Invest In Farmland For Beginners
Savvy investors are always on the hunt for ways to grow their net worth while diversifying across different assets. For most investors, this means spreading money out across real estate, stocks, bonds and maybe even precious metals.
However, within the realm of real estate investing, there are numerous different investment opportunities. You could go out and buy a duplex or a fixer upper. Maybe you learned about real estate crowdfunding where you can get in on private real estate deals.
But what about farmland? You know, the land that produces a very important resource known as food.
Maybe you had a bagel for breakfast this morning. They make them with flour, which comes from wheat. All over the United States, there are massive farms growing this valuable crop and more.
In the past, your only option for investing in farmland was to go out and buy a farm yourself. Most people, including myself, have no interest in managing or operating a farm. However, there are now countless ways to capitalize on this investment opportunity from the comfort of your own home. In fact, you don’t even need to step foot on a farm or worry about tracking mud in.
Farmland falls under the category of alternative investments. Many experts are now recommending allocating as much as 15 to 20% of your total portfolio into alternatives.
What Is Farmland Investing?
As the name suggests, farmland investing means you are making an investment in some form related to the production of crops. At the end of the day, the land is real estate, so this is lumped in with real estate investing.
However, rather than investing in buildings for housing or retail space, you are investing in farmland.
According to the USDA, there are approximately 911 million acres of farmland in the United States. You might be surprised to find out that over half of that farmland is rented, meaning the farmer is paying the owner of that land for the rights to use it. Billionaires like Bill Gates have been scooping up farmland for years.
In fact, most of the rented farmland is owned by non-operator landlords. These are landowners that have no active involvement in the actual farming. Operator landlords are those that own the land and are actively involved in farming activities. necessarily being involved with the farming activities. New farmland investing platforms are popping up all the time, potentially giving you the opportunity to get in on the action
Savvy farmland investors are not only helping their net worth grow, they are also having a positive impact on the environment because:
- Protecting open spaces from urban sprawl and development
- Supporting farms that rotate crops can actually benefit soil conditions
- You are helping to support our booming food and agriculture industry, poised to grow as populations expand globally
- Farmland provides a home for wildlife
- Agricultural crops help to add fresh oxygen to the atmosphere
- Smart farming practices can actually aid in water conservation efforts
Types Of Farmland Investments
Most of the rented farmland is used for grain production. These crops have strong demand and are an easy source of cash for farmers.
However, there are a wide variety of crops grown across farms all over the United States. Let’s cover those now.
What Crops Do We Grow?
According to the USDA Economic Research Service, these are the 10 most popular crops grown in the United States.
This is by far the most popular crop we grow in the United States, accounting for over 90 million acres.
We use corn for a variety of different products ranging from feed, alcohol, and sweeteners (high fructose corn syrup).
Believe it or not, the United States is the leading producer of soybeans in the world! We grow so many that we are also the leading exporter of soybeans.
These days, soy is in just about every product we eat. You can process soybeans for oil, use them as feed for animals or human consumption.
Coming in at number 3 is Wheat, another profitable crop we grow here.
We grow a lot of cotton too, coming in at the third-largest cotton-producing country in the world!
The United States has a vast climate, meaning many different fruits can be grown here. Whether this is apples in New York or Florida Oranges, we grow a lot of fruit too.
We grow a lot of cane sugar in states like Florida, Louisiana, Hawaii, and Texas. We also produce a lot of stevia in the Southeast, used as a sugar alternative.
Beyond just corn, we grow a lot of vegetables here too. This could be tomatoes or romaine lettuce for human consumption or vegetables that we process into other products.
Here in the US we grow short, medium, and long-grain rice.
The only climate that supports rice crops is in the Southern parts of the United States. In fact, we grow much of our rice in California.
This crop category includes beans, legumes, peas, and peanuts.
10. Tree Nuts
Surprisingly, peanuts are not tree nuts. These are actually pulses. Tree nuts include almonds, walnuts, pecans, hazelnuts and more.
Farmland Investing Trends
According to a report by Farm Foundation, here are the current trends we are seeing with farmland.
The first major trend within farmland investing, mentioned earlier, is that more people are investing in farmland as non-operating landlords. This includes institutional investors, REITs, and even individuals who are buying shares of farmland through online platforms.
The United States has been in a period of low interest rates for over a decade now, and this has pushed investors to seek alternate assets for a means of return. This is one reason why many investors are getting into farmland. The stock market may be too volatile with the constant ups and downs, but bond yields are relatively flat and not keeping up with inflation.
Another trend seen right now is consolidation of smaller farm operations into larger ones. This is largely due to weak commodity prices. Crops like wheat and corn are a commodity. Larger farms operate more efficiently, so combining operations is often a cost-effective move.
How To Invest In Farmland
How you invest in farmland will largely come down to your status as an investor.
The SEC has set rules about who can and cannot invest in certain investments out there. They have a specific status called accredited investor which means a wider array of investments are available to you. In order to be an accredited investor, you have to meet certain income, net worth or licensing requirements.
Governing bodies like the SEC regulate public investments such as stocks. This is resource intensive, and as a result the SEC cannot possibly regulate all investments out there. That is why some investments are limited to accredited investors only. They view this group as financially stable enough to take on higher risks. It is also expected that this type of investor performs their own research and due diligence.
Unfortunately, many farmland investments out there require you to be an accredited investor. First of all, let’s define the requirements so you can determine if you are accredited.
Accredited Investor Requirements
In order to be an accredited investor, you need to meet 1 of the following requirements:
- You must have a net worth of $1,000,000 or more, excluding the value of your primary residence.
- An annual income of $200,000 or more ($300,000 if married) for the last 2 years, with expectations it will remain this high going forward.
- You hold an active Series 7, Series 65, or Series 82 license.
You don’t have to meet all of these requirements, just one. At this point, you should know whether or not you are accredited. Based on that, here are the farmland investment opportunities available for both accredited and non-accredited investors.
Farmland Investments For Accredited Investors
As an accredited investor, the main option you have available to you is investing through online farmland investing platforms. You are also allowed to participate in any investments for non-accredited investors too.
Here’s our full article comparing the best farmland investing platforms.
Crowdfunded Investment/Farmland Lending Platforms
Earlier in this article, we discussed farmland investing trends. One of them that was mentioned was that more and more individuals are making direct investments into farmland. In the past, it was largely just institutional investors making these investments in farmland. This was because accessibility was low.
Now, there are countless farmland investing platforms out there that allow accredited investors to purchase shares of farmland.
Each platform is a bit different, but they often have the following similarities:
- The minimum investment ranges from $5,000 to $20,000.
- A team of market experts performs due diligence on farmland investments before offering them on the site.
- There is rarely a secondary market to sell shares, meaning you should expect to hold on for the duration.
- The time horizon is 5 to 10 years.
- You pay fees to the company for facilitating deals and taking care of all the paperwork.
- You are typically buying shares of an LLC that owns the farmland.
Here’s a summary of the current farmland investment platforms available to investors. For more info, check out our dedicated reviews or our article on the best farmland investing platforms.
Disclaimer: This article is originally published on https://www.farmlandriches.com/