Buying a farm is one of the most exciting and stressful transactions you will have. You have your business plan ready, the deposit is waiting in your bank account and if you had the opportunity, you have an active farming operation ready to move. Before you start calling realtors, let’s chat about what you need to consider before signing that dotted line.
Have you made an appointment at the bank yet? Getting your pre-approval on your business plan is a great first step. This tells you how much you can actually afford. You will need to bring a business plan, personal tax returns and other financial information to prove you have the cash flow to afford a mortgage.
You’ll also need to have that 20% down payment plus extra waiting in your savings account. If you are going to get the deposit from another source, you need a signed document showing the dollar amount of the gift. Typically banks will not let you borrow more than 85% of the purchase price from any source. For example, your grandmother loans you the money for the deposit and she wants her money back in 10 years, you risk getting denied. You would need to convince your grandmother to give you the money as a gift with no expectation of repayment.
The general rule is that your mortgage payment should not exceed 36% of your after-tax household income. This is why it is important to have off-farm income. If you have an active farming operation or are wanting to buy an active on-going operation, you will have some leeway with this amount. There are lots of calculators online to help you determine the mortgage payment. Remember that the mortgage is on 80% of the purchase price, the remainder is your down payment. Always overestimate the interest rate when doing your calculations by at least 0.5%. The bank will also subject you to stress tests, which means they test your income against an interest rate increase. If you determine your farm purchase budget based on a higher interest rate, you will feel a lot more comfortable in the long run.
Research loan products and interest rates in advance of your appointment. The bank is here to sell you a product, the loan. The longer they can keep you paying interest, the better for them. For the most part, a bank has no interest in your personal success as a farmer beyond how much you can pay them in interest. If your farm budget is $500,000 or less, you might really struggle to even get an appointment because most agriculture services departments will not find you interesting at that amount. I would suggest you read up on the Canadian Agricultural Loan Act (CALA) and look at a small business department mortgage. Credit unions are also usually a better place to look for financing as a new young farmer.
It goes without saying, but just because that pre-approval says you can buy a farm for $1 million, does not mean you should. I would actually get the pre-approval from your bank for a house. Take that amount as your baseline. Remember that 36% rule? It really helps when you can hold to that in the first year. It also means that if you and your partner are buying the farm together, the person making the lowest off-farm income can go home to farm a lot sooner. You should try your best to cover normal farm expenses with farm sales from day one. Live on your own off-farm income and cover the mortgage with off-farm income for the first few years and you’ll sleep better, I promise.
Once you have the financial aspects straightened out there are some legal and regulatory items you should take into consideration before buying a farm. First, check the laws in the province or territory that you want to buy a farm in. There are six provinces and one territory, namely Prince Edward Island, Quebec, Manitoba, Alberta, Saskatchewan, British Columbia and Yukon, that have legislation regarding who can buy farmland and how much. When you are checking the regulations for the province, be on the look-out for land transfer tax rates. In Quebec, the land transfer tax is called the "welcome tax" and varies by regional county municipality. Overall the tax varies by province and will need to be paid at the time of the purchase.
You also want to check the by-laws of the townships as well as the counties. Not all farmland is treated equally, there are generally rules regarding how many animals you can have, which parts of the land you can farm and where you can build. Always look of the zoning by-laws for any farm you are considering. Failing to check if you can have animals or build a barn in the future could lead to a lot of heartache. The by-laws can usually be found online.
When you are prepared to buy, obtain the services of a notary as well as possibly an accountant. With your notary, make sure that your wills are up to date as well as any other agreements that you have committed to. If you are considering an on-going farm business, the notary can help you navigate the purchase to make sure you don't get any ugly surprises later on. The accountant can help you go over the financials of the business as well as your own. They can assist with any tax calculations.
Farmland has sales tax applied to it. There are elections you can file with the Canada Revenue Agency to eliminate having to physically pay the taxes to the vendor but you need to register for a business number and a sales tax number in advance. This is where already having an active farm business or buying an on-going operation can be helpful as it gives you more grounds to file the election. Otherwise, you could be stuck having to pay between five and fifteen percent on top of the purchase price of the farm.
Check with your financial institution regarding life insurance, it is generally a condition of financing. Sometimes buying a policy in advance from a different provider is better in the long run. You will also need to make sure that a survey has recently been done on the property you are buying. The survey will show you how much land you are purchasing and where the boundaries are in addition to any protected areas on the property. Even if there is no legal requirement to get a survey, you should get one because there have been instances of vendors stating a farm has 250 acres and in the end, it was 180 acres. The bank will probably require an appraisal as well as a water test. Get the water tested yourself and if there is a house on the property, have any and all buildings inspected. You will need property insurance from the date of the closing and the building inspector can help you find out if you can even get insurance.
Alright, so you got all the finances and the fine print details in mind and now you can go ahead and start your farm search. When looking at potential farms, you should consider a number of features. My best suggestion is to first determine what region you want to farm in. This decision should be based on the prices of land and market access. Your budget will determine what kind of land prices you can afford but typically anything over $5,000 per workable acre is going to cause financial stress. At the bottom of the page you will find a quick summary of farm facts by province to give you an idea of where you might find an affordable farm.
