With the uncertainty that continues to cast a shadow over the financial markets in the aftermath of the coronavirus pandemic, many investors are looking at alternative investments for the first time. Perhaps one of the best—and most overlooked—is farmland. Fortunately, you don’t need to buy a farm directly. Instead, you can choose to invest with one of the best farmland investing platforms that are increasingly available.
If you’ve never considered investing in farmland before, there are several reasons why it deserves consideration.
Returns. The chart below (source: Harvest Returns) shows the performance of farmland, compared to more conventional investments, like stocks, bonds, and gold, between 1991 and 2019:
Notice that farmland outperformed other asset classes by a fairly wide margin.
With an average annual return of about 11%, farmland performed extremely well across multiple economic and financial conditions covering nearly 30 years. That doesn’t guarantee double-digit returns in the future, but it does clearly indicate what a farmland investment has produced in recent decades.
Inflation protection. Notice on the screenshot above that while farmland returned an average of 11% annually, the consumer price index (CPI) was at about 2.5% over the same space of time. That means that farmland produced a real rate of return of about 8.5% over nearly 30 years.
Farmland is a real asset. Most investment portfolios today are invested either mostly or entirely in paper assets. While those investments have performed well, they often move in tandem. For example, the same force that causes bond prices to rise—declining interest rates—also correlates closely with rising stock values.
But the opposite is also true. During times of rising interest rates, both stocks and bonds tend to decline in lockstep.
Given that farmland is a real asset, it’s much less affected by financial trends like interest rates.
Food will always be in demand. Most manufactured goods come and go with public preference. Some are made obsolete by advances in technology. But one commodity the human race will always need is food. No matter what’s happening in the financial markets or the economy, there’ll always be a demand for food. And since most food is produced on farmland, that virtually guarantees farmland will always have significant value.
It’s important to understand that farmland is a tangible investment, which doesn’t function the way more conventional investments, like stocks and bonds, do.
There are a few realities of this type of investing you should be aware of:
Accredited investor status is typically required. The requirement exists because there are unique risks associated with farm investments, and you need to have the financial knowledge and wherewithal to absorb those risks. Accredited investor status means you must have a net worth of at least $1 million—excluding your primary residence—or earn at least $200,000 per year (or $300,000 per year for married couples).
Farmland is a long-term investment. You should generally expect your investment to last for several years. There’s no capability to actively trade farmland investments the way you can with paper investments.
Liquidity is limited to nonexistent. Once you make your investment, you’re in for the long haul. Though some platforms do offer limited liquidity after a certain holding period, you must hold your investment until it ends to earn the projected returns.
Returns are described as IRRs. This refers to internal rate of return. That comprises a combination of rent income and capital appreciation on the ultimate sale of the underlying property. Net rent income is typically distributed on a quarterly, semiannual, or annual basis.
Returns are not guaranteed. Though the historic performance of farmland has been very encouraging, there’s never a guarantee that an investment in any particular farm will be positive. This is why it’s important to invest only money you can afford to lose.
AcreTrader is one of the most popular farmland investment platforms available. It serves as a real estate crowdfunding platform, enabling investors to invest in farm properties, and farmers to acquire capital to run their farms.
When you make an investment with AcreTrader, you’ll have an equity stake in the land itself, which is leased to either an individual farmer or a farm operator. Returns will come about from a combination of annual rent income and capital appreciation upon disposition of the property.
One of the advantages of AcreTrader is that the platform tends to be more transparent than many of its competitors. Relevant information investors need to know is plainly available on the website.
The platform does require that you be an accredited investor.
The company claims it accepts only about 1% of the farm properties it reviews each year, which means the vetting process is pretty strict. They also have one of the lowest fee structures in the industry, which should help to improve your annual returns.
Minimum initial investment: $10,000 to $25,000, depending on the investment
Eligible investors: Accredited investor status required
Eligible accounts: Taxable accounts and IRAs, using a self-directed IRA (SDIRA)
Holding period: Five to 10 years
Income distributions frequency: Annually, typically in December, but distributions are not guaranteed
Projected annual returns: 7% to 9%
Fees: 0.75% of the farm value as an annual administrative fee
Customer service: By phone, but no days or hours are indicated
FarmTogether is another of the better-known farmland investment platforms. And like AcreTrader, it’s a real estate crowdfunding platform that specializes in farmland, and requires you to be an accredited investor.
Through the platform, you’ll invest in shares of limited liability companies (LLCs) that own the underlying farmland. This enables you to buy small slices of independent farms. What’s more, you can diversify by buying shares in farms located across the country. This provides geographic diversification, which can be particularly important due to the impact of regional weather conditions on agriculture.
Returns from your investment are generated by a combination of annual rent income and capital appreciation on the sale of the underlying property. And again, much like AcreTrader, FarmTogether has a fee structure that’s both on the low end of the industry range, and completely transparent.
Minimum initial investment: $15,000 to $50,000, depending on the investment.
Eligible investors: Accredited investor status required, accepts both U.S. and non-U.S. citizens
Eligible accounts: Taxable accounts and IRAs, but must be held in a SDIRA with Alto IRA, which is a FarmTogether partner specifically for IRAs
Holding period: Five to 12 years
Income distribution frequency: Income from rent payments can be made quarterly, semi-annually, or annually.
