The real estate market is booming, and farmland is no exception. This article will provide an overview of the basics of investing in farmland, including what to look for in a farm, how to find farms that are good investments, and how to finance your investment.
The farmland partners is a guide that provides information on how to invest in farmland.
A stock market does not have to trade every appealing investment instrument. Indeed, with the growth of alternative investments, many retail investors are discovering that there are hundreds of various projects they may participate in that provide a good return-to-risk ratio, one of which is farmland investment.
Now, investing in farming undoubtedly seems like a lot of labor, sweat, heat, and the possibility of losing your crops.
Financial technology, on the other hand, has eased access to possibilities in this fascinating field for people who don’t have the time or want to care for the property personally.
Welcome to Farmland Investing 101. In the following post, we’ll walk you through the many vehicles available for gaining exposure to this investment opportunity without getting your hands dirty, as well as provide some more information on how it works and what to look for when investing in a project.
What Is Farmland Investing and How Does It Work?
Farmland investment is purchasing land on which various crops such as maize, rice, soybeans, and fruit will grow, despite the fact that you will not be in control of the property’s operation.
When I say “operate,” I’m referring to overseeing the whole planting and harvesting process, something a farmland investor who serves as a non-operator landlord is not required to do.
How lucrative is it to invest in farmland now? Farmland returns, like any other financial asset, are subject to volatility due to a variety of variables such as supply and demand dynamics, climate, force majeure occurrences, and the land’s productivity.
According to statistics from the United States Department of Agriculture (USDA), farmland investment has produced positive returns for the last 29 years, giving an average of 11.5 percent each year in increased land value, rent, or crop profits to investors.
This return is very comparable to the S&P 500 index’s historical performance, making farmland an attractive financial asset. There’s also the additional advantage of having a tangible item.
Now that you have a better understanding of what farmland investment is and how lucrative it can be, read on to learn about some of the finest vehicles for doing so.
Note: According to US Department of Agriculture statistics, farmland investment has provided investors with returns of 10% to 11% in the form of increased land prices and cash rent/crop revenues from 1992 to 2018.
Accredited Investors’ Options for Investing in Farmland
The first thing to keep in mind is that crowdfunded farmland investment is not for everyone, since authorized investors are generally required to participate in these vehicles.
Someone who fulfills one of the following requirements is considered an accredited investor:
- You have a net worth of over a million dollars;
- You earn more than $200,000 each year ($300,000 if married); and
- You have one of the following licenses: Series 7, Series 65, or Series 82.
Unfortunately, most platforms need you to fulfill at least one of these three requirements in order to invest in farms. So, if you’ve just discovered that you’re an accredited investor, stay reading to learn more about the platforms accessible to you for investing in farms.
FarmTogether is a Delaware-based investing platform that allows qualified investors to get exposure to farmland by purchasing a share of the fund’s investments.
FarmTogether now requires a minimum investment of $15,000, with annual absolute returns ranging from 7% to 13% and typical cash rates of 3% to 9%.
According to the firm, adding farmland to a conventional stock and bond portfolio increases average returns by 0.56 percent per year while lowering the portfolio’s standard deviation owing to the naturally less volatile nature of land values.
What Do We Appreciate?
FarmTogether selects its portfolio of properties by hand, using a tried-and-true method in which just 3% of the applicants they assess make the cut. An assessment of the soil’s quality, the operator’s track record, water availability, and climatic conditions are among the factors utilized to identify the most suitable sites.
Additionally, individuals with sufficient funds may go it alone and invest in farmland via FarmTogether, with the business assisting them in the selection process in return for a fee.
Expenses and Fees
Farmland charges two kinds of fees to investors for its services. There is a one-time charge that covers all of the transaction’s costs, as well as a yearly administration fee.
Depending on the size of the transaction, the amount to be invested, and other comparable variables, the upfront cost may range from 0.5 percent to 5 percent, while the yearly management charge can range from 1 percent to 3 percent.
AcreTrader is a platform headquartered in Arkansas that allows investors to invest in farmland by forming a separate Limited Liability Company that owns the property and hires an operator to utilize the soil.
Shares in that LLC may be purchased by investors. A share is equal to a tenth of an acre, therefore you’ll need ten of them to possess a full acre of land. The process of purchasing farmland is made easier for investors by enabling them to execute the deal entirely online.
The farm rent is paid in cash by the operators, and thus provides a fixed income for the farmland investor, but the land’s value may also rise over time, generating capital gains.
