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AcreTrader is a crowdfunding real estate platform that allows everyday accredited investors to gain exposure to the alternative asset class of farmland.
Throughout history, farmland has proved itself as a lucrative investment. For many years, farmland has not been the most accessible investment. AcreTrader is striving to change that.
The platform is currently reserved for accredited investors only and requires a minimum investment of $10,000 – $25,000. There is also a holding period of about 3-8 years. With low volatility and consistent returns, farmland could be a great way to diversify your portfolio.
In the past, the only way to invest in farmland was to buy a farm yourself or invest in a publicly traded farmland REIT. Both of these have their own downsides. Now, there is a more passive and managed approach to gaining exposure to farmland. Fees are reasonable and the level of transparency is very high. AcreTrader has successfully closed over 50 deals to date since inception in 2018.
- Highly vetted (~1% acceptance rate)
- Low minimum investment starting as low as $10,000
- You can select what deals you choose to invest in
- Non-citizens can invest as long as they are US resident
- Accredited investors only
- No secondary market at this time
- AcreTrader has only been around since 2018
It’s no longer a secret that an investment in farmland is one of the more lucrative investments you can make.
Historically, the average rate of return outpaces stocks and most other asset classes available to the public. As a result, investors have been looking for ways to get into farmland investing for decades. However, the need for hundreds of thousands of dollars to buy a single deal made it difficult to break into.
The rise of AcreTrader, as well as other crowdfunded farmland investing platforms, has made this asset class accessible to the everyday investor. This brings with it the ability for investors to expand their portfolios while increasing returns.
By lowering the barrier to entry to only a few thousand dollars, there has never been a better time to diversify a portion of your portfolio into farmland.
Prior to these platforms, the only way to gain easy exposure to farmland was by purchasing REITs. Unfortunately, these are not the best option in most cases. REITs tend to have a high degree of correlation with the overall stock market, and returns are typically lower than more illiquid farmland investments.
Now, there is a third option that falls in the middle between buying a REIT and buying your own farm yourself.
Start Buying Farmland Today!
- AcreTrader is a crowdfunded real estate investing platform specializing in farmland investments
- The AcreTrader platform is only available to accredited investors
- Minimum investments start out as low as $10,000 per deal
- Most deals on the site have a minimum investment between $15,000 – $25,000
- AcreTrader takes care of all of the legal work and upkeep so you can be completely hands-off with your investments
- Before listing deals on the platform, AcreTrader conducts extensive due diligence
- Ratings are listed on every deal to clearly display the risks that investors are taking on
- Easy access to the alternative investment space for those looking to further diversify
- The web platform is very transparent and easy to navigate
- New deals are listed weekly on the site
- Earn passive income from the multitude of revenue streams of farmland
What Is AcreTrader?
AcreTrader is a crowdfunded farmland investing platform that was founded in early 2018. The company is in Arkansas and allows everyday investors to diversify into farmland with as little as $10,000.
The AcreTrader team is very easy to reach. If you have any questions about the investments offered on their platform, you can reach out directly. Their phone number is clearly displayed on their site or their live chat will quickly connect you with someone.
If you want to try it out, give them a call at 888-958-1470.
On the other hand, as a young company, we have not had the chance to see any of their deals go all the way from inception to sale. This means we still have a few more years to go before it’s clear how their projected returns stack up.
As an investor on the platform, you have the ability to choose which deals you want to participate in and how much you want to invest in each deal. As a result of this, the platform is only available for accredited investors.
In order to qualify as an accredited investor, you must meet one of the following three criteria:
- Your net worth is greater than $1,000,000 (excluding your primary residence).
- Your income is greater than $200,000 ($300,000 if married).
- You hold a financial securities license (Series 7, 65 or 82 license).
If you do not meet one of these criteria, you will not qualify as an accredited investor and will not be able to invest on the AcreTrader platform. You may want to consider a platform without this requirement such as Steward.
AcreTrader has stated that they are actively working to offer investments for non-accredited investors as well. However, at this time there are none available.
To stay up to date on their progress, sign up for a free AcreTrader account.
How Does AcreTrader Work?
AcreTrader begins their process by doing extensive due diligence on every deal that comes their way. According to their website, they select fewer than 1% of the parcels they review to list on their site.
After identifying a property that meets their criteria, they’ll purchase the property and place it into a separate LLC that they own. At this point, they will list the deal on their site and allow investors to buy portions of it.
