Getting into real estate investing can be tricky for the majority of investors out there, especially due to the high upfront capital involved. To invest in a duplex, for example, often requires a 20% down payment or more. If the property is $200,000 that means you need to pony up $40,000 not including closing costs.
Thankfully, the emergence of online real estate platforms and crowdfunding have made the process a bit easier for the average investor. It no longer requires tens of thousands of dollars to get started with real estate investing.
Today we review the AcreTrader platform to see what they bring to the table for crowdfunded real estate investing. This is a site that lets you invest in a lesser-known asset which is farmland. The minimum investment $10,000 is significantly lower than the costs associated with buying a rental.
|Limitations||Accredited Investors Only|
|Fees||0.75% Asset Management + Closing Fees|
|Time Horizon||5+ Years|
|Anticipated Returns||7% To 9%, Not Guaranteed|
|Returns||Through Asset Appreciation + Distributions (Rent From Farmers)|
|Liquidity||Low Liquidity, No Secondary Market|
The AcreTrade platform gives investors the opportunity to purchase plots of farmland and earn returns via rents from the land and appreciation in the land itself. The AcreTrader team handles all the paperwork, lease agreements, and leg work for you.
AcreTrader is a farmland investing platform for accredited investors. The AcreTrader platform is relatively easy to use and comes with a variety of useful features for its members. From researching individual farmland to education, white papers, and expected returns, investors can gain an understanding of the investment landscape offered on AcreTrader.
AcreTrader is a good system that still has a few hoops it will have to jump through in order to become truly great. If you are an accredited investor and would like to invest in farmland, then AcreTrade may be a great platform for you.
Instead of having to buy farmland and work it to earn a return, you can passively invest with AcreTrader. This is much easier than owning the farm yourself. On AcreTrader, you can buy a small share of a farm and receive distributions proportionate to your ownership.
Carter Malloy founded this unique company back in 2018. While he had worked for some time in financial services, he got the idea for AcreTrader from growing up on his family’s farm.
This is a small company of around 10 people including their board of advisors and employees. However, they bring a wide array of experience to the table with expertise ranging from agriculture to financial services.
Since they have only been around since 2018, the operating history is very limited. Potential investors should keep this in mind.
AcreTrader aims to earn returns for investors in two ways.
AcreTrader investments are considered long term with a holding period of 3 - 5 years. Some farmland investments AcreTrader will have holding periods of 5 - 10 years.
The company is highly selective about which assets of land they choose to be on their platform. Their website indicates that they approve less than 1% of the opportunities that they research.
The minimum to invest with AcreTrader is $10,000. Some of their properties require that you invest in at least an acre or more, this can bring some properties minimum investments up to $50,000 in order to reap their benefits.
The holding period on their properties varies between 3 and 10 years. But you can sell your shares on the AcreTrader marketplace before your holding period expires.
However, in order to take advantage of anything on the AcreTrader platform, you must be an accredited investor. Though they do plan on adding the ability for the non-accredited to invest in the future.
AcreTrader offers what seems to be a safe investment platform. Bear in mind the operating history of AcreTrader is very limited.
Their founder and CEO is also the largest shareholder on the platform which gives him personal reasons to have the investor’s best interest at heart.
In addition to this while your funds are in escrow, they go through North Capital Private Securities Corporation who is a member of FINRA and SIPC.
The entity that holds the farmland shares is separate from AcreTrader as well, this means that should AcreTrader go out of business your money will be safe.
Of course with investments, there are no guarantees when it comes to safety and you may still operate at a loss. Even though their assets are low-risk, it does not mean that there is no risk involved.
Farmland is susceptible to unique risks such as natural disasters or poor weather which can have a dramatic impact on a farm’s profits.
AcreTrader holds an A rating with the Better Business Bureau as of February 2021.
If you have questions or concerns, we recommend reaching out to them directly. They are still a small company, so they will be very likely to get back to you with answers.
Farmland is a strong asset class that has proven its' ability to deliver consistent returns over time.
Farming, in general, is considered less cyclical than other asset classes. Typically during a recession, farm production stays consistent as people still require food to live. This makes farmland less sensitive to economic cycles.