It is very important to consider market access. For example, milking dairy goats outside of handful of regions is nearly impossible because the milk trucks don’t go there. Some areas are a day’s drive away from the closest sales barn which will increase your transportation costs if you are marketing your livestock that way. Other regions have limited access to grain elevators. You also want to look at who can supply the feed, veterinary services and mechanical repairs in the region. Some regions are dependent on one or two suppliers which typically translates to higher pricing for feed, and crop inputs.
Make sure you look up what type of climate and soils your chosen location has. Canada has a land classification system, numbered from 1 to 6 with 1 being the best there is and 6 being a water-logged swamp. The system is based on maps that are decades old but can be accessed for HERE. The maps are still a valid way of determining if a farm might be suitable for your uses.
On top of that, most provinces have soil type maps or you can request them from the local agriculture ministry office. These maps will help you select potential farms within your region that would be suitable to your needs. Ontario has a very detailed interactive website called AgMaps that shows all potential consideration from land class type to soil type and existing drainage. Other maps that you should look at include the plant hardiness map and the heat units maps. These maps will show you what the growing season is like in the region as well as the types of crops that can grow.
Climate change is a big topic these days so looking at long term forecasts for temperature, rainfall patterns and snow cover can also help you. Rainfall and drought risk information both historical and future trends are usually available via a Google search. Interviewing local farmers is also a great source of information in general when buying a farm. They can tell if the land is waterlogged each spring or if it has been overgrazed frequently.
Once you have picked the region that will suit your farm plan and budget, you can call that realtor and start looking at farms! There are a number of great websites what list the farms on the market. Telling your fellow farmers you are on the farm hunt can also sometimes unearth gem properties that might not yet be listed. I would recommend working with one real estate agent to represent you so that they are working for you and not the vendor. They can show you a range listings and find detailed information like drainage maps and zoning issues. As always, do not blindly trust anyone and research everything!
Check out the slides below for areas of Canada where starting a farm can still be within your budget.
This is the most populated province in the country, holds a significant amount of the agriculture production and easily one of the most expensive provinces for farmland. The only parts of the province where land can still be found for less than $5000 per acre is northern and eastern Ontario. In the rest of the province, a 100 acre farm is going to cost you more than $1 million.
Ontario has a significant number of markets, processors and suppliers making marketing of agricultural products relatively simple. There are no restrictions to buying land in the province. The only regulations that can pose a challenge is the Nutrient Management Plan which has guidelines for how much land base you need for the number of livestock you are farming.
If you want to milk dairy goats, this is the only province besides Quebec that has brokerages that offer contracts to purchase milk. Grass-based farming systems are limited in the southern part of the province due to high land prices. Climate varies greatly across the province from vineyards in Niagara that barely see any winter to New Liskeard which can have snow from October to May.
Quebec has two key policies that set it apart from the rest of Canada; it is predominantly French and nearly every sector is supply managed. Nearly half of all the dairy farms in Canada are located in Quebec. Land prices range wildly from $500 per acre in Abitibi to well over $20,000 east of Montreal. If you are looking for land under $5000 per acre, look at the regions of Estrie, Bas-St-Laurent - Gaspesie, Saguenay - Lac-St.-Jean, Outaouais, and Abitibi. Only central Quebec from Montreal to Quebec City is truly expensive. Not all parts of Quebec are exclusively French, the Eastern Townships and along the Ottawa River, English is common.
Quebec does have restrictions on farmland purchases for non-residences of the province. Non-residents of the province may acquire a farm but only with the authorization of the Commission de protection du territoire agricole du Québec (CPTAQ). Agricultural land has some restrictions on it for construction. Like Ontario, livestock production also has paperwork requirements, this time with the amount of phosphorus produced. Quebec has many programs for farmers and agriculture with a significant number of grants. They are particularly supportive of young farmers. The Financière agricole du Québec (FADQ) handles all programs and offers a mortgage program as well.
The mainland Maritime provinces produce a wide variety of agricultural products from orchards to potatoes. Land prices vary by region. In southern New Brunswick, land under $4000 per acre can offer opportunity. Prices increase in the potato fields of the northwest. Northern Nova Scotia would be affordable with average prices under $3000 per acre. New Brunswick's big crops are potatoes and blueberries while Nova Scotia has a large horticulture sector in the Annapolis Valley.
With lower and aging populations, market access is a challenge in this region of Canada if you are interested in large scale commodity production. However, there is plenty of opportunity for direct marketing and a supportive community in general. Mixed farming operations with a diverse range of products would benefit from the buy local movement that is supported by the Nova Scotia provincial government. The orchards could be approached for silvopasture operations with sheep, which has already been done successfully in other parts of Canada.
