How to Invest in Farmland: A Beginner’s Guide

Not every attractive investment vehicle is necessarily traded in a stock exchange. In fact, with the rise of alternative investments, many retail investors are waking up to find out that there are dozens of different projects they can invest in that offer an adequate return-to-risk ratio, one of those being investing in farmland.

Now, pouring your money into farmland probably sounds like a lot of work, sweat, heat, and risk of losing your crops. 

However, financial technology has facilitated access to opportunities in this interesting space for those who don’t have the time or willingness to take care of the land themselves. 

Welcome to investing in farmland 101. In the following article, we will guide you through the available vehicles with which you can get exposure to this investment opportunity without getting your hands dirty while providing some more details about how it works and what you should look for when investing in a project.

How to Invest in Farmland | Exactly What To Do....🚜🌾💸

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What Is Farmland Investing?

Farmland investing consists of buying land on which different types of crops such as corn, rice, soybeans, and fruit will grow, even though you will not be in charge of operating the land itself.

When I say “operate,” I mean taking care of the entire process of seeding and harvesting, something that a farmland investor doesn’t necessarily have to do if he acts as a non-operator landlord. 

Now, how profitable is farmland investing? As with any financial asset, there is volatility in farmland returns depending on multiple factors such as supply and demand dynamics, climate, force majeure events, and the land’s productivity.

However, according to data from the United States Department of Agriculture (USDA), farmland investing has generated positive returns for the past 29 years, yielding an average of 11.5% per year to investors in the form of higher land value and rent or crop earnings.

This return is remarkably similar to the historical performance of the S&P 500 index, which makes farmland quite an appealing financial asset. Additionally, there is the added benefit of owning a physical asset.

Now that you know some more about what farmland investing is and how profitable it can be, the following section will list some of the best available vehicles to engage in this activity.

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Ways to Invest in Farmland for Accredited Investors

The first thing you should know is that crowdfunded farmland investing is not available to everyone as investors usually need to be accredited to be allowed to invest in these vehicles. 

An accredited investor is someone who meets one of the following criteria:

• You have a net worth of more than $1 million;
• Your annual income exceeds $200,000 ($300,000 if you are married); and
• You hold a Series 7, Series 65, or Series 82 license.

Unfortunately, most farmland investing platforms need you to meet one of these three criteria to be eligible for investing in farmland. So, if you just found out that you are an accredited investor, keep reading to know more about the available platforms through which you can invest in farmland.

FarmTogether

FarmTogether is a Delaware-based investment platform through which accredited investors can get exposure to farmland by buying a portion of the properties in which the fund invests.

The minimum investment required by FarmTogether at the moment is $15,000, with absolute returns ranging from 7% to 13% per year and average cash yields of 3% to 9% per year.

The company claims that adding farmland to a traditional portfolio of stocks and bonds tends to increase average returns by around 0.56% per year while the standard deviation of the portfolio is reduced due to the inherently less volatile nature of land prices. Read our full FarmTogether review to learn more.

What Do We Like?

FarmTogether hand-picks its portfolio of properties through a time-tested process in which only 3% of the candidates they evaluate make it to the portfolio. The criteria used for selecting the most adequate properties include an evaluation of the soil’s quality, the operator’s track record, water availability, and climate conditions.

Additionally, investors with ample capital can also choose to go solo and invest in farmland through FarmTogether, with the company helping them in the process of selecting the right investment in exchange for a fee. 

Fees & Expenses

Farmland charges investors two types of fees for its services. There is a one-time fee that covers all the expenses related to the transaction and there is an annual management fee. 

The upfront fee can go from 0.5% to 5% while the annual management fee can go from 1% to 3%, depending on the size of the deal, the amount to be invested, and other similar factors.

AcreTrader

AcreTrader is an Arkansas-based platform that enables farmland investing by establishing a separate Limited Liability Company that owns the land while hiring an operator to exploit the soil. 

Investors are allowed to purchase shares of that LLC. A share represents 1/10 of an acre, which means that you’ll need 10 shares to own an entire acre of the property. The process of investing in farmland is facilitated by allowing investors to complete the transaction 100% online.

Operators pay the farm rent in cash and that becomes a fixed income for the farmland investor while the value of the land can also increase over time to generate capital gains.