You can also add in the fact that farmland has been increasing in value in recent years because of the rising need for food and fiber across the globe. The United States has also made an effort in recent years to increase the amount of domestic farming.
Historic farmland returns have outpaced the S&P 500 while taking on less volatility. Farmland also acts as a hedge against inflation and is a limited resource as the population increase and the amount of farmland in the US decreases.
One of the reasons AcreTrader stands out as a real estate investing platform is the ability to sell your investment on a secondary market. Though, there are no guarantees as to how much you will get for your investment.
This makes AcreTrader a slightly more liquid crowdfunded real estate investment than others. However just because there is a secondary market does not necessarily mean there will always be buyers. Especially during financially unstable times such as economic recessions.
As a general rule of thumb, you should not invest in crowdfunded real estate unless you have a time horizon of 5 years or more!
The marketplace also makes it much easier to make decisions regarding the properties you want to invest in. You can view all the details and fees associated with each parcel before you make your investment.
The company also goes one step farther to provide its users with a rating on each of their offerings in order to give them a better idea of what they are getting.
Their ratings range from A to D with A as the best and D being the worst. This rating involves a points system, the more points a property has the worse rating it is going to receive.
The rating system gives AcreTrader investors the ability to scrutinize each individual property and find the best investment.
There are several factors that determine the point allocation.
Here is what we have gathered from their site...
History Of Flooding: Points will accrue if the property has experienced floods in the last 10 years that have damaged 10% or more of their crops.
Direct Operations Planned: This attribute determines if any of the investment capital is used for day to day tasks.
No Current Tenant: The property has a current vacancy.
No Direct Access To Maintained Roadway: Poor access to the farmland will make getting supplies and product delivery more difficult.
Water Access Problems: Issues with a consistent water supply could result in less crop yield for the farmland.
Nearest Crop Delivery Point Over 50 Miles: If the nearest crop delivery location is further than 50 miles away, it is considered a negative aspect of the property.
Improvements Planned During Holding Period: If there are planned improvements, this could result in a more profitable farm.
Debt Involved In Transaction: If debt is involved with a transaction, it is typically higher risk than a cash transaction depending on the circumstances.
High Loan To Value Of Debt: The loan to value ratio is the ratio of the amount of debt taken out for a transaction to the current market value of the property. A high LTV ratio is riskier for the lender.
Non-Farming Leases Or Income In Place: There may be other industries renting the land such as energy or crop storage.
Non-Farming Assets Valued As Part Of The Transaction: There may be other assets on the land that increase the value of the property.
Low Activity Land Sale Market: A point is given if there have not been land sales exceeding $100,000 within 100 miles of the property in the last 10 years.
Like most investment platforms, there are fees for investing.
Though it is free to sign up for AcreTrader and view their offerings, when you make an investment there will be fees attached.
There is a 0.75% asset management fee on the AcreTrader platform. This asset management fee is on an annual basis. Compared to other crowdfunding platforms out there, this is quite reasonable.
In addition, there is also a closing fee with each of the investments that you make, although it varies based on each deal. The average sits around 2% of your total investment amount for that property.
Since AcreTrader does offer services for farm owners as well it is important to note that they do take a 5% fee when the underlying property is sold. This does not affect their investors as the owner of the property will be paying this fee.
The 5% fee for farm owners is how AcreTrader makes the majority of its money and the management fee is more of a break-even for them.
While many other platforms will also take a performance or incentive fee, AcreTrader does not. This means that all of the upside goes to the investors and there is no cap on return potential.
AcreTrader only allows those with a net worth of $1 million+ or makes $200,000 per year ($300,000 if married) to participate in its crowdfunding platform. This is a regulation in place by the SEC related to investing in private placements or individual properties.
A lot of investors wonder about the risks associated with investing in these private placements. Individual deals expose investors to more risk, including with AcreTrader. By investing in a portfolio of deals, clients can diversify their risk across a wide array of properties. Investing in just one inherently comes with more risk.
AcreTrader takes a three-step approach to valuing the farms it invests in:
In the “Sanity Check” phase, AcreTrader looks at the prices associated with the farm, the potential problems with it, and the probability that the farm will pass the second and third stages of valuation.
