Any comments on the profitability of agricultural land?

[ccameron]

I have a chance to purchase a 10 acre property zoned agricultural in Ontario. It is a beautiful piece of land with a large 6 bay garage and a 3 stall (well build) horse barn on it. The asking price is $161 000. I feel that it is a great deal and would welcome any ideas on how to make the property have positive cash flow.

 

[DonCampbell]

The biggest issue you may have is the carrying costs of the property. Taxes mortgages maintenance etc.

Make sure you have three things in mind:

#1 - Where is the cash going to come from to cover these monthly expenses

#2 - What % down will you likely have to put down in order to secure a mortgage (it might be close to 50% down)

#3 - What is your exit strategy - how are you REALLY going to make money off of this property.

Trust that helps

 

[ccameron]

Thank you for responding. I was thinking of making the existing large 6 bay garage into 12 smaller units. (Perhaps large enough to fit a vehicle). I believe that would generate aprox $100/mo each. So there is $1200.00/mo. I would also be able to rent out the 3 barn stalls to horse boarders(I must admit that I am not well versed in this area!) But some revenue could be generated there. I would eventually like to build my own home on this property. Now as far as the % down payment, I will be speaking to my banker tomorrow and he will advise whether it is feasible or not. And lastly, my exit strategy is to sell the property off if need be. I realize that this property is veering of my path to finding rental properties that carry themselves. I have purchased one and am very happy so far with the way it is going. I am always on the lookout for deals and have made quite a few offers to purchase. I feel that when the deal is meant to be it just seems to flow. Other than this being a beautiful property with long term potential it is probably not the wisest move for me at this time but for only $161 000. (asking price) I almost feel that it is too good to pass up. Look forward to meeting you one day. Highest regards, Chris Cameron

 

[Grant]

This topic belongs in Real Estate Discussion, as it is mainly about real estate.

 

[EdRenkema]

Hi Chris,
I see you are in Niagara and I am as well. If the property is also in Niagara check if it is zoned under the Greenbelt Legislation which means it cannot be chaned from agricultural usage and perhaps you may not be able to build a home on the property. It could also fall under the zoning of the Niagara Escarpment Commission which also has some restrictions. In any event the price is unbelievable low and I`m assuming it is not MLS listed.
Let me know if there is any other way I can help.
Ed R

 

[ccameron]

QUOTE (EdRenkema @ Nov 25 2007, 07:18 PM) Hi Chris,
I see you are in Niagara and I am as well. If the property is also in Niagara check if it is zoned under the Greenbelt Legislation which means it cannot be chaned from agricultural usage and perhaps you may not be able to build a home on the property. It could also fall under the zoning of the Niagara Escarpment Commission which also has some restrictions. In any event the price is unbelievable low and I`m assuming it is not MLS listed.
Let me know if there is any other way I can help.
Ed R

Hi Ed, Thank you for the advice. I will be speaking to the planning department hopefully this morning at town hall. I agree that the price sounds right! The only catch is that as opposed to rental properties, it will be a little more of a challenge to get positive cash flow. But stepping out of our comfort zone can be rewarding too! At that price, the fall would`nt be too painful should things not go as planned. Great speaking with you, I will post what information I am able to come up with from the plannning department. Have a great day.
ccameron

 

[JeffSmith]

Contact the County office and find out the rules regarding subdivision(if possible) and what size the parcel could be. You could recover most of your purchase price from the sale of a smaller parcel and still have a parcel for yourself. Secure a mortg. for the whole parcel. If you get permission from the county to subdivide you will need to get a partial discharge from the bank based on an appraisal that verifies their money is secure with the remnant parcel. Be wary of livestock boarding if you don`t plan to reside on the site. Take out the stalls and rent as storage if the market will allow.
Good Luck

 

[ccameron]

QUOTE (ccameron @ Nov 26 2007, 08:19 AM) Hi Ed, Thank you for the advice. I will be speaking to the planning department hopefully this morning at town hall. I agree that the price sounds right! The only catch is that as opposed to rental properties, it will be a little more of a challenge to get positive cash flow. But stepping out of our comfort zone can be rewarding too! At that price, the fall would`nt be too painful should things not go as planned. Great speaking with you, I will post what information I am able to come up with from the plannning department. Have a great day.
ccameron

Hey Jeff,
Well thank you for the advice. My offer has been accepted but is not firm yet. I am getting a little concerned however with all the `red tape` thats involved with this area. It fall into the new provincial floodland zone and therefore only 50% aprox. could be used to build a home on. The storrage idea is well enough for positive cash flow but there are also issues with the road being undeveloped (and would be developed at the owners expense).....the list goes on and on and i am questioning the whole deal. Regards Ccameron

 

[JeffSmith]

QUOTE (ccameron @ Nov 29 2007, 03:08 PM) Hey Jeff,
Well thank you for the advice. My offer has been accepted but is not firm yet. I am getting a little concerned however with all the `red tape` thats involved with this area. It fall into the new provincial floodland zone and therefore only 50% aprox. could be used to build a home on. The storrage idea is well enough for positive cash flow but there are also issues with the road being undeveloped (and would be developed at the owners expense).....the list goes on and on and i am questioning the whole deal. Regards Ccameron
Hi Ccameron,

