Real estate is often seen as one of the very best alternative investments to stocks. During a recent 44-year period, commercial real estate outperformed the S&P 500, with annual average returns of 9.29% to 6.86%.
But did you know that farmland outperformed both stocks and commercial real estate during the same time span? It had an average annual rate of return of 10.23%. Over 20 or 30 years, that 1% to 3% additional return really adds up!
Investing in farmland isn’t nearly as difficult as it once was. Real estate crowdfunding platforms have sprung up in recent years that enable investors to participate in farmland investing with as little as a few thousand dollars.
Two of the biggest names in farmland crowdfunding are AcreTrader and FarmTogether. Each will provide a combination of an annual distribution of income from property rents and, ultimately, capital appreciation on the sale of the land.
If you want to add farmland to your portfolio, either of these crowdfunding platforms are worth a serious look. So, let's dive in and compare AcreTrader vs FarmTogether.
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AcreTrader Review 2022: Best Farmland Investing Platform? |
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AcreTrader is based in Fayetteville, Arkansas, and was launched in 2017. It was founded by a group of individuals who already had extensive experience with investing in farmland and wanted to extend the opportunity to other investors. AcreTrader is a real estate crowdfunding platform, but one specializing in productive farmland. This is unlike most real estate crowdfunding platforms, that focus on commercial real estate investing.
AcreTrader enables investors to add farmland to their portfolios, even without any previous experience in the farming industry. AcreTrader handles all the investment and management details, limiting your involvement directly to investing. Best of all, you can participate in farm properties offered on the platform with just a few thousand dollars.
This eliminates the need to invest six or seven figures for acquiring and managing an active farm. You can hold your farm investments in your portfolio, much the same as you do with stocks and bonds.
AcreTrader functions as an online farmland marketplace, were farmers come to raise capital to run their farms. To do so, they sell the land itself, then rent it back from AcreTrader. This enables farmers to get the funds they need, and investors to participate in what has historically been a very lucrative investment opportunity.
AcreTrader has a Better Business Bureau rating of A+, the highest rating the agency issues based on a scale of A+ to F.
One factor to be aware of with both AcreTrader and FarmTogether is that investing with either requires you to be an accredited investor. That means you’ll need prove either an annual income of at least $200,000 (or $300,000 jointly with your spouse) in the most recent two years, plus a reasonable expectation of the same income level in the current year, or a minimum net worth of at least $1 million, not including the value of your principal residence.
Accredited investor status is required with farmland crowdfunding because it has unique risks, and a long time horizon that will not be suitable to smaller investors.
Much like AcreTrader, FarmTogether is an online farmland marketplace. Investors can invest in equity positions that provide capital to farmers to help them run their farms. The platform provides all the necessary services, including due diligence and legal documents.
But FarmTogether also works with several industry partners. That includes investment managers, farmland, brokers, appraisers, and advisors. Most specifically, they work with Farmland Opportunity, a farmland investment company with more than $400 million in assets under management and a ten-year track record in the industry.
Based in Lewes, Delaware, FarmTogether began operations in 2017. They currently serve more than 1,000 clients invested in more than 35 properties in seven states covering 12 product types. Total assets under management are in excess of $150 million. The company is not rated by the Better Business Bureau, nor does it have a profile with the agency.
All investments offered on the platform are in specific farm properties. Unlike the majority of real estate crowdfunding platforms, AcreTrader does not provide funds or real estate investment trusts. That will give you the ability to select the individual property deals you want to invest in. But it will require a larger investment of capital to diversify your holdings.
With each property, you’ll be investing in an LLC that owns the land. You’ll own shares in the LLC that will represent a pro rata share of the land. Each share you purchase is the equivalent of 1/10 of an acre of farmland. If you own 20 shares, you will own two acres of land.
That interest will also entitle you to a pro rata share of the net rental income on the property, as well as proceeds from the sale when the land is ultimately sold. This will provide you with income from two different directions, net rental income on an annual basis, plus long-term capital appreciation at the end of the investment term.
Expected annual income distributions are paid out every December and are expected to range between 3% and 5% of the amount invested. When capital gains are factored into the return, the total annual average falls between 8% and 10% on most investments, but higher on some.
Each investment has its own parameters for minimum initial investment, projected annual and overall income, and expenses. This owes to the fact that every farm property invested in is unique. And because farmland doesn’t change hands as quickly as other types of real estate, the number of available deals will be limited.