The expected cash yield produced by the farmland picked by AcreTrader ranges from 3% to 5%. Meanwhile, the expected total annual return can range from 7% to 9%. The minimum investment required is $15,000 to access the firm’s crowdfunded portfolio. Read our full AcreTrader review to learn more.

What Do We Like? 

AcreTrader charges a flat percentage fee on any investment made through the platform while the company also offers the possibility of selling your shares through its proprietary marketplace. Moreover, the proposed annual cash yield is particularly attractive.

Meanwhile, AcreTrader claims to pick only 1% of the properties it evaluates, which means that their screening process for selecting new additions to their portfolio is quite thorough.

Fees & Expenses

AcreTrader charges a flat fee of 0.75% to 1.00% on the assets invested. This fee is deducted from the cash distributions obtained from the farmland’s rent.

Farmland LP

Farmland LP is a company headquartered in San Francisco, California. It has been offering access to opportunities in the farmland space to investors for 12 years now. They reportedly manage more than $175 million in assets on behalf of clients.

Most of the company’s 15,000 acres of farmland are located in Northern California, Oregon, and Washington and their screening process for selecting new properties involves the assessment of three key variables: sun exposure, soil quality, and access to water sources.

Some of the crops planted on the properties managed by Farmland LP include wine grapes, blueberries, sweet corn, ryegrass, and peppermint.

The fund claims to have delivered an average annual return of 11% for investors in the form of cash distributions and capital gains. The minimum investment required is $50,000.

What Do We Like? 

Farmland LP has extensive experience in managing farmland and has delivered sizable returns for investors for an extended period. Its management team includes seasoned executives with dozens of years of experience in many areas that are relevant to the business, including financial management, biology, and investments. 

Fees & Expenses

The annual management fee charged by the Farmland LP trust is 1.75% and there is an incentive fee of a 20% return after investors have received an initial 6% return on their investment. 

For example, if the land yields a 15% return, Farmland LP will receive 1.8% [(15% – 6%) * 20%], while investors will receive a net return of 13.2%.

FarmFundr

FarmFundr is a Houston-based investment platform that was founded by an industry insider, currently managing over $100 million in assets for clients while being recognized for its remarkable growth by the renowned INC. Magazine.

The minimum amount required to invest in a FarmFundr project goes from $10,000 to $100,000 depending on the property. Bigger properties demand a higher investment and while investors make money a bit differently than usual since instead of land rent they get crop profits along with any appreciation in the price of the land.

What Do We Like? 

FarmFundr’s unique approach, which involves the distribution of crop profits, is particularly interesting as investors can benefit from an environment of higher commodity prices such as the one we are seeing at the moment, while there is also the possibility of realizing capital gains via higher land prices.

Meanwhile, Brandon Silveira, the company’s Chief Executive, is a fourth-generation farmer who holds a degree in agriculture. That is probably the kind of background one would like to see in the top executive of a firm that invests in farmland.

Fees & Expenses

Fee structures vary on a per-deal basis for FarmFundr. In some cases, FarmFundr does not receive an annual management fee since, instead, they get an equity stake in the property. Meanwhile, there are other costs that the investor must cover on a pro-rata basis such as broker/dealer fees and the costs involved in developing and operating the farm.

When FarmFundr does not take an equity stake in the property, annual management fees may range from 0.75% to 3.00% of the investment. Moreover, investors also have to pay an estimated 0.5% annual fee to an affiliate company called Farm & Land for operating the property.

Harvest Returns

Founded in 2016 by former naval officer Chris Rawley, Harvest Returns has emerged as a well-reputed provider of farmland investment opportunities. Harvest Returns raised $14 million in these past five years while distributing $1.8 million to investors who have bought a portion of one of the properties that comprise their portfolio.

What Do We Like? 

Harvest Returns specializes in productive farmland that caters to livestock, timber, and indoor agriculture and the fund aims to be a passive income-producing vehicle for investors. This makes Harvest Returns kind of a niche farmland investing solution as not every vehicle out there offers exposure to these particular crops.

Moreover, the minimum investment is quite low compared to other providers at $10,000 while certain deals are open for non-accredited investors.

Fees & Expenses

Harvest Returns is a low-fee provider as the company does not charge an upfront fee or annual maintenance fee for the properties it manages. Harvest Returns manages to keep fees at zero for investors by passing on the costs resulting from the transaction to the sellers.