Deals are split into 1/10th of an acre parcels and then investors like you and me can log on to AcreTrader and decide how many of these pieces we would like to purchase. Your returns will be based on the percentage of the total farmland that you own.
From there, AcreTrader takes over and gets to work on managing and improving the land, and working closely with the farmers that are renting the land. Through this relationship, AcreTrader is able to ensure that the farmer pays rent in advance of planting season so the risks associated with weather and crop yield are mitigated for investors.
AcreTrader estimates a 3% – 5% cash return each year for investors paid out every December. This is in addition to the capital appreciation that will be recognized when the property is eventually sold.
AcreTrader Minimum Investment
Each deal on AcreTrader will have a different minimum investment requirement. These can range as low as $5,000 or as high as $25,000+. We have found most deals on the platform to have a minimum investment in the range of $15,000 – $25,000.
This is significantly lower than what it would take to buy a piece of farmland on your own, plus when you invest through AcreTrader, you don’t have to do any work beyond clicking a couple of buttons.
AcreTrader typically adds a new farm to the platform every 1-2 weeks. So even if the current offerings are too pricey for you, signing up for an account will allow you to stay in the know and receive notifications about new farms.
AcreTrader Holding Period
On the AcreTrader platform, there is no secondary market for investors to sell early to other investors if they wish. However, AcreTrader mentions on their site that this is something they may explore in the future.
The holding period varies based on the property that you invest in. It is typically a 5, 10 or 20 year period.
In the future, they may offer a secondary market where investors could sell after a 1 year hold. However, at this time that is not available. Investors should be ready to commit to the entire duration.
You can certainly sell your shares on your own in a private transaction, but you would need to facilitate all of this yourself.
An important factor to consider before investing is how the farmland listed is managed after investors purchase their shares. While the research is in house at AcreTrader, a lot of the management aspects are handled by others.
AcreTrader works with several leading land management companies that collectively manage hundreds of thousands of acres. They help ensure our farming partners are adhering to best practices.
Is AcreTrader Safe?
In the years since launching, AcreTrader has effectively proven its legitimacy by closing on over 50 pieces of A-grade farmland. The company has raised over $20 million dollars in funding to allow them to do this and build momentum behind their service.
Currently, AcreTrader has an A+ Rating from the Better Business Bureau, which should provide investors with some peace of mind.
To keep your investment safe, AcreTrader holds each of their farms in separate LLCs. As an investor, you then own a portion of that specific LLC. This ensures that if one farm listed on AcreTrader were to go belly-up, it would not have an impact on investors that had not invested into that particular project.
One additional perk contributing to the safety of the AcreTrader platform is the familiarity of much of the management with farming and real estate.
The management team is made up of both family farmers and real estate investors, providing a unique mix of perspectives and insights into new opportunities on the horizon as well as knowledge accumulated from the past.
Carter Malloy, the CEO of AcreTrader, worked as an investment professional at a $1 Billion investment fund prior to starting this company.
In addition, the VP of farm operations previously co-managed over $200 Million in farmland investments.
Farmers Not Paying Rent
The primary risk you face as an AcreTrader investor is that the farmer fails to keep up with their expectations.
This could cause an interruption in distributions and potentially a loss of value in the farm itself. In order to mitigate this risk, AcreTrader requires farmers to pay rent before the planting season and requires crop insurance for many of their farms.
So, what happens if a farmer stops paying rent?
Cash payments are typically received annually in advance before the planting season begins to mitigate risk. So, if the farmer doesn't pay, they don't get the opportunity to use the land and AcreTrader looks for a more suitable tenant.
In some cases, part of the rent is received after the harvest. As an additional precaution, AcreTrader secures a first lien on the crop.
Farmland generates returns through two primary means: the appreciation of the land value over time, and the rental income received from farmers using the land. AcreTrader investments are able to take advantage of both of these channels and generate returns through capital appreciation and rental income.
In some cases, investors have the potential for additional upside from the crop harvest depending on how the deal is structured.
Over time, farmland has generated consistent returns averaging out to 11.5%. During the same period, stocks have averaged 11.1%, which may seem fairly comparable at the surface level.
However, when volatility is taken into account, an investment in the S&P 500 is almost 3x as volatile as an investment in farmland. This means when you’re investing in stocks, you’re taking on additional risk but making less of a return.
Much of this is because of the fact that the demand for food is fairly consistent year-over-year. People need to eat, and so until humans have the capability to create food at scale entirely in labs, the demand for farmland will remain fairly consistent.