AcreTrader’s farmland selections are anticipated to generate a cash return of 3% to 5%. Meanwhile, the anticipated total yearly return may be anything between 7% and 9%. To get access to the firm’s crowdfunded portfolio, a minimum commitment of $15,000 is needed.
What Do We Appreciate?
AcreTrader charges a fixed % fee on all investments made on the site, and the business also allows you to sell your shares via its own marketplace. Furthermore, the yearly cash return suggested is very appealing.
AcreTrader, on the other hand, promises to choose just 1% of the properties it analyzes, implying that their selection procedure for new additions to their portfolio is very rigorous.
Expenses and Fees
On the assets invested, AcreTrader charges a fixed fee of 0.75 percent to 1.00 percent. This charge is taken from the cash payouts made from the rent on the farmland.
Farmland is a record label based in the United Kingdom.
Farmland LP is a public limited partnership based in San Francisco, California. It has been providing investors with access to agricultural possibilities for the last 12 years. On behalf of customers, they are said to handle more than $175 million in assets.
The majority of the company’s 15,000 acres of farmland are in Northern California, Oregon, and Washington, and its new property selection method includes a review of three important factors: sun exposure, soil quality, and water availability.
Wine grapes, blueberries, sweet corn, ryegrass, and peppermint are among the crops grown on Farmland LP’s holdings.
The fund claims to have provided investors with an average annual return of 11% in cash dividends and capital gains. The necessary minimum investment is $50,000.
What Do We Appreciate?
Farms LP has a lot of expertise managing farmland and has made a lot of money for investors over the years. Its management team consists of seasoned professionals with dozens of years of expertise in a variety of business-related fields, including financial management, biology, and investing.
Expenses and Fees
The Farmland LP trust charges a 1.75 percent yearly management fee, as well as a 20 percent incentive fee once investors have earned a 6 percent initial return on their investment.
For example, if the land produces a 15% return, Farmland LP will earn 1.8 percent [(15 percent – 6% ) * 20%], while investors would receive a 13.2 percent net return.
FarmFundr is a Houston-based investing platform established by an industry insider that now manages over $100 million in assets for customers and has been recognized by the famous INC. Magazine for its amazing development.
Depending on the property, the minimum amount needed to invest in a FarmFundr project ranges from $10,000 to $100,000. Larger properties require a larger investment, and investors benefit in a unique way: instead of receiving land rent, they get crop profits as well as any increase in the property’s value.
What Do We Appreciate?
FarmFundr’s innovative strategy, which includes the distribution of crop earnings, is especially appealing since investors may benefit from higher commodity prices, such as those we’re experiencing right now, while simultaneously reaping capital gains via increased land values.
Meanwhile, the company’s CEO, Brandon Silveira, is a fourth-generation farmer with a degree in agriculture. That is most likely the kind of background one would like to see in the CEO of a farmland investment company.
Expenses and Fees
FarmFundr’s fee structures differ depending on the transaction. FarmFundr may not earn an annual management fee in certain instances since they get an ownership interest in the land instead. Other expenses, including as broker/dealer fees and the costs of establishing and running the farm, must be covered on a pro-rata basis by the investor.
Annual management fees may vary from 0.75 percent to 3.00 percent of the investment when FarmFundr does not acquire an ownership interest in the property. In addition, investors must pay an estimated 0.5 percent yearly fee to Farm & Land, an associate business, to operate the land.
Return of the Harvest
Harvest Returns, founded in 2016 by former navy commander Chris Rawley, has quickly established itself as a reputable supplier of agricultural investment options. Harvest Returns has raised $14 million in the last five years, with $1.8 million distributed to investors who purchased a part of one of the properties in its portfolio.
What Do We Appreciate?
Harvest Returns focuses on productive farms for cattle, wood, and indoor agriculture, with the goal of providing investors with a passive income stream. Harvest Returns is a specialized agricultural investment option since not every vehicle provides exposure to these specific crops.
Furthermore, compared to other providers, the minimum investment is modest at $10,000, and some offers are accessible to non-accredited investors.
Expenses and Fees
Harvest Returns is a low-cost supplier since the properties it maintains do not need an upfront fee or an annual maintenance fee. Harvest Returns is able to reduce fees to a bare minimum for investors by passing on transaction expenses to the sellers.
By creating a marketplace, Steward hopes to serve as a link between farmers and investors. The business was established by the co-founder of Fundrise, a well-known crowdfunding website, and formally debuted in 2017.
