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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.
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- AcreTrader is a crowdfunded real estate investing platform specializing in farmland investments.
- The AcreTrader platform is only available to accredited investors to use.
- 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.
What Is AcreTrader?
AcreTrader is a crowdfunded farmland investing platform that was founded in early 2018. The company is headquartered in Arkansas and allows everyday investors to diversify into farmland with as little as $10,000.
Being a newer company, they are very easy to get ahold of. If you have any questions about the investments offered on their platform, you can reach out directly. Their phone number is clearly on their site or their live chat will quickly connect you with someone.
On the other hand, as a newer 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.
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.
The reason that this rule exists is to prevent smaller investors from being taken advantage of. However, it can be frustrating to not have access to different types of investments if you do not qualify as an accredited investor.
AcreTrader has stated that they are actively working to offer investments for non-accredited investors as well. 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 pricy for you, signing up for an account will allow you to stay in the know when new farms are listed.
AcreTrader Holding Period
Unlike many other real estate crowdfunding platforms, with AcreTrader you aren’t locked into your investment until AcreTrader decides to sell it. On the AcreTrader platform, there is no secondary market for investors to sell early to other investors if they wish.
This means that when you go into an investment on AcreTrader or any other crowdfunding farmland investing platform, you should expect to hold the investment until the terminal date. Many of the parcels on AcreTrader have a 3-5 year timeline, but some may go as long as 5-10 years.
Because AcreTrader was founded in 2018, we have yet to see any deals play out completely. However, it's likely that within the next couple of years AcreTrader will take their first deal to completion.
That being said, in 2020 alone, AcreTrader made over 500 distributions to its investors. So even though there have not been any exits yet, investors are certainly receiving cashflow from their farmland. It should also be noted that all of these distributions were at or above the stated metrics listed on the particular deal.
Is AcreTrader Safe?
In the years since launching, AcreTrader has effectively proven its legitimacy by closing on over 45 pieces of A-grade farmland. The company has raised over $18 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.
It is clear that AcreTrader has been leaning on the side of less risky investments thus far, but as time goes on and they gain traction, they may decide to start offering investments that involve a greater level of risk as well. Many other crowdfunded real estate platforms will use debt to assist in financing their projects. Up to this point, AcreTrader has not taken on any debt.
It’s important to keep in mind that all investments have the potential for loss and farmland is no different. As a physical asset, the risks are different from those affecting stocks and bonds, however, they do still exist.
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.
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.
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.
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 may be attributed to 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, every year more and more farmland is converted to other uses. 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.
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.
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 cost is not directly charged to investors, it will still impact their returns.
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.
- 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.
- 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
- Time will tell how AcreTrader’s returns stack up against their projections.
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!