PEI has arguably one of the strictest agricultural land legislation polices in the country as the acquisition of land is subject to the provisions of the Lands Protection Act. The Act states that no individual can own more than 1,000 acres of land in the province, and a corporation cannot own more than 3,000 acres. In addition, the Act stipulates that persons who do not reside in the province for 183 days or more a year and corporations, including cooperative and not-for-profit associations, may not acquire more than 5 acres of land without provincial government authorization. Basically the Act prevents PEI from becoming one giant farm owned by a limited number of landowners. Land has been increasing rapidly in value but province wide, farmers shopping with a budget can still find farms priced under $4000 per acre.
The main product of PEI is potato farming. Dairy, beef, hay and vegetables make up most of the remainder of the farming industry on the island. Atlantic Beef Products in Albany is the only federally inspected beef processing plant east of Toronto. Niche markets and crops that rotate with potatoes alongside a strong marketing plan could work well in PEI.
In Manitoba, farmland acquisition is subject to the Farm Lands Ownership Act and Farm Lands Ownership Regulation which currently allows Canadian citizens and permanent residents of Canada, as well as corporations controlled by Canadian citizens and permanent residents, to purchase any amount of farmland. Manitoba might be most infamous for its moratorium on hog barns that finally ended in November 2017. Manitoba has among North America’s toughest manure management regulations. Land outside of the Central Plains - Pembina Valley region is on average under $5000 per acre and a budget conscious farmer would be looking for land under $3000 per acre.
Like all Prairie provinces, grain, hay and beef farming are the staple of Manitoba agriculture. Sheep farming is aggressively and rapidly expanding in the province under Canada Sheep and Lamb Farms, which has caused processing issues for producers not involved with the company. Hay exports to other provinces are popular and could be growing with shortages across the country.
In Saskatchewan, farmland acquisition is subject to the provisions of the Saskatchewan Farm Security Act which stipulates that only Canadian citizens or persons who have resided in Canada at least 183 days in any year, as well as unlisted corporations controlled by Canadian citizens or persons who have resided in Canada at least 183 days in any year, may own farmland of any size. Land in Saskatchewan would be considered expensive if priced over $3000 per acre. The vast majority of farms in the province are grain farms.
Grazing livestock could function well in this Prairie province as not all land is suitable for cropping. There are already community grazing projects in existence that use sheep and goats to remove leafy spurge, an invasive weed.
Alberta has the Foreign Ownership of Land Regulations which prohibit non-Canadian citizens and non-permanent residents of Canada, as well as corporations that are not controlled by Canadian citizens or permanent residents, from acquiring more than two parcels of land with a total area of 20 acres. All Canadian buyers have no restrictions. Alberta agriculture is usually eclipsed by the oil industry but don't be fooled, it has a lot to offer. Outside of southern Alberta where land prices are well over $5000 per acre, parcels of land can still be found in the $3000 per acre range. Prices vary greatly depending on the suitability of the land with pasture usually priced lower. Beef and grain farming dominate but other types of livestock have a strong presence.
Low cost models, grazing and a strong marketing plan would work for mixed farming operations. Processing is an issue for sheep. Alberta does have one of the only larger on-farm goat milk processors outside of Ontario and Quebec. Value-added niche markets for beef and other livestock could be an option if you can afford to be closer to the larger population centers in the province.
In British Columbia, ownership of farmland by foreigners or corporations is not strictly prohibited or limited. However, the Land Act stipulates that the sale of Crown land by the provincial government is reserved for Canadian citizens or permanent residents of Canada and for corporations or associations incorporated or registered in the province. BC also has an Agriculture Land Reserve which has changing regulations regarding construction and use. With its more mild seasons, BC has a wide variety of farms including vineyards. As a consequence, land prices are the highest in the country reaching over $200,000 per acre in south coast region which includes the Fraser Valley. Ranch country in the Peace Region, Northern BC, Cariboo-Chilcotin, is still priced under $5000 per acre. Orchards, poultry and hay farming are common. Horses are also very popular with affluent Vancouver nearby. Much like Ontario, moving north and east is the only options for affordable land. Creative marketing plans and value-added products could work well with given the diverse population in southern Vancouver.
In Yukon, ownership of farmland by foreigners or corporations is not strictly prohibited or limited. However, the Lands Regulations stipulate that the sale of new farmlands (new lots) by the territorial government is reserved for Canadian citizens or permanent residents of Canada who have resided continuously in Yukon for at least one year at the time of acquisition. The Yukon territory offers free land to would be farmers of up to 160 acres who farm the property for at least seven years before being able to sell it. Applicants must pay for surveying, pledge to make investments in the property and meet other conditions in order to join the initiative. The Yukon is expected to get wetter and warmer in the future. Market access is a big problem if you do not plan for your own processing or direct marketing. Higher food prices in the north offer an opportunity for creativity to supply products locally. The Whitehorse area mostly consists of hay farms, an egg farm and a creamery. Greenhouse production is also popular. The NWT and Nunavut have virtually no agriculture outside of greenhouse production.
Newfoundland and Labrador has limited agriculture including dairy, beef and vegetable crops. There is no data on farmland prices. Market access can be limited as is the growing season and high quality soil.