More Money Podcast - 012 How to Become a Farm Investor - Liquid Independence, Blogger at Freedom 35 Blog

Episode Date: August 5, 2015

Liquid Independence, the blogger behind Freedom 35 Blog, and I talk about investing in farmland and his goal to be financially free by 35 years old. Long episode description: When I was in Vancouver in June for my bi-annual visit with the HB, I scheduled some time to talk to one of the first personal finance bloggers I got to know almost 4 years ago. His blogger name is Liquid Independence and he runs the investment blog Freedom 35 Blog. As you can guess from the name of his blog, his vision is to do everything he can to achieve complete financial independence by 35 years old. Not only is that a pretty incredible goal to have (I’m just hoping to save up enough for retirement by 65 personally), but he is super savvy when it comes to property investment. He owns his own condo as well as some farmland in Saskatchewan. In this episode, I discuss with him at length his property investment strategies and what steps you need to take in order to become a farm investor too. Since Liquid’s journey is so interesting, I’ve pulled some of the best and most relevant blog posts of his and listed them below. I’ve also done a bit of research and found some other great resources about investing in farmland in case anyone (like myself) is Googling stuff about it right now. Relevant Blog Posts by Liquid Independence 9 Year Plan to Financial Freedom Frequently Asked Questions About Being a Landlord My New Saskatchewan Farm Farmland Investing Why Invest in Farmland School Drop Out Other Farmland Investing Resources Farmland Investing Explained ebook by Money Talks Articles about Canada farmland by The Huffington Post Article on the restrictions on foreign ownership of agricultural land in Canada by Gowlings Shownotes: jessicamoorhouse.com/12 Learn more about your ad choices. Visit megaphone.fm/adchoices

Hello, and welcome to episode 12 of Mo Money Mo Houses. I am your host, Jessica Morehouse, and today I'm going to be interviewing Liquid Independence. That's not his real name, obviously, but that is his blogger persona. And I was actually in Vancouver for this interview not too long ago, and we talked about a few things, but most specifically investing in farmland, something that I don't think a lot of people are talking about or writing about. And it seems really a great way to invest. Basically, by the end of the episode,

I guarantee you, you'll probably be looking at farmland online, just saying I will be there with you. So I'm very excited for this episode. So let's get to it. Thanks for joining the show, Liquid. Thank you for having me. You're welcome. So let's kind of start from a place that I like to start from, which is the beginning. I'm always really interested in how people get interested in personal finance because most people just aren't.

So what was it for you? Where did it start for you? When did you get really interested in financial management? I think the upbringing we have plays a big role in how we look at money. From a young age, I always had a financial education kind of imposed on me. Just from family, like my mom and dad, they're fairly frugal. They invest a little bit. And over time, I guess I just kind of learned from them. It wasn't until after high school, like 18, when I decided to really branch out and kind of learn about money and financial planning on my own. It just seemed like the natural thing to do because I'm an adult now and then there's responsibilities I have and money just seems to be a natural part of adult life. So that's pretty young for most people. I bet most people don't. Like, all right, now I'm going to get interested in finances right at 18.

Because I don't think, yeah, I think I was like in my 20s. So that's actually pretty responsible adult thing for you to do right when you turn 18. It's awesome. I had some savings from a part-time job. So I put that away. And of course the natural question is, what do I do with that money? So I went online and just did some research, found out there are some options I can put it in,

like savings account, GIC, mutual funds. So my first kind of step into the personal finance world, I guess, is just going into a bank and talking with a financial advisor. Still really amazing. I think I just did that this year. And buying my first fund. And it just felt like the right thing to do because I didn't want to have money sitting there.

Yeah, that's fair. And I didn't have any upcoming purchases I wanted to make. So yeah, that's what I did. That's awesome. So you went to school after high school? Did you go to post-secondary? I took a year off and then I went to, I was working part-time at Safeway and then I went to the local university here at UBC. That's a little university called UBC. No big deal. Yeah, you've probably heard of it. But I only went there for one year.

