally with the previous owners. The agricultural extension office can give an estimate of how many animals per acre a piece of land can support, but we find that the owner is the best source of this kind of data. A lot of farmers have intensive farm records going back to when they first started farming and can tell you exactly what the land is capable of. It was fascinating to listen to the stories of what our farm was like in its glory days but unfortunately when we came along the auction sale had already happened.
By taking a bit of time to research, it appears our son’s first purchase will be much less stressful than ours was. For us, the best part is that we get the excitement of seeing him succeed at attaining a life goal that he has been working hard towards. It will be a very heart warming moment to be able to see his cows grazing on his own pasture soon.
Field history is important, especially if your intention is to establish an organic farm