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For more than three decades, I have been privy to countless conversations with my Ag clients about purchasing land. And while many things have changed over the years, including the industry and the men and women involved in it, I kept hearing the same misconceptions about ownership time and time again.
There is a lot of value to be gained by increasing land ownership, but having more cannot, and should not, be the only consideration.
Purchasing land is a big, and multifaceted, decision but by keeping the following seven deadly sins in mind, you can make sure that you’re making the right purchase for the right reasons.
1. Making land ownership your first priority
This means not putting it ahead of profit, your relationships or the best interests of your operation. Ultimately, it is profit that has to pay for land and, for most owners, your first priority has to be increasing profits to a level that allows for the purchase of land.
2. Buying poor land
You’re making a long-term purchase, so take the time to make sure it’s the right one. Whether you buy good or bad, its going to be with you for a long time. Land prices these days reflect scarcity more than quality and the productive difference. If you make a purchase you know doesn’t have long-term value, keep that in perspective moving forward.
3. Getting emotionally involved with fixed assets
Your land is such a fundamental part of your operation it can be hard not to get attached—but it doesn’t do your business any good. Remember land is an asset for you to use to build profit.
4. Over-aggressive debt repayment
Far too many farms get themselves into trouble because of bad debt structure. Be practical about your capacity for debt repayment on all purchases, especially land. Remember that maintaining cash flow and liquidity is critical.
5. Employing fixed versus variable rates
Choose your rates wisely, starting with an objective understanding about the level of debt your taking on and the reality of your balance sheet and income statement. Factor in an awareness of Canadian monetary policy and do your best to make a proportionate and rational decision.
6. Losing sight of how you make money
Farmers make money from controlling farm assets; control doesn’t just come from ownership and profit comes from proper management. Optimizing your assets maximizes your ability to convert management into profit, leading into the ability in turn to own more assets. Your first priority should be business growth, not just growing your land holdings.
7. Trying to buy it all
Don’t let yourself be fooled by the idea of a once-in-a-lifetime ownership opportunity. It could lead you to overpaying, buying the wrong land and missing out on opportunities for the right land when it does come up. Make your purchases based on your strategic goals and don’t let “For Sale” signs sidetrack your decision-making.
Land ownership can be an important, and profitable, part of building your business but every purchase you make should be well thought-out and fit within your overall business plan, long-term strategy and goals. Avoid the seven deadly sins and you can hopefully avoid buyer’s remorse. Purchasing land feels good in the short term; but purchasing the right land and managing it correctly will have you on a purchaser’s high for years to come.
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