I studied engineering and I realized it just wasn't for me. And I liked the creative side a lot more. So I decided to just get out of there and then I went to an art school instead which school? I can't say I'm an art nerd so I always want to know so after that I graduated after one year it was just a diploma but it was enough to get me

into the door of graphic design which is what I'm doing right now full time so as you finish school and you get your first job, did kind of how you deal with money change a little bit? Did you kind of, you know, amplify things a little bit and what did you do? Yeah, for sure. After I got my first job, I really had no idea the amount of money that, you know, I would be making. So when I got my first paycheck, it really had no idea the amount of money that I would be making. So when I got my first paycheck, it was quite a lot, I thought. It was $1,500, $1,400.

That's pretty good for your first job, I'll say. Yeah, that's awesome. And then so after putting my bank, I just thought, what's the best thing to do here? And I looked at stocks and houses, different things, and I decided real estate was the right thing for me to do. So I went into the MLS website back then and I asked a few realtors about what's available and I wanted to move out of my parents' home basically. So I saved up for one year, roughly a year,

and then I moved into my own apartment. Damn. Like your first, you owned that apartment, you bought your own place? We're in it right now. We're in it right now. Oh my God. What year was that?

I'm curious. That was 2009. Man, good year to buy a bit, huh? It was, but the thing was, back then people told me to not go in because they thought the market was going to pop. And it sort of did. In 2008, real estate price did come down a little bit, especially in the beginning of 2009 as well,

because that was during the recession. So it dropped about 10% around the Vancouver area. I guess I got really lucky because that's when I went in. And then the next year bounced right back up. Totally. Wow, you're really lucky. It's so funny that you mentioned that someone told you, oh, don't do it, the property's going to pop or whatever.

Well, people are still saying that. It's 2015, right? Yep. There's a bull market in Toronto real estate for almost 20 years now. I don't know what to do about that. We looked for a place back in January and it just was crazy. We're hopeful that it will pop, but I don't know. It's hard to say. Yeah. It's hard to say. You can't predict it.

Lord, that's a whole other conversation. Talk about that for like two hours. Um, so you bought your first, uh, condo, which is awesome. And you've just been keeping it and paying it off. And, and, and so after that, because I know another really, like one of the things that I think is super interesting about you is you didn't just buy a condo in a little bit after that. I'm not sure when we'll get into that. You bought some other type of property. Yes. So in 2012, so this was a few years later, I decided to buy some farmland. And it's just because I looked at the valuations of different assets around Canada and the US, and it seemed like farmland seems to be undervalued by quite a lot, just relative to other things. Well, lots of people, yeah, when they think of, oh, I'm going to invest in real estate,

they mainly just think of like residential, like a house or a condo or an apartment, whatever. But yeah, and people don't really think of, oh, or you could buy land in the prairies and you can make money off that. So what, like, how did you learn about that? Because that's something I find it so fascinating that you are doing this because I don't know if anyone else blogs or talks about this. And it's like, why aren't we all farmers right now? Well, I was just watching TV one day on the Business News Network and someone just mentioned about a farm fund where they buy farm property and then they rent it out and they collect cash and they are seeking for investors. It's pretty common in the exempt market area. So I thought, well, that's interesting.

I've never thought about going to farmland, but it is technically a property. It is, yeah. There's, like you said, residential and farmland. There's also commercial. There's no reason why as investors we should limit ourselves to just residential. So I looked into what the prices were back then of farmland,

what kind of cash return you can get on it, what the risks are, and does it make sense for someone like me? So with my long-term investment horizon, it seemed like a good fit. So I looked first in BC, because that's where we live. But there wasn't any suitable places here. Is it really expensive to buy farmland in BC?

It's really expensive. It's like $20,000 an acre. That seems expensive. Yeah. So I went out further west to Alberta. Still kind of expensive, you know, $5,000, $6,000 an acre. And then I went to Saskatchewan. Oh, yeah.

And I looked there and it's relatively cheap. About $700, $800. Stop. Oh, my God. Well, this was back in 2012. I wonder how much it's, well, I guess, has it changed quite a bit since you first bought? Yeah, it's probably gone up 50, 60%. Well, that sounds pretty damn good.

