Real estate bubble coming again?

NoMoreTO

Pelican
presidentcarter said:
Hopefully I'm the only one thinking it's wise to save for acreage, not a fancy house or condo in a dense urban market.

Land is where it's at.

But NPCs need to keep buying up overpriced condos and small lot family homes.:tard:
I bought a farm in February, the deal closes end of May. When this all started going down in March I was considering walking away from the deal.

In the end I decided to stick with it because I have a business plan for the farm, great financing, and the thought that farmland would be a safe asset space. The bright side is I sold a bunch of stock in preparation for the purchase (Not that I got out of it all before the drop).

When I was looking in my area, we used a 1 acre building lot as comparable. As my farm wasn't too large, and had a building lot we factored that in to the price. There was a 1 acre building lot going for 200K CAD in my area, which kind of gave me the push to pay a slight premium on the farmland.

When bidding on the land, there was another buyer and our hope was that "it wasn't a city buyer". Basically City people come in and overpay. They come from the city where simply put there is a lot of money flying around. I can vouch for this myself, a couple of my buddies from Toronto can't believe how much land I own. I have 92 acres of land 50 workable and its about the same price as a 800 sq ft condo I own downtown. It's hard to get your head around it. The condo is rented, and actually would cash flow more than the farm, but when you think of value .... something seems out of sorts. Once the mindset changes you could see a shift very quickly - think Roosh Mountain home. It doesn't take many people from the city to really cause a shift in the country.

A sale recently went through for 300K on another rural lot, I haven't got the details on this one but this is likely city money.

In my area in particular, you can't sever a new lot off your farm anymore, so they aren't building any more of them.
 

911

Crow
How far is your farm from the city, NoMore?

The people moving to the land are almost exclusively of European stock. Most immigrants don't like the rural life, and come from highly urbanized places where they lived in apartments (China, India or Latin America). So you're going to start seeing some ethnic polarization with white exurbs/rural towns and mostly non-European city centers. Same dynamics in the cottage home market, immigrants aren't into cottage life.
 

paninaro

Woodpecker
I bought a farm in February, the deal closes end of May. When this all started going down in March I was considering walking away from the deal.

In the end I decided to stick with it because I have a business plan for the farm, great financing, and the thought that farmland would be a safe asset space. The bright side is I sold a bunch of stock in preparation for the purchase (Not that I got out of it all before the drop).
Are you planning to do commercial farming or subsistence farming? I had a few relatives who were farmers in the US midwest. One did dairy, another did crops like corn and soybeans. All of them got out of it after a few years. There was just too much financial risk involved. One drought, flood, or infestation and your entire crop is ruined. Even if you have a good crop season, you're at the whims of the commodities market, and you can end up in a situation where the market rate for selling milk or corn or whatever means you barely eke out a profit.

Then there's scale. A lot of the small and midsized farms have been bought and consolidated because there's a big economy of scale. Newer and more advancd tractors can cost $300k+, so better to spread that cost over the revenue you get from 1,000 acres compared to 100 acres.

Where I live (major US city), the farmland on the edge of town has surived because of zoning laws (can't subdivide and put up a townhouse development), but they make most of their money from agrotourism, like pumpkin patches and pick your own strawberries to draw in the city slickers on the weekend. I guess there's less volatility in that business, and there's enough people in the city willing to spend money for it.

I think for smaller farms, there's a good niche market in selling higher-end goods at farmer's markets in the city. The customers there tend to be willing to pay more for quality. At one farmers market I visit in the city, some of the vendors come from 3 hours away, since the money is so good.

How's the climate where you are in Canada? I have another friend who is a gentlemen (hobby) farmer in Scandinavia and his issue is the growing season is so short he's lucky to get in 2 harvests per year.
 

NoMoreTO

Pelican
2 hours Southwest of Toronto. 1 hour to a smaller city (500K)

Agree totally that its mostly Euro stock moving out to the country. Lots of yuppies.

How far is your farm from the city, NoMore?

The people moving to the land are almost exclusively of European stock. Most immigrants don't like the rural life, and come from highly urbanized places where they lived in apartments (China, India or Latin America). So you're going to start seeing some ethnic polarization with white exurbs/rural towns and mostly non-European city centers. Same dynamics in the cottage home market, immigrants aren't into cottage life.
 
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NoMoreTO

Pelican
I think for smaller farms, there's a good niche market in selling higher-end goods at farmer's markets in the city. The customers there tend to be willing to pay more for quality. At one farmers market I visit in the city, some of the vendors come from 3 hours away, since the money is so good.

How's the climate where you are in Canada? I have another friend who is a gentlemen (hobby) farmer in Scandinavia and his issue is the growing season is so short he's lucky to get in 2 harvests per year.
Thanks for the background, yes I agree totally farming is tough business.

It'll be niche. Climate here is similar to Michigan. My father was a farmer so there is some family land and equipment I could potentially leverage. For now I need to do proof of concept. I'm sowing hay (60 - 40 grass legume split) & oats this year as part of a plan to establish pasture. Check us out on the Farming thread.

Farming Aside, as real estate I think its a good plot. If I do some cleanup, get a house built it'll go for a serious buck. There's lots of people who want a nice pad in the country and will just rent out the acreage. It's common in these parts for people to pick up a 50 acre plot, with an empty lot or tear down house and put their dream home on it. If it's delivered on a platter they pay big bucks.

All of that might take a haircut though in the near term.
 

