The investment mainstream has mostly forgotten commodities since their historically high 2009 levels. Farmland rents reached record levels along demand from emerging markets and net farm income (NFI). But even as commodities prices fell in the late 2010s, rents stayed at their zenith. Economists expect NFI to continue dropping during the coronavirus, meaning that the high rents must be paid from lower and lower amounts of income.
Investing in farmland means understanding a cross-section of factors — weather patterns, soil type, telephone pole location, cropping history, field size — and balancing that against the farmland rent you can extract from the tenant. Investors must also contend with the higher number of retail investors in the commodities market, a relatively recent change that causes higher volatility in the short-term market.
How to Invest in Farmland
Learning how to invest in farmland means learning a number of different financial vehicles. Most retail investors do not have the means or the access to directly purchase pastureland. There can be a huge upfront cost because of the volume of land involved, not to mention you would need to find someone who could properly maintain the land and pull a profit from it.
Modern technology provides a plethora of new ways to invest in farmland, from direct investment to passive real estate investment. Here are some basic tips to keep in mind regardless of the financial vehicle you choose.
Tip 1: For Direct Investors
The direct purchase of farmland to rent brings the highest returns and the highest risk. The upfront cost is high because you must purchase a plot of land large enough to house a farm. Your 1st step is to find a good price because farmland can vary widely from county to county, state to state.
You can purchase land a number of ways:
- Land conversion – Just like you can buy a house to upgrade and flip, you can buy land to convert to pastureland or cropland. Conversions can be advantageous because of the low sale price — as long as the conversion costs are kept low, as well.
- Sale-leaseback – Some farmers don’t want the added responsibility of owning the land they work on, or they may be unable to handle the costs. In these cases, they may sell the land to you and pay rent to continue profiting from its utility.
- Buy-lease – You have an opportunity for high returns if you buy farmland with no tenant, as long as you can find one.
Tip 2: For Communal Investors
If you want to invest passively in farmland with other investors, you can invest through a real estate investment trust (REIT) with a specialization in farmland. Currently, Gladstone Land Corporation (NASDAQ: LAND) and Farmland Partners (NYSE: FPI) are 2 publicly-listed choices and great real estate investing for beginners in the farmland space.
- Farmland Partners – The largest publicly-traded U.S. farmland REIT, FPI manages more than $1 billion in assets, featuring over 150,000 acres in 17 states. The company leases to more than 100 tenants with a diversified portfolio of crops.
- Gladstone Land Corporation – LAND manages 111 farms in 10 states with a specialty in health foods. Its farms are valued at around $890 million and comprise more than 86,000 total acres.
Tip 3: For Passive Investors
Crowdfunding brings together funds from many investors and provides access to farmland. Although the 1st wave of these platforms is limited to accredited investors (high net worth individuals with more than $1 million in assets or 2 years of $200,000+ income per annum), managers have stated they will have options available for nonaccredited investors soon.
Best Brokers and Platforms for Investing in Farmland
Connect to farmland investments through the reputable brokers and platforms mentioned here. Although we have vetted all of these platforms for basic viability, you should still compare them closely to see which ones you like best.
1. Best Broker for Farmland: FarmTogether
Using FarmTogether, you can earn your returns from quarterly rent payments and land appreciation. The website is intuitive and beginners benefit from the extensive investor education tools. They specialize in institutional quality farmland, so investment minimums can be high.
Min Investment: $10,000
Fees: 1% of your initial investment, 1% management fee
2. Best Investing Platform for Farmland: AcreTrader
AcreTrader allows investors access to income-producing farmland with low minimum investments and a marketplace for selling back shares. You must be an accredited investor to join, however.
Min Investment: $10,000
Fees: 0.75%-1% annual management fee
3. Best for Accredited Investors: Harvest Returns
Harvest Returns is a great way for investors to support smaller family farms. The company has marketed the platform as a way to get involved in tax-advantaged opportunity zones.
Min Investment: $5,000
4. Best for Investing in Sustainable Farms: Steward
If you are looking to invest in human-scale farms that would have trouble getting funding from traditional sources, Steward is your platform. The minimum investment is tiny, and you enjoy a very close relationship with the farms you choose.
Min Investment: $100
Fees: 1% annual service fee based on invested capital
5. Best for Commodity Farmland: Farmland LP
As stated on its website, Farmland LP is focused on organic food and the farmland market. They manage more than $160 million in assets across 2 funds with hundreds of investors “that showcase how large-scale sustainable agriculture is more profitable than conventional.”
Min Investment: Variable
6. Best for Agricultural Operations: FarmFundr
If you prefer to invest with guidance from an experienced team, Farmfundr may be the platform for you.
Min Investment: $10,000
Fees: 0.75%-1% annual management fee; 3% sponsor fee when FarmFundr doesn’t take direct equity
Why Invest in Farmland
The USDA reports that farmland has returned 11.5% since 1991 on average, which places it as the 2nd best performing asset class in that 30-year time period. The value of farmland in the U.S. over the past 5 decades has gone up an average of 6.1% per annum. Having 2 simultaneous streams of value evens out the volatility, making farmland a great investment for risk-averse traders or those nearing retirement.
Farmland also enjoys a low correlation with the rest of the stock market. You don’t have to worry about recessions and the higher frequency of the boom-bust cycle, and commodities also benefit from inflation.
Don’t Forget the Fundamentals
Despite all of the attention on newer, shinier industries, farmland continues to be a solid, valuable investment that pays off in cash rent yields and land appreciation. There is nothing wrong with speculating in these industries as they can certainly be profitable. If you speculate in tandem with good fundamentals, you can actually take on more risk while protecting your portfolio’s downside.
Experts estimate that investor groups hold more than 30% of active U.S. farmland, so there is plenty of room for passive investors or investors without huge amounts of capital. With the access that new technology provides, there’s no reason not to consider this always essential part of the American economy in your portfolio.
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