Investments held through FarmTogether are very similar to those offered by AcreTrader. You’ll be investing in individual farms through shares in an LLC. FarmTogether provides complete management of the farming operation on the land.
You can hold investments as an individual, LLC, limited partnership, or trust. You can also hold FarmTogether investments in a self-directed IRA (SDIRA), through their fully integrated partnership with Alto IRA. As is typical with alternative investments, like farmland, you cannot hold interests in FarmTogether through traditional IRA custodians.
FarmTogether can accommodate 1031 exchanges for commercial property or farmland.
The company does hint of a capability to provide a diversified allocation across multiple properties, but it does not provide details. You must email FarmTogether to get specific information.
AcreTrader is an online marketplace where investors can review and invest in a variety of potential farm offerings. Based on the current price of farmland, the required minimum investments of between $10,000 and $35,000 will enable investors to purchase between one and four acres of farmland per deal.
The company employs a comprehensive due diligence process. It’s so intense that only between 1% and 5% of all farmland deals introduced to the company are accepted for investment purposes.
As an investor, you’ll fund that your account after opening it. That will provide the funds available to invest in the deals of your choice when they are made officially available on the platform. Though you’ll make a preliminary commitment of funds to each specific deal, your money will be returned if the deal does not close.
Farmland investments offered on the platform are managed by a combination of AcreTrader’s staff and several leading land management companies that they partner with. That means your investment will have professional management, even if you know nothing at all about farming.
Early redemption option. AcreTrader advises investors that farmland is a long-term investment, and you should expect to remain fully invested for the full term of the investment. Though the platform is currently exploring creating a secondary market for selling shares early, no date has been established as to when this might happen. The expectation is that when it does, there will be a one-year lock-up before you will be able to liquidate your shares. However, AcreTrader will attempt to arrange the sale of your interest to another investor on the platform if you need to make an early exit.
Much like AcreTrader, FarmTogether’s farmland investments generate income from two directions – net income from the rent paid on the leased farmland, and capital appreciation upon the sale of the land. One of the benefits of investing through FarmTogether is that the company’s principals also invest in deals offered on the platform. That gives company owners the all-important “skin in the game” providing additional assurance.
FarmTogether also has a stringent due diligence process, in which only about 2% of the deals presented to them are accepted. Each property must pass a 120-point checklist evaluating soil, leaf, water, capital improvements, title, local legislation, depth of the supporting farming ecosystem, cost of inputs, farmworker wages, and other factors They also look for more specialized farm opportunities. For example, they target permanent crops in California and the Pacific Northwest, including tree nuts and citrus.
FarmTogether doesn’t disclose fees on the website. You must be a registered user to have access to that information. However, deals are typically structured to include an upfront fee, as well as an annual management fee. The company indicates it uses best practices to keep its fees on the low end of the industry scale.
Early redemption option. FarmTogether currently has no capability for early redemptions. However, they are working on a secondary market pilot plan that will enable early sales after one year of initial ownership. In the meantime, the company will provide assistance in locating of buyer if an investor needs to make an early exit from the deal.
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With so much uncertainty in the financial markets right now – high asset valuations, rising inflation and interest rates, and the still rampaging COVID pandemic – there’s never been a better time than now to expand your portfolio to include alternative investments.
Farmland is one of the very best alternative assets. This is not only because of its historically high investment yields, but also because its performance is uncorrelated with the financial markets. That is, farmland can continue to provide positive returns, even when the financial markets are in a prolonged downturn. This is hardly surprising, since global demand for food doesn’t ebb and flow with the economy or the financial markets.
But which is the better farmland crowdfunding platform between the two, AcreTrader or FarmTogether?
That’s a tough question to answer, because these two platforms are just about as close as two crowdfunding sites can be. Each follows approximately the same investment methodology, offering ownership interest in farmland, with participation in both rental income and long-term capital appreciation. And each also requires accredited investor status.
The differences are small but may be significant based on your own investment preferences. For example, FarmTogether primarily emphasizes specialty farming, which holds the potential for higher profits. But AcreTrader is more transparent in disclosing fees, which will have an important impact on net investment returns.
Overall, if you want to add farmland to your portfolio, you can’t go wrong with either of these platforms.