At the same time, conversion of farmland for other uses is speeding up rapidly. This causes the premium for the remaining farmland to rise as the global population continues to grow year-over-year.
While AcreTrader has only been around for a few years, the deals that make it through their intense vetting process and make it onto the platform show annual returns ranging from 8% to 12% per year.
When thinking about investing with any platform, it’s crucial that you know what the fees are. This is true even if you are not directly seeing the fee on your account statement.
AcreTrader is very transparent about the fees investors pay on the platform. Each listed deal clearly states the costs and fees that will apply.
On the AcreTrader platform, there are only three fees that you need to be aware of.
1. Annual Servicing Fee
A 0.75% annual servicing fee is charged by AcreTrader based on the value of the land. This fee covers managing the land, managing the farmers using the land, accounting, reporting, communication, and administration.
Essentially, you’re paying this fee so that all you have to do is pick out which farm you want to invest in and AcreTrader will do the rest.
For context, if you invest $10,000 in AcreTrader, you’ll end up paying $75 per year in the annual servicing fee.
2. Pass-Through Closing Fees
Real estate is an illiquid asset that almost always faces transaction costs when buying or selling.
When AcreTrader buys new farmland, they typically face about 2% in closing costs to facilitate the transfer of ownership of the farm. Additionally, this cost includes the legal work required to establish a new entity to hold the land.
While this fee is not a direct cost to investors, it will still impact their returns.
3. Broker’s Fee
This is the primary money-maker for AcreTrader. The previous two fees are relatively revenue-neutral for the company. Where they make their money is through acting as a broker in transactions.
When AcreTrader buys farmland from a seller, they charge the seller a 5% fee. This is similar to the fee you pay a real estate agent for selling your house. By making their money by charging the seller, they can afford to provide investors with very competitive fees.
Additionally, AcreTrader does not charge any carried interest fees on their investments. This means that there is not a cap on the returns you can make on the platform and you are able to take all of the upside of the deal.
AcreTrader Investment Taxes
The last thing we would like to cover is some information about the tax treatment of AcreTrader investments. We are not tax professionals, but here are the basics.
The land itself on a farm cannot be depreciated.
However, if the land has had improvements made upon it such as dwellings, barns, sheds, etc. these buildings can be depreciated.
Just like with most other investments, the standard capital gains tax rates apply:
- If the property is sold within the first year, you pay the short term capital gains tax rate
- If you hold onto the property for greater than a year, you pay the long term capital gains tax rate
The main tax difference between AcreTrader and other investments is that investors will receive a form K-1 annually.
A K-1 is a tax form used by partnerships to provide investors with detailed information on their share of a partnership’s taxable income. Keep in mind, each deal has a separate LLC and investors each become owners of that business.
Partnerships are generally not subject to federal or state income tax, but instead issue a K-1 to each investor to report his or her share of the partnership’s income, gains, losses, deductions and credits.
The K-1s are provided to investors on an annual basis so that each investor can include K-1 amounts on his or her tax return.
- Ability to invest in farmland, an asset that has historically outpaced the stock market with less volatility
- Low minimum investment requirements for deals make it possible to diversify across parcels
- Fees charged are low and transparent to investors
- Ability to select your own investments rather than investing in a fund
- AcreTrader currently follows a safer investing strategy (this can be a pro or a con depending on what you are looking for)
- Good track record with selecting parcels and high rating with the BBB
- You can invest on a tax-advantaged basis using a self-directed IRA (SDIRA)
- You must be an accredited investor to use the platform
- There are typically only a few deals to choose from at a time
- No secondary market available to sell your investment early
AcreTrader Review: The Verdict
When it comes to investing in farmland, there have never been more opportunities at your fingertips for breaking into this asset class. As one of the most popular options out there, AcreTrader is a platform that is making many investors aware of the farmland investing space for the first time.
This is a significant plus for the asset class overall and will lead to the development of many other platforms allowing investors to diversify into farmland over the coming years.
With the rise of crowdfunding farmland platforms, it's likely that more everyday money will make its way into this asset class. If you are an accredited investor looking to get ahead of the wave, AcreTrader could be a great opportunity for you to do just that.
At the forefront of the pack, it’s likely that AcreTrader will continue to innovate on their offerings and strive to make investing in farmland more accessible to the everyday investor.
Additionally, their dedication to only listing the highest quality deals on their platform ensures that you can be hands-off with your investing and sit back knowing that deals have been strictly vetted.
So if you’re ready to diversify into farmland, we think AcreTrader is a great option to consider!