911

Crow
The whole economy will take a haircut, but this product already was a growth niche before covid, and will actually get an additional boost going forward. There are still tons of people with stable incomes and savings. Even with a 10% decline on their big city condo/townhouse, there is plenty left for rural real estate.
 

jordypip23

Pelican
Gold Member
2 hours Southwest of Toronto. 1 hour to a smaller city (500K)

Agree totally that its mostly Euro stock moving out to the country. Lots of yuppies.
Cool, you must be somewhere in the vicinity of London, Ontario if I had to wager a guess. As the crow flies not terribly far from the Metro Detroit area of Michigan and Windsor, Ontario.
 

Laner

Hummingbird
Gold Member
How far is your farm from the city, NoMore?

The people moving to the land are almost exclusively of European stock. Most immigrants don't like the rural life, and come from highly urbanized places where they lived in apartments (China, India or Latin America). So you're going to start seeing some ethnic polarization with white exurbs/rural towns and mostly non-European city centers. Same dynamics in the cottage home market, immigrants aren't into cottage life.
Overall I would tend to agree, but here in BC the Sikhs are snapping up all the berry and fruit farms they can get their hands on. And since they mostly avoid doing any business in the adjacent farm towns, it can be pretty devastating to the little main street businesses.
 

911

Crow
That really sucks, interior BC is the best land in Canada. There is a huge problem in having large and very insular immigrant communities that won't integrate, they take over, create their own business circles and impose their own third world values.
 

Deepdiver

Hummingbird
Gold Member
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This YT Urban Farm to Restaurant and home table channel is fascinating and focused on real biz profitability... This is a recent five most profitable crops video... This type of farming avoids competing with conagra and Monsanto and can be done with a decent rototiller and wheel barrow and a few hand tools and a calculator. A decent smart phone allows you to keep your community access farm customers in the loop about what you have planted and when it will be freshly harvested... Many veg/vegans buy fresh and pay for exp delivery if they can not pick up from your farm.... Key to biz is reliability and dependability... Saves you trucking transport costs.
 

911

Crow
Nice find, Diver, are you planning on getting into farming?

This kind of reminds me of Dukakis, MA governor who was the biggest dork to run for president before Jeb! and Buttgig showed up, he advocated that struggling farmers turn to crops like Belgian endives, and boy did he get roasted for that!

I have friends on the crunchy side, a hippyish couple originally from out West who moved out from the big city after their first child to run a small farm along the CSA (Community Supported Agriculture) lines, with a weekly basket subscription program. They got fully subscribed right away. I think they make a small revenue, maybe $40k together, but they don't optimize their operation the way that guy above does, and their lot is fairly small.
 
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Arado

Pelican
Gold Member
Some interesting quotes in the latest letter from Fundrise to investors. Seems reasonable and they've been pretty defensive the last few years in anticipation of a recession. Only question now is what types of commercial and residential real estate are viable for a long term investment in a post-COVID world? Will people still live in apartments and cities in numbers great enough to generate a good return? Will malls and shopping centers be a viable business model in an e-commerce dominated world? Will the market drop quickly enough to justify remaining in low yielding cash and debt, with the risk of currency debasement ever present due to the ongoing printing press ? Is it a viable strategy to just wait until the relief money and forbearances run out and insolvent businesses are forced to go bankrupt?

The negative impacts of such a downward spiral are numerous and while the current disruption in the market will inevitably lead to new investment opportunities, we feel that we are still early in this process and now is a time for caution.

Real estate markets move slowly (typically lagging the public stock market), so we believe that it will take several months for the downstream effects of the pandemic and subsequent response to fully work their way into our corner of the economy. The Great Recession, for example, lasted 18 months, and many of the best buying opportunities in the real estate market didn’t open up until 12 to 24 months after it began. Meanwhile, it’s barely been 60 days since the current downturn started.

At this point, we feel the smartest thing we can do for our investors is to begin putting ourselves in the position to act on these opportunities once they do start to arise. This means both continuing to build up a larger cash reserve across the portfolio (which today totals nearly $200 million in cash across all active funds) and establishing ourselves as a ready and willing buyer within the channels of brokers and agents that act as a conduit to future deal flow.

• Generally, we expect there to be three broad phases of our investment strategy over the next 12 to 18 months.

1 - Although spreads have begun to normalize as liquidity returns, we believe there is an interim opportunity to deploy a portion of our existing cash reserves from now near-zero yielding money markets into specific, more liquid securities such as REIT bonds (i.e., loans to public real estate companies), where we have a deep understanding of the underlying assets securing the debt due to managing and operating very similar properties ourselves.
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2 - The combined impact of the shutdown of non-essential businesses with the rapid change in the commercial lending environment is likely to produce a cohort of projects that are behind schedule and in need of additional funds to reach completion.
In certain cases, these projects may not have inherent flaws or weaknesses, but are simply the victims of poor timing and circumstances changing beneath them…In these instances, the combination of substantial cash reserves, along with our experience as an operator and investor in similar projects, should put us in a compelling position to recapitalize select projects that we believe have the strongest fundamentals.
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3 - Capitalizing on opportunities for the direct acquisition of assets whose prices have come down substantially below where they were trading previously will have the longest lead time. This is primarily due to the fact that in most instances, unless an existing owner is in a truly distressed situation, they are unlikely to sell an asset for substantially less than what they had expected to receive before the downturn. In other words, external events must force a sale. Even for assets such as failing retail shopping centers that are likely to experience the most immediate and substantial negative impact, it would take 12 months or more before an asset actually changes hands at a distressed price.
 
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