One segment of commercial real estate that tends to provide positive returns on your investment is farmland. While many may not immediately think of farmland when it comes to commercial real estate investment, it can be a stable and popular option.
Why Farmland Is a Good Investment
Farmland investments generally have a long history of producing positive returns for investors. Those returns can come in the form of an increase in farmland values in the long-term, through crop yields or through cash rental payments in the short-term.
In the past 50 years, the value of American farmland has gone up by about 6.1% per year, with only five down years in that time period. Every year since 1991, farmland has produced a positive return, with an average annual return of 11.5%, according to the USDA. Farmland returns are historically less volatile than other forms of investment, with low correlation to the stock market. Farmland also produces essential assets and benefits from inflation.
“Investing in farmland is an excellent way to diversify a portfolio,” said Marina Vaamonde, a real estate investor and Founder of Property Cashin. “Farmland provides a stable investment that is not tied to other markets like stocks or precious metals. It’s a good hedge against inflation.”
Vaamonde added, “Since the early 90s, farmland investments have outperformed other investment classes, including equities, government bonds and real estate overall.”
Risks of Investing in Farmland
As with any type of investment and in any asset class, there is also some risk to investing in farmland.
“Investments in agriculture can be impacted by volatility in commodity prices, weather events or disease and many other operational factors,” said Chris Rawley, Harvest Returns CEO and Founder. “Risks can be mitigated by spreading investments over a variety of crop types and geographies.”
This affects mainly the income side of your investment, Vaamonde noted, as bad weather one year could mean fewer crops.
How to Invest in Farmland
There are a number of different ways to invest in farmland, from buying a farm outright, to investing in REITs.
Buy a Farm
The most straightforward way to invest in farmland is to simply buy an entire farm. You can purchase cropland or pastureland and rent it out to a farmer or rancher. Buying a farm, though, requires a good amount of upfront cash. Rawley recommended only doing this if you’re an investor with “considerable capital,” adding that you “should seek out an experienced farmland broker or manager.”
Invest in Farmland REITs
“Someone with a smaller amount to invest may want to consider an online platform that allows diversification across multiple farming projects,” Rawley said.
One way to do this is through farmland REITs. Two popular farmland REITs include Farmland Partners Inc. (FPI) and Gladstone Land Corporation (LAND). REITs like these will purchase farmland and lease it to farmers, providing investors with more diversification than if they were to buy one single farm. In this way, investors can have an interest in multiple farms around the country.
Farmland REITs also offer more liquidity than buying a whole farm, as investors can quickly and easily sell their shares on the stock exchange. Finally, farmland REITs require far less upfront capital than buying a whole farm, since investors can buy as little as one share.
Another way to invest in farmland is through online crowdfunding platforms such as AcreTrader, FarmFundr, FarmTogether, Farmland LP, Harvest Returns and Steward.
In recent years, a few companies have formed to provide traditional access to farmland investments online. Unfortunately, though, most of the crowdfunding platforms are only open to accredited investors with a net worth of over $1 million, excluding equity in their primary residence, or to those with an annual income of $200,000 or more in the last two years.
How to Make Money with Farmland
When it comes to making money from farmland, one of the main ways to do so is through generating income from leases.
“You can rent to farmers, ranchers and even timber harvesting companies,” Vaamonde explained, adding that you can also supplement rent from cellular towers on a farm.
Another way investors generate income from farmland is through the appreciation of the land. Vaamonde noted that recent farmland has had appreciation with rates exceeding 7% annually, mainly because “Farming, housing and even solar and wind farms drive the demand for land.”
Finally, Rawley pointed out that farmland investors benefit from the agribusiness as well as receiving income from harvests.
For Many, Farmland Can Be a Great Investment
Farmland has historically been seen as a stable investment, producing positive returns for investors. There are a number of ways to invest in farmland, and depending on your income and capital, one method may be better for you than another. As always, though, it’s a good idea to do your due diligence and speak to an experienced broker or manager — specifically one with experience in farmland — to assess what’s best for you.