Yeah, so the reason, Saskatchewan's actually still is one of the cheapest jurisdictions to buy farmland in all of North America. Is it really? Yeah. Wow. It's just because before the government restricted ownership, so people who were not Saskatchewans can't buy farmland there. Right. But I think around 2000 or something, they've opened it up so anybody in Canada can go there and buy.

So if there's more demand, this brings up the price. So that's why it was really low before, but now it's catching up to the other provinces right and still probably lots of people aren't aware that of just like how good of a deal you could probably get there just because before you couldn't so maybe people don't know that they can and you just got in again the right time I guess I mean it was on its way up but I got in and just kept going up. Even today, like last year, I think 2014, the Farm Credit Canada does their annual farmland value report. And I think it went up something like 14 or 18 percent. Wow. Yeah, it's just a different kind of investment.

Definitely. Like how, I guess just from someone who has no idea what it entails, because like when you buy like a house or condo and you rent it out and you just, you know, try to invest that way, it's a little bit simpler. You're like, okay, well, I live in a house, so I know what needs I need to kind of provide. It's like if there's a plumbing issue, I'll have to fix that for my tenant and all that stuff. But for a farm, what do you have to do to maintain that property? In terms of maintaining the property, not a lot. If there's a fence, sometimes the fence gets broken and you might have to fix it. Depends. But there's a

couple of ways you can buy farm and make money from it. The first way is crop share. So this is assuming like you don't farm yourself, which I don't, of course. So what you do is you rent it out to a farmer. They plant the seeds and everything they harvest and whatever they sell the crops for at market, you split that like 60 for him, 40 for you or whatever deal you make. The other way, which is the way I'm currently investing is through cash rent. So there is a set price. So right now it's about $10,000 a year that the farmer pays me and then he can sell his crops for whatever. And he has insurance. So if it's a bad year for him, I still get paid.

His insurance pays him, so there's not really any losses. What's kind of the most common way to do that? Or is it just kind of both? It kind of depends on your knowledge of farming background. I don't know much, so I prefer cash. Yeah, that makes way more sense to me. It puts the risk on him, I guess. And less financial risk on myself.

But generally, crop share, you make more money. Because he can sell his crops and make like $50,000 just for those farmlands that I own, which is about 300 acres. So that's how much crop he can get out of that if he's planting canola. But cash rent, I think, is just better for me because I don't want to go there and see what his yield is. So you'd probably feel like,

oh, I should probably visit once in a while just to check in. But as what you're doing right now, you don't really. Do you need to go there to check it out? No, I trust him. He just says he does the work and he tells me what he plants and I write it down in a journal. And then we just go from here. Every year it's the same thing.

I get two checks, once when he seeds and once when he harvests. And I just deposit those checks and he does his thing and there's no problem. That's the nice thing about agriculture is nobody's going to walk around your place with dirty shoes. If they do, who cares? It's a farm.

And there's no plumbing, no toilet, no so it's it's very low it's literally just farmland there's not like a farmhouse on there and you live there oh you could buy a farm like envision this whole farm family yeah you could do that so you can buy farms with houses on it with barns with um silos with different kinds of things i just bought just flat land yeah just to keep things simple. It seems way more simple, doesn't it? It is, yeah. And you have all these choices when you go look for it.

I guess, yeah, because there's farms where they have animals and stuff and that's probably a whole other ballgame. Yeah, the easiest way is to just contact a real estate agent around the area you want to buy and then just get updates from him or her and they'll send you new listings. And it's the same way as buying any other property like a house. Just wait for the right opportunity, the one you like,

and then you can just put an offer in. One of the farms I bought, so that's managing the farm. Yeah, yeah. Get groceries delivered across the GTA from Real Canadian Superstore with PC Express. Shop online for super prices and super savings. Try it today and get up to $75 in PC Optimum Points. Visit superstore.ca to get started.

But actually buying a farm is a little bit different. Is it? It's a little bit tricky depending on where you are. Did you actually go to Saskatchewan and look at property? I did just for research. But when I bought, I was not there. And I didn't see what I was buying, but I saw pictures and I was good enough. But yeah, the buying process.

So there's a few ways. You can just make an offer the traditional way. But one of the farms I bought was done through an auction. So there was an auction house. I was contacted by my real estate agent. He says, hey Liquid, there's this auction here. Are you interested? And I said, sure, I'll see what it's about.

