Should you lease or buy farmland?

When expanding your farming operation, it’s important to consider your options

Adding more land to your farming operation typically means one of two things: you’re going to either lease land or buy land.

The biggest determining factor for whether to lease or buy comes down to finances, said Wade Berlinic. He’s a professional land consultant and associate broker with Hammond Realty based in Yorkton, Sask.

If farmers don’t “have access to capital for a purchase, they might be able to do a lease. But if they have access to capital to make the purchase, in the long run, most individuals still prefer that,” Berlinic told Farms.com.

A lot of younger farmers must begin by leasing land, said Berlinic.

“When you're young and you have to dish out $350,000 to $500,000 for one quarter of land, that's a hard pill to swallow,” he said.

Producers who have been around for awhile, in contrast, usually can buy more land. If you can purchase farmland, it brings several benefits in the long run, said Berlinic.

“By buying, you're also cashing in on the appreciation,” he said. “When you start to have land appreciate, even at an average of 5 or 6 per cent a year, that's huge. So, if you buy land, not only are you paying towards owning it, but you get to cash in on the appreciation value. Long-term, farmland appreciation is probably around 3 to 4 per cent say over 25 years.”

If you do opt to lease land, you will still see some benefits. For example, you can use lease payments as a write off for taxes since these costs are a direct expense, said Berlinic.

Land in Saskatchewan is always changing hands, said Berlinic.

“Many, many years ago, the majority of land was traded through the winter. Although that is still true, in the last eight or 10 years, we have seen a lot trade in the summer,” said Berlinic. “It's a year-round business at this point.”

AlexLMX/iStock/Getty Images Plus photo