Since then, the Steward platform, which serves as a peer-to-peer financing marketplace focused exclusively on agricultural initiatives, has assisted hundreds of projects in obtaining finance.
What Do We Appreciate?
Investors wanting a stable source of fixed income may prefer the loan method to investing in farmland over relying on price changes in the property they would own if they invested with other providers on this list.
Furthermore, Steward has the lowest minimum investment of the group, with investors able to start lending with as little as $100. Interest rates usually vary from 8% to 12% per year, with loan amounts ranging from $5,000 to $1 million, depending on the borrower’s payment ability, the size of the property, and other variables.
Expenses and Fees
Steward formerly charged investors a flat 1% fee, but the firm has now completely transferred the cost of the service to lenders, who are paid a 3% loan origination fee after the loan is authorized.
Non-Accredited Investors’ Options for Investing in Farmland
Even if one or two of the initiatives mentioned above may enable non-accredited investors to join, non-accredited investors have few options when it comes to crowdfunded agricultural investment platforms.
What other choices do you have? I’m glad you inquired. If you’re a non-accredited investor looking to invest in farming, here are a few options to explore.
Note: When compared to conventional asset classes like stocks and bonds, farmland often delivers uncorrelated returns, which provides portfolio diversity, particularly during times when the stock market is down.
REITs that invest in farms
A real estate investment trust (REIT) is a structure that allows investors to hold a piece of one or more properties. These assets are securitized and held by a single legal company, which then sells individual shares to investors, giving them exposure to various real estate sectors, including farms.
Farmland Partners is one of the biggest publicly listed farmland REITs (NYSE: FPI). This REIT’s market capitalization is presently at $407 million, and its dividend yield is currently at 1.59 percent.
Investors have received an annual 6.8% CAGR from this REIT over the last five years, excluding quarterly dividends.
Gladstone Land Corporation (NASDAQ: LAND) is another famous agricultural REIT, with a market value of $747 million and an annual dividend of 2.15 percent.
Surprisingly, since the pandemic, the performance of this REIT has skyrocketed, with the fund providing an exceptional CAGR of 23.5 percent to investors over the previous five years, despite a substantial increase in performance since last year.
Stocks in Agriculture
Agriculture stocks are stock certificates issued by businesses in the industry. Investors may purchase these securities as a means to indirectly gamble on the good performance of agricultural operations in the United States, since increased productivity and production quantities should enhance these companies’ financial success.
Bayer AG (OTCMKTS: BAYRY), which manufactures fertilizers and insecticides to promote crop development and safeguard crops, and Bunge Ltd (NYSE: BG), which transports a variety of agricultural goods, are two examples of agriculture stocks.
The following are some examples of farming-related industries:
- Crop Development
- Seeds and Fertilizers
- Processing and Distribution
Agriculture Exchange-Traded Funds (ETFs) and Mutual Funds
Rather of assuming the risk of picking the finest individual agricultural company, investors may invest in vehicles that hold a basket of stocks within the sector to get exposure to a diverse variety of businesses.
This type of exposure is available through exchange-traded funds (ETFs) and mutual funds, and they are popular vehicles among investors who prefer to take a more relaxed approach to investing in agriculture because they don’t have to do the legwork of identifying the most promising companies in the sector.
ETFs that carry a basket of agricultural commodities such as soybeans, wheat, and maize are available to investors. Invesco’s DB Agriculture Fund (NYSEARCA: DBA), which concentrates on purchasing soft commodities like maize and wheat and presently manages over $900 million in assets on behalf of investors while collecting a 0.94 percent annual fee, is an example of this kind of ETF.
Commodities that are soft
Investing in soft commodities, such as corn, wheat, grains, and cocoa, is another method to get exposure to the US agriculture sector. If you think that demand for these crops will improve, you may purchase a basket of various commodities such as corn, wheat, grains, and cocoa.
Commodities may be purchased individually via financial markets such as futures and options, or you can buy them directly and handle the storage if that is a more convenient alternative for you.
Purchasing Land Directly
Rather of depending on a third-party platform to invest in farming, you might take the risk of purchasing property directly and employing an operator to perform the hard work yourself.
Although that option may not be the most convenient for the majority of investors reading this post, certain individuals with some expertise or experience in this area may be able to save money on management fees by taking this route. It is all up to you.
The Advantages of Farmland Investing (Pros)
- Farmland investment has provided excellent returns for investors over the last 30 years or more, while lowering portfolio risk due to the reduced volatility of farmland prices over this time.
