Give up? Farmland is the answer and “its future is very bright”
(Clayton Jarvis, Moneywise).
With rising inflation being a very real concern today, farmland provides a source of investment that inflation will not erode. Simply put, farmland can be viewed as a hedge against inflation. Given that we need farmland to feed the world, it is sure to continue to provide returns for the long term – they “are not making more land” (Artem Milinchuk, CEO of FarmTogether)
Unlike other commercial investments, farmland purchases can provide tax savings by way of OFA credits. More food for thought; tenanted farmland may provide enough annual income to cover property taxes, pending crop, and yield, thereby coming in at a net $0 holding cost. Also, the current COVID trend in staycations for Canadians remains strong; rental income from families seeking to provide healthy alternate experiences in natural settings may provide another revenue source.
Now, before you go out and purchase a wardrobe of flannel shirts and learn how to drive a tractor, there are new investment vehicles that are making it much easier for Canadian investors to place their money and watch it grow without ever having to step foot on a farm.
Now if you’re wondering just how good an investment, according to Veripath Farmland Partners (a Calgary-based investment fund), “Canadian farmland experienced only seven down years in the 60-year period ending in 2018”. Compared with the S&P 500 which had 16 down years and bonds at 11, this makes farmland a reliable source of return.
These “down years” were not even that deep for farmland investors. Average losses were 4% compared to 13% for the S&P and 5% for bondholders (Financial Post December 1, 2021).
Now to the heart of this blog: Inflation! For investors concerned about inflation and how it will affect returns, the value of farmland goes up as the prices for goods produced on said land increase. In essence, inflation makes farmland more valuable.
Interested in investing in something that is reliable and provides a hedge against inflation? Several options are available to Canadian investors looking to add farmland to their portfolios.
If you would like to know more about purchasing rural or farmland as an investment, please reach out to me -
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