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FarmFundr is a crowdfunding real estate platform that helps accredited investors to own a part of a real working farm. Unlike most platforms that rent land out to farmers, some FarmFundr deals allow you to invest in the farm directly. That means you have exposure to some of the upside related to crop production, instead of just being a landlord collecting rent.
Farmland has long been considered a lucrative investment with its strong returns and low correlation to the stock market. However, it is not nearly as accessible as other asset classes such as stocks and bond. FarmFundr is trying to change that!
The platform is currently reserved for accredited investors only and requires a minimum investment of $10,000. There is also a holding period of about 1 to 7 years. One of the key benefits of FarmFundr is the fact that investors not only benefit from appreciation, but also receive distributions from the yearly harvest.
- Investors Benefit from Appreciation and the Yearly Harvest
- Low Minimum Investment of $10,000
- Access to Asset Class that has Traditionally Outperformed the S&P 500
- Accredited Investors Only
- Majority of Deals are in California
- No Secondary Market Allowing Investors to Sell Their Positions Early
By 2050, the world population is expected to surpass 10 billion people. One thing that is certain is that between then and now, the global production of food is going to need to increase significantly.
As investors, we're always looking for ways to get ahead of trends.
In the past, getting into the agriculture industry was an arduous process. Purchasing farmland, raising crops, harvesting, and going to market made farming a lifestyle of hard work.
However, thanks to modern innovations, there are now a multitude of ways to profit from the growing need for food. One of which is to invest in a partial share of a fully-managed farm.
Readers of the blog will know many of the benefits of investing in farmland, however, investing in a farming operation is different. When you invest in a farm, you both benefit from owning the land and from the harvest.
This means that you're able to take advantage of the high returns of farmland and capitalize on the increasing demand for food.
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FarmFundr Review: Summary
- FarmFundr is a crowdfunded farmland platform that allows investors to buy a fraction of a fully operational farm
- Most similar platforms simply offer land investments that are then rented out to farmers, meaning you are a landlord that receives rent payment only
- For many deals, the minimum investment starts off at $10,000
- Currently, there are only offerings for accredited investors, but they plan to create offerings for non-accredited investors in the near future
- FarmFundr was founded by a 4th generation farmer
- In addition to capital appreciation from selling the land, investors receive a share of profits from crops
- Most other platforms only offer returns through rent payments and capital appreciation when the land is sold
- There is an extensive due diligence process that all deals go through before making it on the site
What Is FarmFundr?
FarmFundr was founded in 2015 as a way to allow everyday investors to diversify into farmland investments. The service is set up as a crowdfunding platform where deals are pre-vetted by a team of experts and offered to accredited investors.
What sets the platform apart from many of the other crowdfunding farmland platforms on the market is the deal structure. As investors, instead of just owning the land, many of the deals are set up such that investors actually own part of the farm.
As a result, investors can profit both from the appreciation in the land value and from the yearly harvest.
How Does FarmFundr Work?
- The FarmFundr team sources and analyzes deals before offering them to investors. Once the deals have made it through due diligence, they are listed on the platform and investors choose whether to invest and how much.
- Each listed farm on the platform will have extensive information for investors to browse. This includes an in-depth look at the property, where the risks are in the project, and the target IRR for investors.
- Each listing also has an expected holding period which typically ranges from 1 to 7 years. Investors should be prepared to hold their investment for at least this long as there is no secondary market to sell out early.
The minimum investment required varies for each deal, but most are in the $10,000 – $15,000 range. Once an investor decides to go in on a deal, they are now a partial owner of that farm. Through the platform, they will receive updates on the deal and be kept informed about their investment.
Most deals also include equity investment from FarmFundr. This demonstrates that they stand behind the deals that they source and are willing to put their own money into them. In man cases, the farms offered on the platform have been owned by the company's CEO for a number of years. During this period he typically works on getting the farms ready for investors and investing in optimizing the operations.
For individuals with $500,000 or more to invest in a farm, the FarmFindr program will work with you to find a deal that you can be the sole owner of. Through this process, you will work with an “expert farm manager” that will help you along the way.
Investors in this program are able to specify the commodities they would like to grow and even name their own farm!
Depending on your risk tolerance and time horizon, your expert farm manager will advise you on what decisions to make. You'll receive help structuring your investment, finding an appropriate farm, and making it a hands-off experience.
Target returns for the FarmFindr program are 10 – 20% per year depending on your goals and risk tolerance.
Additionally, you'll have access to advanced investing strategies like 1031 exchanges, solo 401(k)s, and IRAs. These can allow you to save on taxes and further customize your investing.
On the FarmFundr platform, each deal will have a different fee structure.
However, there are two typical types of fee structure that deals are likely to fall under.
In general, the fee structure is not as uniform and transparent on the FarmFundr platform compared with others out there. You'll have to do a bit of digging on their site on the deals that interest you to get the full picture.
1. Equity Fee
On some deals, FarmFundr will take an equity position in the deal in exchange for managing it. For example, their California Almond Orchard didn't charge any management fees, but FarmFundr received 15% of the deal.
Additionally, on this deal, roughly 12% of the funds raised went towards costs associated with “developing and operating” the almond orchard. These funds went directly to FarmFundr and also helped to cover some of the company's expenses.
The California Almond Orchard will also pay a 0.40% fee to Farm & Land annually. Farm & Land is an affiliate of FarmFundr's manager and will be managing the farm. They may also receive additional fees for harvesting and cultivation.
2. Management Fee
For deals that do not include an equity fee, FarmFundr will typically take a 0.75% to 1% management fee. Additionally, on these deals, it is likely that there will be a 3% fee paid to the deal sponsors.
While these fees are fairly reasonable compared to other similar platforms, it's important that investors are fully aware of all of the costs they will face before investing.
- Ability for investors to participate in crop profits and land appreciation
- Experienced management team to do extensive due diligence on deals before listing them
- Low minimum investment of $10,000 per farm
- FarmFindr program helps high net worth investors own their own farm
- Partnership with RocketDollar allows you to invest with your IRA
- Only available to accredited investors for now
- Potential for related-party transactions between the CEO and the company
- Fee structure is not uniform and varies from deal to deal
- High concentration of deals in California decreases diversification
FarmFundr Review: The Verdict
FarmFundr has a lot going for it. The unique deal structure that allows investors to participate in crop profits and the increased upside potential is attractive to many.
Additionally, the experience of the CEO and management team builds confidence in the platform as a whole. As the global population expands and requires more food, FarmFundr puts investors in a good place to profit.
However, there are some areas for concern on the platform. Namely, the potential for conflicts of interest to exist between the CEO and investors.
If the CEO sells one of his properties to investors and has the power to unilaterally set the deal structure and fee schedule, there may be some fee inflation taking place. This is purely speculation, but the related-party nature of many of the deals on the site leaves some unanswered questions.
In the end, farmland as an asset class has consistently outperformed almost all other asset classes. People need to eat, and we don't anticipate that changing anytime soon. An investment in farmland can be an effective hedge against inflation and a strong play for diversification.
Whether or not FarmFundr makes sense for you, we believe that farmland has a place in the portfolio of most investors!