Projected annual returns: 7% to 9%
Fees: Varies by investment, but generally an “intake fee” of between 0.5% and 1.0% of your initial investment, plus an annual management fee of about 1% of your investment value.
Customer service: Phone, but calls must be scheduled online
FarmFundr is another real estate crowdfunding platform that specializes in farmland. But unlike AcreTrader and FarmTogether that invest in the underlying farmland, FarmFundr provides direct management of the farms you’ll be investing in.
They offer two different investment programs, one with investment minimums as low as $10,000, and the other specifically designed for investors with at least $500,000 to invest. The smaller investment has an expected annual return of up to 10%, but the larger one projects returns as high as 20%.
The platform accepts only accredited investors, and is not quite as transparent as some of the other platforms when it comes to basic information like income distributions or fees. In fact, the fees seem to vary by investment, and the structure can be fairly complicated.
Minimum initial investment: $10,000 to $100,000, depending on the property
Eligible investors: Accredited investors only
Eligible accounts: Taxable accounts and SDIRAs and self-directed Solo 401(k) plans held with Rocket Dollar
Holding period: “Long-term,” but not specified
Income distributions frequency: Not specified
Projected annual returns: 6% to 10% on the upcoming Farmland Fund, but specific returns depend on the individual investment
Fees: Varies based on the specific investment
Customer service: Email and phone, though no days or times are specified
Harvest Returns is another real estate crowdfunding platform that focuses on farmland. You’ll participate in deals that are smaller than those offered on other platforms, which means they sometimes have investments available for non-accredited investors.
Harvest Returns emphasizes investments in sustainable agriculture and farmland centered in the U.S. Investments are directly managed by the company. The company maintains a policy of supporting local farmers who are looking for capital to expand their farm operations. In a real way, you’ll be providing direct support to America’s small farmers.
You have the option to participate in either debt or equity deals, since each investment is unique.
Minimum initial investment: $5,000 or more, depending on the specific investment
Eligible investors: Accredited investor status required, though non-accredited investors may be able to participate in certain investments; accepts both U.S. and non-U.S. citizens
Eligible accounts: Taxable accounts and IRAs, but must be held in a SDIRA
Holding period: Several years
Income distributions frequency: Quarterly or annually, but not guaranteed
Projected annual returns: Not indicated
Fees: No annual fees
Customer service: Email only
Steward is a more specialized real estate crowdfunding platform that invests in smaller farms, often producing specialized crops. And unlike the other platforms that require upfront investments of many thousands of dollars, you can begin investing with Steward with as little as $100.
Though they don’t specifically indicate an accredited investor requirement, they do seem to hint at it. You’ll need to contact the company to determine if this is a hard-and-fast requirement, though that may not be the case given the very small initial investment.
Unlike other real estate crowdfunding platforms that specialize in farmland, you won’t be investing in equity positions in farms. Instead, you’ll be investing in loans made to small farmers, with short durations of just nine months. You’ll earn interest on your investment, but the platform does not specify a typical annual return.
Minimum initial investment: $100
Eligible investors: Institutions, private equity funds and “sophisticated lenders,” which hints at accredited investor status, though they don’t specifically say as much
Eligible accounts: Taxable accounts only; no IRAs
Holding period: Nine months
Income distributions frequency: Monthly
Projected annual returns: Not indicated
Fees: None
Customer service: Email only
Farmland LP is a publicly traded real estate investment trust (REIT), with more than $175 million in assets across two funds. But it uses a similar revenue structure to other farmland investing platforms, relying on both cash flow from rents and appreciation upon the sale of the underlying property.
They take a strategic approach to acquiring farmland, targeting regions expected to have the greatest long-term appreciation, with a strong emphasis on locally grown organic food, within the context of robust existing farm communities.
For example, they replace commodity crops with specialty and permanent crops. These include farm products like wine grapes, hazelnuts, and blueberries, which generate higher profits. They also favor long-term crop rotation plans to increase soil fertility and resilience.
Much like FarmFundr, Farmland LP doesn’t just invest in farmland, but also actively manages it.
Minimum initial investment: $50,000
Eligible investors: Accredited investors and institutions only
Eligible accounts: Taxable accounts and IRAs, which likely must be SDIRAs, though they don’t specify.
Holding period: “Long-term,” but not specified
Income distributions frequency: Not indicated
Projected annual returns: The annual unlevered, non-correlated return to investors of 11% on U.S. farmland is indicated, but not confirmed.
Fees: 1.75% of invested capital per year on the currently available Fund II
Customer service: Email only
If you are looking to add alternative assets to a portfolio otherwise composed mostly or entirely of paper assets, farmland is definitely worth looking into. It’s a true alternative investment, and in some ways, the most alternative of all.
After all, you’re not investing in a typical investment per se. Instead, you’re investing in productive land. That was once the mainstay of the global economy, and it still has enduring value, and will continue to have it for all of human existence.
Farmland provides that unique combination of a true hard asset, steady production of a necessary commodity, and the dual advantage of both ongoing rental income and capital appreciation on the underlying land once it’s sold.
If you’re looking to invest in farmland, consider one of the farmland investing platforms we’ve included above. They represent some of the top farmland platforms in the industry, and one may be the right fit for you.
Just be careful to invest only a small percentage of your portfolio in a farmland investment. It is, after all, an illiquid investment with a long time horizon.
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