Steward

Steward seeks to act as a bridge between farmers and investors by providing a marketplace. The company was founded by the co-founder of a well-known crowdfunding platform called Fundrise and was officially launched in 2017. 

Since then, it has helped dozens of projects in getting funding through the Steward platform, which acts as a peer-to-peer lending marketplace that focuses specifically on farmland projects.

What Do We Like? 

The lending approach to investing in farmland might be more appealing to investors seeking a steady stream of fixed income rather than depending on the fluctuations in the price of the farmland they would own when investing with other providers on this list.

Moreover, the minimum investment with Steward is perhaps the lowest within the group as investors can start lending with as little as $100. Interest rates typically range from 8% to 12% per year while deals can go from $5,000 to $1 million depending on the borrower’s payment capacity, the size of the property, and other similar factors.

Fees & Expenses

In the past, Steward charged a flat 1% fee to investors but the company has now fully shifted the cost of the service to lenders who are charged a 3% loan origination fee once the loan is approved.

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Ways to Invest in Farmland for Non-Accredited Investors

Now, even though one or two of the projects listed above might allow non-accredited investors to participate, the choices are rather limited when it comes to crowdfunded farmland investment platforms for those who don’t meet the criteria to be considered accredited.

What other options are there? Glad you asked. Here are a few alternatives you may consider in case you would like to invest in farmland as a non-accredited investor.

Farm REITs

A real estate investment trust (REIT) is a vehicle through which investors can own a portion of one or several properties. These properties are securitized and owned by a single legal entity that, in turn, issues individual shares to investors, allowing them to get exposure to different segments of the real estate market, including farmland.

One of the largest publicly traded farmland REITs is Farmland Partners (NYSE: FPI). The market capitalization of this REIT currently stands at $407 million, while the company’s dividend yield is currently 1.59%.

In the past five years, this REIT has generated an annual 6.8% CAGR to investors, not including its quarterly distributions.

Meanwhile, another popular farmland REIT is the Gladstone Land Corporation (NASDAQ: LAND), which currently has a market capitalization of $747 million while offering an annual yield of 2.15% to investors. 

Interestingly, the performance of this REIT has exploded since the pandemic, with the fund delivering an outstanding CAGR of 23.5% to investors in the past five years amid a significant improvement in its performance since last year.

Agriculture Stocks 

Agriculture stocks are equity instruments issued by companies within the sector. Investors can buy these instruments as a way to indirectly bet on the positive performance of farmland operations in the United States as higher productivity and output volumes should lead to an improvement in the financial performance of these firms.

Some examples of agriculture stocks would include Bayer AG (OTCMKTS: BAYRY), which produces fertilizers and pesticides to accelerate the growth and protect crops, along with Bunge Ltd (NYSE: BG), which engages in the transportation of multiple agricultural commodities.

Some ideas of industries operating in the farming sector include:

• Crop Production
• Fertilizers and Seeds
• Equipment
• Distribution and Processing

Agriculture ETFs & Mutual Funds

Rather than taking the risk of trying to pick the best individual agriculture stock, investors can get exposure to a wide range of different companies by investing in vehicles that hold a basket of stocks within the sector.

Both exchange-traded funds (ETFs) and mutual funds offer this kind of exposure and they are popular vehicles among investors who prefer to take a more relaxed approach when investing in agriculture as they don’t have to do the heavy lifting involved when selecting the most promising companies within the space.

Investors can pick an ETF that holds a basket of different agricultural commodities such as soybeans, wheat, and corn. Some examples of this kind of ETF include Invesco’s DB Agriculture Fund (NYSEARCA: DBA), which focuses on buying soft commodities like corn and wheat, currently managing almost $900 million in assets on behalf of investors while charging a 0.94% annual fee.

Soft Commodities

Investing in soft commodities is another way to get exposure to the agricultural industry in the United States as you could buy a basket of different commodities such as corn, wheat, grains, and cocoa if you believe that the demand for these crops will evolve positively.

Commodities can be bought separately through futures and options offered in the financial markets or you could also buy them directly and take care of the storage if that is a convenient choice for you.

Buy Land Directly

Instead of relying on a third-party platform to invest in farmland, you could enroll in the adventure of buying farmland directly while hiring an operator by yourself to do the heavy lifting.

Although that alternative might not be the most convenient for the majority of investors reading this article, some people who have some degree of knowledge or background in this space could take this road to save money in management fees. Your choice.