So I got some information from him and I did something called a bid by proxy. Right, okay. So I wasn't there, but there were three other people there bidding for the auction. But I was here in Vancouver. Was it like they were there with the telephone like in the movies? Yeah. Oh my God, that's amazing. So I was on my cell phone with this woman who was my proxy.

And so she was bidding for me. I would just tell her what I wanted to do. So yeah, they started the bid at about $130,000. And it just kept going up and up to $150,000 and $160,000 until there were two of us left. And it went up to $170,000, which was the other guy's bid. The other two dropped out. And then in the end I took it for $172. Now when I did my evaluation for the farm,

I kind of thought, well it should be worth about $160 to $180. So I thought $172 was an okay price. The thing is, even if it was expensive now, it would probably be cheap by next year just because of the way things are going there. So that was the easy part, and it was really exciting when I won. So there was a lot of noise,

but you can hear it through the phone. But after that came kind of the more challenging part of signing the deal and getting it done. So before doing this, I made the mistake of not going to my bank first and asking for like a finance for a loan. So after the auction I won, I basically signed the agreement saying I will buy it. And right away I have to pay the 10% deposit, which is $17,000. But I didn't really have that kind of money.

I had a couple thousand in my bank account. How many people have that much money just laying around in cash? So luckily, I knew I had some money in my line of credit. So I borrowed money from there to cover the entire $17,200 or whatever it was. And then I went to my bank with the proper documents, with information about the farm, some pictures. And I told the guy at TD, who I got the proper documents, with information about the farm, some pictures. And I told the guy at TD who I got the loan from, and I said, here is what I bought. Can you please give me a loan?

Here is what money I can expect to make from it. And he said, sure, we'll do it for you. And the process takes about two months usually. But the purchase agreement I signed was three months because I thought just in case. Yeah, no, that's smart. And it's also in another province, so it might be a little more time consuming.

And the seller who did the auction, who sold his farm to me, he wanted to take a trip to Mexico afterwards. But we thought three months was good and he'll get the money and then he'll be on his way. So it wasn't until a couple months in that I really looked at my account and I didn't really have the full down payment.

Because the bank said they will lend to me, but only up to 70% or 75%. So that means I had to have another $25,000. So from the time that I purchased it to three months later, I had to somehow save $25,000. But even if I saved 100% of my salary, it wouldn't even come close.

It wouldn't even be $10,000. So two months in and the bank said, your loan is looking pretty good, we can get it done. Just make sure you have the down payment on your end to make the deal complete. I wasn't too worried. I thought, yeah, I only have several thousand saved up but I can do other things to make it work.

So I actually used my credit card and put $5,000 on it. Now some people might think... I know, I feel like that's a bit of a personal finance faux pas. Yeah, it is a faux pas. But if it's the choice of paying interest on a credit card balance or potentially losing $17,000, like my deposit, which I already give to them and it's with a lawyer, then I'll take my chances with the credit card.

You've got to do what you've got to do to make it happen. It's the lesser of two evils. So I did that and I had to sell some stocks and I used my margin loan and I used more of my line of credit and I had to open up a home equity line of credit for my condo to take money out of. In the end, I did manage to get that amount saved up,

which is nice. I had to take a lot of debt on to do that, but it was worth it. So two months after signing that, and after getting all the down payment I needed, the $25,000, the bank called me. Because there was only a few weeks or a month left before the deal had to be closed. So the bank's like, actually, we don't have an appraiser for you. So you're going to have to find one, make them appraise the property and then get, you know, get us the information so we can know how much the property is worth relatively to other

properties around there. And then we can say, okay, what is 75% of that? Because otherwise, you don't know. So that was a problem. Yeah. You're like, I just want to buy a problem. I called my lawyer, my realtor, they're all in Saskatchewan about ideas, maybe they knew someone. And in the end, I went to another TD branch. I just called them up, they're in Alberta. And they're actually the ones who are doing the loan for me because they're the commercial branch of the TD bank. So they said that there's this guy, he lives around the area where I bought my farm and he is a licensed appraiser of farmland so he can do it because it's very specific. It's not the same thing as looking at a home. So there are these rules