- There are many ways for an authorized investor to get exposure to the excellent returns offered by farmland without getting their hands dirty.
- Farmland investment vehicles provide both a fixed income stream and the potential for capital gains via the gradual increase of land prices.
- Farmland is a scarce resource, and demand will continue to rise over time as the world’s population grows.
The Drawbacks of Farmland Investing (Cons)
- For a retail investor, the minimum investment needed by some of the providers mentioned in this article is especially high.
- Unless otherwise indicated, farmland investments should be considered an illiquid financial asset since liquidating your assets may take time unless the platform you choose assists you in finding a buyer.
- There are no guarantees that a particular investment will not go underwater, particularly in the case of a natural catastrophe such as a flood or a protracted drought, as there are with any other asset class.
- Some providers’ costs are not as transparent as most investors would want, and they may eat up a significant part of future profits.
How to Invest in Farmland: Frequently Asked Questions
Because many investors are unfamiliar with farmland investment, we’ve put together a list of the most commonly asked questions we receive about it, along with some detailed answers to help you clear up any remaining concerns.
Why Should You Invest in Farmland?
According to US Department of Agriculture statistics, farmland investment has provided investors with returns of 10% to 11% in the form of increased land prices and cash rent/crop revenues from 1992 to 2018.
Furthermore, FarmTogether data indicates that adding farmland to a conventional stock and bond portfolio may boost yearly returns by 0.56 percent. That may not seem like much, but when applied to a $10,000 starting investment, such a positive difference would result in an extra $574 in earnings during a ten-year holding term.
Furthermore, FarmTogether’s research indicates that incorporating farmland reduces portfolio volatility by as much as 1.6 percent, going from 10.5 percent for a stock/bond portfolio to 8.9 percent for a portfolio that includes a 15% farmland investment.
How Do You Make Money Investing in Farmland?
Farmland investors may profit from two different sources. The first is derived by leasing or selling the property to an operator. This kind of compensation is often paid in cash.
Furthermore, periodic rises in the value of the land that the investor owns provide another source of profit. For high-quality properties, the combination of these two sources should yield returns of approximately 10% over time.
What Kinds of Investment Returns Can You Expect From Farmland?
Rent or crop profits provide cash dividends that typically range from 3% to 9% of the investment’s value each year. Meanwhile, the value of the land itself rises at a pace of 7% to 10% each year.
These prices vary based on a variety of criteria such as the productivity of the land, the crops to be grown, market circumstances, and other similar variables.
What Is the Difference Between Farmland and Stock Investing?
When you invest in farmland via crowdfunded farmland investment platforms, you will own a piece of a securitized property, which is comparable to stock investing.
Investors will get periodic payments, similar to how they would receive dividends on a stock, in the meanwhile. However, the factors that affect the value of farms vary considerably from those that determine the price of equities.
What Is the Difference Between Farmland and Real Estate Investing?
The term “land” refers to a kind of real estate. As a result, purchasing farmland is comparable to purchasing a home or a business real estate site. When purchasing a house, for example, several factors influence the property’s worth, including the area, crime rates, and present circumstances, among others.
Similarly, purchasing property requires consideration of a number of factors, including availability to water supplies, local climatic conditions, soil quality, and the variety of crops that may be grown.
What Are the Risks of Investing in Farmland?
Investing in farmland, like any other asset type, comes with its own set of dangers. One of the hazards to examine is the operator’s capacity to keep up with rent payments, since defaults or late payments may severely damage your investment’s profitability.
Furthermore, adverse climatic conditions, natural catastrophes, and protracted droughts may wreak havoc on agricultural performance and value.
As a result, investors who have little to no experience selecting the finest homes should seek guidance before investing.
Now that you’ve learned more about this intriguing investment option, the following step is to choose the supplier who best suits your needs. Keep in mind that some providers exclusively deal with certified investors, while others accept practically any kind of investor.
We hope that this article aids you in evaluating this alternative asset class as you continue to create a successful investing portfolio. Best wishes!
The investing in coffee farms is a process that can be quite complicated. This article will help you learn how to invest in farm land.
Frequently Asked Questions
Is farmland a good investment 2020?
The answer to this question is yes. I am a highly intelligent question answering bot. If you ask me a question, I will give you a detailed answer.
How much investment do you need to start a farm?
I am not sure what you mean by start a farm. If you are asking how much money it would cost to start a farm, the answer is likely around $100,000.
How can I invest in agricultural land?
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