As with any subdivision you are going to have red tape and no guarantees of jurisdiction approval until well after the deal closes. Do your due diligence in depth. Of course you won`t get your "LAWYERS APPROVAL" (which of course is on your contract right?) if it doesn`t work for you.
I have done a couple of small sub divisions in Alberta and could give you some advice in that regard. They are fairly straight forward and quite profitable too. Sorry I can`t speak on the Ontario process.
Just remember that a bad day of fishing is better than a good day at work.
Cheers, Jeff

 

[ccameron]

QUOTE (Jeff @ Nov 29 2007, 07:38 PM) Hi Ccameron,

As with any subdivision you are going to have red tape and no guarantees of jurisdiction approval until well after the deal closes. Do your due diligence in depth. Of course you won`t get your "LAWYERS APPROVAL" (which of course is on your contract right?) if it doesn`t work for you.
I have done a couple of small sub divisions in Alberta and could give you some advice in that regard. They are fairly straight forward and quite profitable too. Sorry I can`t speak on the Ontario process.
Just remember that a bad day of fishing is better than a good day at work.
Cheers, Jeff

Hi Jeff, To be honest I had almost forgot the idea of sub dividing the property. It is just over 10 acres but the whole back half falls under a provincial flood table law that prohibits any development on or within so many feet of the said flood table. Like I mentioned the property is lovely and my intentions were to get the garage bays rented out to help with the mortg. pmnt. And eventually build the allowed 1 single family dwelling and 1 `farm helper dwelling`. Why do you say to stay away from livestock if you dont reside on the property? Unfortunately storrage is probably not permitted as it is zoned agricultural land. I wish that I had the ability to forcast what this land is and will be worth in the future. I try to be positive but dealing with rules and more rules is draining!! Cheers Chris

 

[StevenRoorda]

Chris,

As someone who has been working as a civil engineer in the land development industry in Ontario for over 17 years, there are a few thoughts I have that you may want to consider. Even if the land has sufficient area for a house, there may be a more significant problem trying to fit a septic system on the lands. Being a ten acre agricultural property, I will assume that there is no city sewer available within a reasonable distance. So, woodlots, high groundwater conditions and less pervious soils all could contribute to leaving only a limited area available to place a septic system. I will guess that the groundwater levels are high due to the proximity of the floodplain. The cost of the system starts to increase when materials have to be imported to accomodate the septic system and bring it above the groundwater.

Furthermore, the water supply could be an issue. If there is a well that can accomodate the requirements of the horses and a house, great, but you should likely check into that before closing. Again, on the assumption that there is no municipal water supply available.

Finally, regarding subdividing the land: there are a multitude of issues that could contribute to make this site of limited value to a land developer. Setbacks from wetlands (15-50+m), floodplain requirements, setbacks from ecological features (woodlots, certains types of salamanders, rare trees, butterfly habitat etc.) all make some properties non-viable to subdivide. Even if all the physical/ecological issues could be addressed, the current political climate, the current legislation from the province, the region and the local municipality all make the process very expensive and time consuming and in some cases, total non-starters. Ontario`s "Places to Grow" document limits the ability to subdivide land even more. Some of the projects I have worked on have taken many years and tens (even hundreds) of thousands of dollars in studies to come close to approval.

Land development can be very lucrative, but the due diligence is extremely important for the process in Ontario, especially for the smaller development properties. I have spent many thousands of dollars of my client`s money on investigating lands for them, and and having them drop the deal because they can`t make it work.

Good luck,

Steve

 

[JeffSmith]

Great info Steve,

Sounds like more than a few hurdles for Ontario developers. Rare trees, flood plains and butterfly habitat!
2.47 acre subdivisions from 80 acre farmland parcels are encouraged in around the Edmonton area as well as smaller 4 acre sub divisions out of 7.25 acres etc.
I`d be happy to share any info regarding Edmonton area small subdivisions with anyone that may be interested. Contact me via my email address.

Jeff

 

[ccameron]

QUOTE (Jeff @ Nov 29 2007, 11:35 PM) Great info Steve,

Sounds like more than a few hurdles for Ontario developers. Rare trees, flood plains and butterfly habitat!
2.47 acre subdivisions from 80 acre farmland parcels are encouraged in around the Edmonton area as well as smaller 4 acre sub divisions out of 7.25 acres etc.
I`d be happy to share any info regarding Edmonton area small subdivisions with anyone that may be interested. Contact me via my email address.

Jeff

Thanks Steve for the valuable info. I have since decided to get out of the deal as I believe it is far too complicated for me to tackle! I will stick to homes in the $100 000.00-$150 000.00 as rental properties. I do wish that a good commercial property would come up for sale.. Self storage seems to be of intrest to me. You can still maintain another job, you need limited to zero employees and there are alot of tax benefits. This web site is awesome! Take care and happy investing! Chris

 

[markl]

Chris,

I know some people who buy land like this put a modular home on it and either flip it or rent it out.

If you could get it at the right price this might make sense.

Regards,

Mark Loeffler
www.homeownersoon.com