and the way TD wanted is my bank wanted a special type of appraisal that had to be in a certain format. I think it's called DMAS or something. So it takes a while to do but this guy said he'll do it. Or the bank told me, so I just needed to contact this company that this guy works for and then he should be able to just go out there

and appraise the farm and then give that to TD and then they can give me the loan and I can give that to my lawyer. But this guy was on vacation. Oh, it's just like one thing after the other. Yeah, so he wasn't going to be back until a week later. Not much I can do so I waited but as soon as he got back I told him about my situation and I said, hey, there's only a couple weeks left

that I need to get this thing done. Can you make it a priority? And he said, sure, he'll do it but at that time there was a big storm in Saskatchewan, just around the Regina area where I bought my farm. And it was winter. So even if he went out there, like if he could, he wouldn't see anything. Yeah, exactly.

So he had to wait until basically a few days later. Yeah. So then it was the final week now. Oh my gosh. Of the agreement. And it was Monday. So, you know, I called the guy and said, hey, can you please go out there now and, you know, do it? What else can you say? So it all worked out in the end though. That's what I'm kind of feeling like because you have the farms now. Yeah, I guess right now, I did end up getting the farm.

It was really nerve-wracking though because we got the documents from the loan office at one o'clock Vancouver time. But that's two o'clock Alberta time. And that's three o'clock Saskatchewan time where my lawyer lives. So we kind of have to juggle three time zones,

which is another issue. But other than that, I got the papers. I signed it off real quick. I emailed it to my lawyer. She put everything in an envelope after I signed everything again. She put a stamp on it and mailed it off to the land title registry office. And done. Oh my God.

So on the last day, it finally... Final day, final hour kind of thing. Yeah. Oh my God. So on the last day, it finally- Final day, final hour kind of thing. Yeah. Oh my gosh. Tragedy adverted. So knowing all of that, what would you suggest if someone wanted to go the route and I want to invest in farmland, what would you suggest they do? Well, first of all, if you're going to buy a farmland directly like what I did,

it would be really helpful if you didn't use financing, like if you just use cash. Especially if it's cross-provincial like this when you're doing this. Because if I had $172,000 just lying around, then I would totally just buy the farm. Very simple process. No need to get a mortgage. Because all of this trouble is just because I need a loan. Without a loan, you can get through the title office really quick.

You just sign documents. Can you do, because I know when we were looking at buying a house, we got pre-approved and there's a very structured way in getting financing for a resident. And it's just like, you get pre-approved and there's like a very kind of structured way in getting financing for a resident. And it's just like, you get pre-approved for a mortgage and then you find a place, you like it, you bid on it, you get it, you get your mortgage, you get a place. For Farmland, can you do that? Is there something like that you can do to just like get your financing in order? Because I doubt many people have like a hundred grand just kicking around. Yeah. Well, yeah, to be honest,

if I had planned a little better beforehand, I would have maybe made things a little bit easier for myself. But the thing is, like the auction, that was very quick. Yeah, so it's just like an opportunity kind of came up and you can like say no. Yeah, so I basically wanted that. And I knew I could get a way to get it, even if I don't have the available funds right away.

Because as investors, we kind of have to think a little bit like burglars. We have to always be on the lookout for windows of opportunity. That's true. And yeah, you can't really wait around for things to happen. You have to kind of be on the lookout for when things are going to happen.

And that seems like kind of what your story is all about. It's like, you found the window to find a condo. You got a condo. You found a window to find farmland. You've got a farm now. You have to be proactive about it. What comes next? You have time to plan all of the financing out.

But if you have money to begin with in cash, you can do that. If you don't have the money, get a pre-approval first. That would make things easier. But then you'll run into issues like the appraiser. The bank does not have an internal appraiser as they would for a condo. So you have to get your own and that might take some time. Right. So just kind of leave yourself a lot of time. Yep. But if you wanted to, another way to buy farmland without all the hassle is to just buy a farm fund. And that's when, like I was mentioning earlier, investors can pull money in, they use the money to buy farmland,

and the manager just manages all that farm, and you basically get quarterly checks. That sounds nice. I like that idea. There's a 2% management fee and then there's a 20% profit taking by the management team. But that's what you pay for. Yeah, exactly.

