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Buying Your First Farm
Buying a farm is a dream of many young farmers, but the question is how? What goes into buying a farm, and what considerations need to be thought through before making that jump?
In this article, we will look at many of these issues on a high-level, so that you can start your path on the right foot.
The Big Decision
It may seem obvious, but the “Big Decision” you will need to make is what type of farm do you wish to buy? The answer to this question will both drive, and be driven by, all of the considerations that follow. It may be that the type of farm you decide to buy is not necessarily the one you were thinking when you first started – it is important to trust in the process.
Business Plan
Once you have an idea of the type of farm you would prefer to purchase, you will need to prove not just to yourself, but to your bankers, that you are able to make the business work. To do this, you will need to create a Business Plan.
Simply put, you will not receive bank financing without a solid Business Plan.
Your Business Plan should include a well researched and thought out analysis of the market you intend to enter into, reasonable estimates on the expected costs and revenues over a 5 year period, the financing (such as mortgages and lines of credits) needed to buy/operate the farm, and your ability to repay your financing.
Every Business Plan should also include a SWOT (Strength, Weaknesses, Opportunity, and Threats) analysis. Analyzing the internal and external factors that affect your business’s operation can better inform decisions and help establish your business strategy.
Finally, a solid farming Business Plan needs to take into consideration the steps and requirements to qualify and take advantage of the many grants and incentive plans offered to Canadian famers.
Consulting lawyers, accountants, and business advisors early in the process is always a good idea.
Availability of Land
An inevitable truth for Canadian farmers is that good quality farmland is hard to come by. Knowing how to locate farmland for sale is one of the most important steps towards buying your first farm.
Many sellers of farmland are not farmers – they are landlords, and they often sell the land to the farmer currently renting their land (note: starting your business by renting farmland could be a viable long-term option for gaining access to available farmland in the future). Making connections and getting to know people who are considering selling farmland now or in the near future is key to creating opportunities, both for your first, and subsequent, farm purchases.
Another great option for locating available land for sale is through a Real Estate Agent that specializes in selling farmland. If there is land for sale in your area, they will know!
Choosing the Right Farmland
Tying back to the Big Decision, once you have determined what land is available, you will need to figure out which land is right for you and your business. Some of the many considerations in making this decision will include (but are not limited to) the type of land needed for your farm, water rights / grazing areas, municipal zoning, proximity to landfills and other potential hazards to your farm, windmill / solar panel leases impacting the property, and houses / barns / sheds located on the property.
Costs of Purchase
Once you have landed on a property you wish to buy, you will need to be prepared for the costs involved with purchasing it. Some of the many costs of purchasing farm property include legal fees, land transfer tax (note: there are some exemptions to land transfer tax available to farmers, which should be investigated), title insurance, Harmonized Sales Tax / Provincial Sales Tax on the purchase price, possible licences and permits fees (such as building permits, licensing to use pesticides, etc.), business insurance, and mortgage fees.
Thankfully, one cost that purchasers can often avoid is the commissions payable for the Real Estate Agent. In many provinces (including Ontario), the Seller’s Realtor will generally enter into an agreement with the Buyer’s Realtor, and the commission payable to the Buyer’s Realtor will come from a sharing of the Seller’s Agent’s commission. When this is the case, there is little-to-no downside for you, as the Buyer, to engaging the services of a Real Estate Agent to assist in locating available farmland.
Running the Business
Finally, before you buy a farm, you need to know exactly how you are going to run your business. Circling back to your Business Plan, anyone wanting to start a new farm will need to have a plan for hiring workers, buying / maintaining equipment, buying / growing livestock and/or crops, efficient production strategies, a strong farm maintenance plan, and will need to determine the need (and budget) for crop / farm consultants and veterinarians.
Conclusion – Start With The End In Mind
While the purpose of this article is to provide you with a foundation for the issues you will need to tackle in order to buy your first farm, the most important message is to plan ahead, so that there are no surprises along the way. And the best way to do that is to build your advisory team now. Having a top-tier group of advisors, that are able and willing to work together to further your goals, will be your best way to ensure you carve a path to successfully purchasing your first farm.
This article was written by Business, Agri-Business, and Succession Planning Lawyer Todd Devitt.