This stage is used in verifying the initial data associated with the farm while also doing extensive research on it. In this step, AcreTrader uses software analysis, mapping verifications, financial modeling, and AT scores to properly assess the farm on a future cash flow standpoint.
This stage mainly focuses on the “context” of the property. Looking at external factors such as the area that the land is located in and the people who live there are the main variables in this step of valuation. AcreTrader breaks this stage down into 6 main parts: area diligence, manager calls, tenant calls, comparable sales, government database data, and on-ground visit.
AcreTrader operates on a crowdfunding system where it pools a large sum of money from its high volume of clients to finance large investments. They are also compensated by farmers when they list their land on the site.
Over the past 20 years, US farmlands have posted an 11.5% average annual return. This would make an investment of $10,000 in 1990 worth $199,700 today according to a calculator on AcreTrader's site.
AcreTrader’s return goal is set for 7% to 9% annually with a 3% to 5% dividend yield.
AcreTrader acts as a real estate platform for buying farmland. These investments are not liquid and since they are private transactions, it may be hard for clients to find a buyer when they want to sell.
You can sell your investment through the AcreTrader marketplace where they will attempt to find a buyer for the sell transaction. AcreTrader urges its investors to think long-term, however, and over a multi-year time horizon. This is not a short term or highly liquid investment.
Each investment will have a stated time horizon after which point it will be sold and investors will receive a return of principal.
AcreTrader has a FAQ section on its website and also a comprehensive learning center. They also have a telephone line and email on their “contact us” page. As a relatively new company, it's easy to get in touch with them.
Farmland provides investors a tangible asset linked to their cash. Tangible investments such as this help to protect capital as it acts as a hedge against inflation.
An investment in farmland has also proved to provide higher returns and less volatility in the past than the stock market. Previously, it was difficult for everyday investors to get involved with farmland, but crowdfunding platforms have made it much more accessible.
Investors also have the potential to earn a share of crop profits. These will vary from year to year and tend to fluctuate based on market conditions. However, this can mean a nice added upside to your farmland investments.
AcreTrader has a team of management with decades of experience in the financial services and agricultural industries. The team has shown a combined track record of billions of dollars in revenue generated from investments.
Every year, cash distributions are paid out in December and tax documentation is provided by February of the following year.
Each deal on the platform is set up as a partnership which means as an investor you'll be issued a K-1 with your share of any income and losses. You'll be able to report these on your personal tax return and claim any relevant income or deduction.
Additionally, when the property is sold, the sale proceeds will be treated as capital gains. These will be taxed at a lower rate provided they were held for over a year.
AcreTrader allows users to invest through a self-directed IRA and work with most major self-directed IRA providers. Make sure to check in with them first before you commit to investing to make sure you'll be able to use your IRA.
AcreTraer makes money by charging management fees on all of its investments and by acting as a broker on transactions. There is typically a fixed fee of 0.75% for management and also a closing fee associated with every selling transaction. They also earn money from farmers and landowners when they list their properties on the platform.
Of these various income streams, the commission they receive from farmers is the most significant. Essentially, AcreTrader acts as the real estate broker and charges farmers a 5% fee to sell their land. Because their business model does not revolve around charging investors, they can afford to charge a reasonable 0.75% management fee.
AcreTrader has built its system with the goal of making it easier to invest in farmland. Their platform is very easy to use and comes with a lot of great features for its members. The research tools make it very easy for accredited investors to perform due diligence on potential investments.
You can also rest easy knowing that AcreTrader turns down the majority of submissions for farmland for sale. Less than 1% of the deals that come across their plate end up on their site.
However, there are a couple of considerations you'll want to make before investing on AcreTrader.
First, they're available only to accredited investors which does restrict the number of people who will be able to take advantage of its services. Other crowdfunding platforms like Fundrise allow anyone to invest whether they are accredited or not.
Also, they're still a relatively new company, and while they have seen a lot of early success, it's always possible for things to change down the line.
AcreTrader does mention that they intend to offer their services to non-accredited investors in the future with access to Regulation A+ investments. However, that is not yet available today.
All in all, AcreTrader is a good system that still has a few hoops it will have to jump through in order to become truly great. If you are an accredited investor and would like to invest in farmland, then AcreTrade may be a great platform for you.