It works. So I just want to switch gears a little bit. So it seems like from a very early age you've kind of set yourself up to be just financially on the right track, which is awesome. So do you kind of have that goal of just, you know, saving up as much money and investing your money, you know, you know, smartly so you can retire early? Yeah, that's actually one of my goals when I started the blog is to retire early and be financially independent.

And what does financially independent mean to you? Because I know it probably means different things to different people. Sometimes I know lots of the people that talk about debt and stuff, that's what that means to them. Financially independent means debt-free. But for you, it means something completely different. And to some people, financially independent means you're independent from living off your parents. But my definition is having enough financial resources to live off of the income that provides

without having to work, without having to actively make money and just have all my expenses paid that way. So of course this is a constant moving target because my expenses change over time. Life changes, life throws crazy things at you you can't expect but still it's always nice to have and important to have a very specific goal.

And you just make a plan and you put things in place from where you are now and where you want to go. And you just basically execute that plan. Exactly. And so when do you plan on being financially independent or do you have a number of when you hope to retire? I want to be financially independent when I'm 35 years old. So that's still seven, eight years away. But I think it's doable given what's happening so far. And a big reason is just, I guess I've been lucky with the markets. Lucky and smart, you know, they kind of go hand in hand.

A rising tide lifts all boats. Real estate in Canada, really well. Stock market over the last 10, 20 years, pretty well. Farmland, terrific. And just other investments as well doing pretty okay. So I haven't really had a situation where I've lost a lot of money or got deterred from my financial freedom plan. So I think that's been really beneficial to me is just being kind of lucky.

Lucky, but also, and one of the things that you do so well is you do these different things where you invest in different things. So you're a very diverse investor, but you also, on the other kind of side of it, live frugally. So you're very smart with what you spend your money on. And that makes sense. As an investor, you obviously only want to buy things that benefit you in some way. So why would you buy frivolous things when you could invest that money, right? Yeah, exactly.

And it's all about your personal choices and your personality when it comes to money. Like when we're growing up, like when I was growing up, learning about money was very passive. It was just things that I heard about, things my parents told me. I learned money through stories that I heard from my friends, which was a pretty small circle. And basically people told me what to do with money. And when we're growing up, that's very similar in a lot of households. But as I'm sure anybody listening will know, there are 35 million people in Canada

and every single one of us, like our personal financial situations are different. They are unique. So we have to tailor our mindset to match what our unique situations are. And that means going out of our way to not be a passive accumulator of knowledge, but be more proactive about it. So if we're in a job, for instance, that has a defined benefit pension, then maybe that means we don't need to buy as much fixed income assets for retirement because we'll have a lot of that coming from our pension. So for someone like that, maybe they can research some other

things like budgeting, how to maybe invest in equities, how to diversify that way. And then for people who are just getting started, maybe learn how to track your spending. That's a big one. And learn how to track your net worth, what your assets are. Because it's basically a universal law that what you think about grows. So whatever you put your focus on, if it's your net worth, that's probably going to grow over time. It's worked for many people. It's weird how it works at first, but it's really cool when it does. It's a mental thing. If you believe you can achieve it, you will.

And that's part of how I live my life. I always set astronomical goals, things that I don't think I can actually do. And then when I actually do them, I'm like, holy crap, look what I'm capable of. And that's what drives me in my life. Exactly. It's amazing what the human will can do and how powerful it is.

And I think that is a great moment to end off on. Thank you so much, Liquid, for being on the show today. And if you would like to know more about Liquid's journey and what he's up to these days, he's always investing in something new. Check out his blog at freedom35blog.com. And for the show notes for this episode, make sure to go to momoneymohouses.com slash 12. And for all episodes, go to momoneymohouses.com slash podcast. So I hope to see you back here next Wednesday. My episode is going to be with Sarah from unsettled.org. And we're going to be talking about making money online and working for yourself.

This podcast is distributed by the Women in Media Podcast Network. Find out more at womeninmedia.network.