If you’re reading this, you’re probabably not a farmer.
I’m not suggesting that farmers aren’t interested in investment crowdfunding and online alternative investing!
There’s just not very many farmers anymore.
In 1850, almost half of American workers had jobs in Agriculture. But by 1980 it was under 4 percent – and as of 2019, that number was down to just 1.4%!
Why does that matter? Well, when looking for investment opportunities, we often gravitate toward the familiar – the Warren Buffett and Peter Lynch “invest in what you know” approach.
That means while most of us have lived in an apartment or worked in an office (making them relatable as investments), not many people live or work on farms these days, so farmland rarely comes to mind when thinking about investing in real estate.
But if you’re looking for a truly diverse portfolio, there’s good reasons to at least consider farmland as part of the mix – and within the last 2 years at least 3 new investment crowdfunding platforms have launched to make it easier than ever.
Amber waves of grain from sea to shining sea is not an exaggeration
The 48 contiguous United States include 1.9B acres of land, and more than half of that is taken up by agriculture!. While the majority of that land is used for livestock (mostly for cows 🐄), cropland is the most valuable kind of agricultural real estate – and at nearly 400 million acres, still takes up almost 20% of the entire US landmass.
So while farming may be a niche profession, because of its sheer size, as a category of commercial real estate it’s far from a minor player. In fact, the total value of US farm real estate was $2.7 trillion as of 2018, compared with $2.9 trillion for Multifamily rentals, and $2.5 trillion for Office. (Though all of those are dwarfed by the $30 trillion Residential real estate market.)
And as many sectors within commercial real estate like Office and Hospitality face challenging headwinds from the COVID-19 pandemic (urban hotel occupancy was just 17.8% at the end of March 📉) it’s hard to imagine a decline any time soon in demand for food to eat.
But farmland has some important differences from other commercial real estate investments
The platforms listed below make it easier than ever for accredited investors to invest in farmland, but there’s some important differences in the farm real estate market to be aware of before you invest.
- Farmland doesn’t change hands very often. Only 10% of all farmland was expected to be transfered in the 4 years ending in 2019. Many of the return projections for traditional commercial projects include appreciation from eventual sale (often within 5-7 years) so be sure to look carefully at the hold period and components of the expected return.
- A lot of farmers are renters. About 40% in fact (even higher among “cash grains” like wheat, corn and soybeans, along with cotton), and in general they’re long-term tenants – 70% of land rented from “non-operator” landlords has had the same tenant for more than 3 years, and 28% for more than 10 years.
- A lot of the owners of rented farmland are retired farmers. That means there’s a degree of comfort with revenue-share models, whereby the farmland owner receives a portion of the proceeds from the harvest in exchange for a lower rent. (That also exposes them to some price and crop-failure risk that investors should be sure to understand if a particular offering includes that feature).
Fundamentally you’re still investing in property for a stream of cash flow and potential appreciation, but the differences are enough to call for a bit of extra homework to understand the offering before you invest.
(On the risk side, it’s also worth pointing out that while sectors like Hospitality and Retail may be bearing the brunt of COVID-19 fallout right now, many parts of the agriculture supply chain are heavily dependent on labor, and therefore could be knocked offline – even if temporarily – as the virus continues spreading.)
How to invest in US Farmland
Despite the size of the US farm real estate market ($2.7 trillion), there’s a lot fewer investment crowfunding platforms offering farmland than, say, multi-family apartments. These three platforms all offer US farmland investments to accredited investors under SEC Reg D.
FarmTogether is a real estate investing platform offering income-producing shares in US farmland. Investors earn money two ways: quarterly cash rent payments from farmers plus a return on the long-term appreciation of the land when it’s sold. The FarmTogether website is outstanding, and their investor education material is extensive and easy to find. Minimums are high and selection is limited, but may be worth a look for investors interested in agricultural and farmland as an asset class. (Read our full review.)
AcreTrader is a real estate investing platform offering income-producing shares in farmland. Investors earn money two ways: annual cash rent payments from tenant farmers plus long-term appreciation of the land. Farm cash rents are typically paid once per year, as farmers usually pay rent up front. (Read our full review.)
FarmFundr is a California-based real estate investment crowdfunding platform offering equity investments in farmland and agricultural facilities. Minimums are high and selection is limited, but may be worth a look for investors interested in agricultural and farmland as an asset class. (Read our full review.)
Harvest Returns is a Texas-based investment crowdfunding platform offering investments in various types of farmland and timberland. The founders are veterans, as is at least one of their advisory board members. Minimums are high and selection is limited, but may be worth a look for investors interested in agricultural and farmland as an asset class. (Read our full review.)
P.S.: Farmland isn't the only way to invest in Agriculture
Given the long hold times and the continued impact of climate change, if you’re bullish (ha!) on the Agriculture sector but aren’t sure if investing in farmland is the right approach for you, there’s also options for investing in “AgTech” startups. AgFunder offers funds offering exposure to startups in the Food and Agriculture sectors.
Want to learn more but aren’t sure where to start? You can explore 120 crowdfunding investment platforms in our database and learn more about the nuts and bolts of crowdfunding and alternative investing on our blog. Did you know you can use a self-directed retirement account to invest in many alternative investments? Rocket Dollar makes it easy, and when you sign up using that link you'll be helping to support YieldTalk.