Is there such a thing as Land Yields?

Farmers are obsessive about crop yields, but when it comes to maximizing their actual land yields, they pay little or no attention

When it comes time to sell your biggest asset, the farm, just like crop yields, land yield becomes a very important factor. Most land transactions in the GTHA area will be based on net land yield, so you want to maximize your land yield.

There are many aspects to land yield, and I'll try to highlight a few aspects with examples to better explain how to optimize land deals.

Most land sale transactions will be based on net developable acres. This means the actual amount of land that can be turned into new homes, condos, new industrial buildings, etc.Things like forested areas, creeks (man-made or natural), ponds, wood lots and any other natural feature will be removed from the equation.

In order to maximize your yield, you should look at creating as much net acreage as possible. For example, you don’t want to plant trees (unless they are for an agriculture crop), since over time, this will be deemed part of a natural heritage system.

The second aspect is planning. Farmers love to plan their crops and field rotations, etc. but when it comes time to planning out the ultimate sale of their farm, they failed to do so. Many times, the planning cycle for an area of farm land can begin 20 or more years prior to the actual sale of the property.

To maximize your yield, you want to be involved early on in the process to understand what will happen with your lands and how much of your lands will be impacted by others.

For example, I know of a farmer who decided not to get involved with a new landowner’s group for his area or hire somebody to represent his best interest.

So the landowner’s group took it upon themselves to put a stormwater management pond on this person’s farm. They sold the farmer on the concept by suggesting that he’d get paid market value as per their Agreement. What he failed to realize was the market value of the land was already set at a fixed price in the Landowners Group Agreement.

In the early 2000’s we were involved in such a scenario. The pond value was set and by the time our actual pond was completed, severally years later, the going rate for land was 3-4x the value in the agreement.

Thankfully, most current Landowner Group Agreements now include a mechanism to capture price inflation in the value of land when the actual payout occurs. So, once you've done a great job of optimizing and maximizing your Land yields, the selling process can be arduous and extremely stressful. Whether you like it or not, you’ll be receiving many calls from various realtors, brokers and developers all looking to take advantage of the situation.

How do you know what the land value actually is now and/or in the future if you're not involved in the planning process? I’ve seen many examples where farmers sell their lands based on a perceived value, that is much higher than they could have ever imagined, only to find out three to five years down the road that the value of the lands they had sold earlier, have increased an additional four to five times greater than what they sold the farm for. Another example of what not to do: a farmer use a drainage plow to collect some spring water runoff so he could get in the fields sooner. This ditch dissected his property into two developable areas. When his land finally come in to development, the local Conservation Authority ended up taking 35 meters around this ditch, that started out as less than a foot wide.

These are only some of the aspects of maximizing land yields. There are other aspects and strategies that farmers can employ to retain the maximum value, even after the sale of their lands, through joint ventures or further refinements or selling smaller parcels of land and then using the proceeds to develop their remaining parcels of land on their own.

You or your representative will want to get involved early on in the process to make sure your lands are included in the future developable areas, you will also want to lobby the various levels of government to include your lands as part of future developable plans.

When it comes to maximizing your land deals, I can be of assistance early on in the process, offering flexible payment options that are customizable to your particular situation. It’s essential to get assistance early on in the process, so when the day comes for the sale of your biggest asset, you've maximized your ultimate yield!

E-mail: Davidv@landlookout.ca

Telephone: 905-638-2590