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Benefits of Investing in Farmland (Pros)

• Farmland investing has delivered solid gains for investors in the past 30 years or so while reducing a portfolio’s risk amid the lower volatility displayed by the price of farmland during this period.
• There are multiple alternatives through which an accredited investor can get exposure to the attractive returns provided by farmland without having to get their hands dirty.
• Farmland investment vehicles offer both a stream of fixed income along with the possibility of generating capital gains through the progressive appreciation of land values.
• Farmland is a limited resource and its demand will continue to grow over time as the global population continues to grow.

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Downsides of Investing in Farmland (Cons)

• The minimum investment required by some of the providers listed in this article is particularly high for a retail investor.
• Unless otherwise stated, investors should consider farmland investments as an illiquid financial asset as it could take time to liquidate your holdings unless the platform you have chosen helps you in finding a buyer.
• As with any other asset class, there are no assurances that a certain investment won’t go underwater, especially in the event of a natural disaster such as a flood or a prolonged drought.
• The fees charged by some providers are not as straightforward as most investors would like and they could eat a sizable portion of future returns.

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FAQ About How to Invest in Farmland

Since farmland investing is not a familiar topic for many investors, here is a list of the most frequently asked questions we get about this topic along with some thorough answers to help you in clearing most of your doubts about farmland investing.

Why Invest in Farmland?

According to data from the US Department of Agriculture, farmland investment has delivered returns of around 10% to 11% to investors from 1992 to 2018 in the form of higher land values and cash rent/crop earnings.

Moreover, data from FarmTogether shows that adding farmland to a traditional portfolio of stocks and bonds can elevate annual returns by 0.56%. That may not sound like a lot but if you apply that to a $10,000 initial investment, such a positive difference would result in additional earnings of $574 during a holding period of 10 years.

Moreover, FarmTogether’s data also shows that the portfolio’s volatility will be reduced by adding farmland by as much as 1.6%, moving from 10.5% for the stock/bond portfolio to 8.9% for a portfolio that includes a 15% investment in farmland.

How Do You Make Money from Farmland Investing?

There are two sources of earnings for farmland investors. The first one comes from renting the property to an operator or selling the crops. This income is commonly paid in cash. 

Moreover, there is another source of gains resulting from periodical increases in the value of the land that the investor owns. Over time, the combination of these two sources should generate returns of around 10% for high-quality properties. 

Which Investment Returns Do You Get with Farmland?

Cash distributions coming from rent or crop earnings usually range from 3% to 9% of the value of the investment per year. Meanwhile, the value of the land itself tends to appreciate at a rate of 7% to 10% per year. 

These rates vary depending on many factors including the land’s productivity, the crops that will be farmed, market conditions, and other similar variables.

How Does Farmland Investing Compare to Stock Investing?

Farmland is similar to stock investing when investors utilize crowdfunded farmland investing platforms as you will be owning a share of a certain property that has been securitized.

Meanwhile, investors will receive periodical distributions similarly to how they would collect dividends from a stock. That said, the variables that drive the value of farmland are significantly different than those that influence the price of stocks.

How Does Farmland Investing Compare to Real Estate Investing?

Land is a segment of real estate. Therefore, buying farmland shares many similarities with buying a house or a commercial real estate property. When buying a home, for example, many variables will affect the value of the property such as the neighborhood in which the property is in, its crime rates, and the current conditions of the property, among other factors.

In the same way, buying farmland requires an assessment of multiple variables, such as access to water sources, climate conditions of the area, soil quality, and the range of crops that could be farmed.

What Are the Risks of Farmland Investing?

Same as with any other asset class, investing in farmland carries a fair deal of risks. One of the risks to consider is the operator’s ability to stay current with rent payments as defaults or late payments could dramatically hurt the profitability of your investment.

Moreover, unfavorable climate conditions, natural disasters, and prolonged droughts could also hurt the performance and value of the farmland.

For this reason, investors who have little to no knowledge about how to pick the best properties out there should seek advice before pouring their money into a property.

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Final Thoughts

Now that you know more about this appealing investment opportunity, the next step is to pick the provider you think fits your preferences the best. Remember that certain providers only work with accredited investors while other vehicles are available for virtually any kind of investor.

We hope this article helps you in assessing this alternative asset class as you keep building a profitable portfolio of investments. Best of luck!