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Imagine an investment opportunity that has produced higher returns than the S&P 500, while taking on less volatility. Seems a little too good to be true, right?
As investors, we are trained to be skeptical whenever we hear about the next hot investment opportunity. Typically, by the time an investment hits the mainstream, all of the money there was to be made has already been made.
However, we're here to make the claim that investing in farmland can deliver these returns and has not fallen victim to excess hype. Farmland is an investment opportunity that has been around for thousands of years and has consistently delivered returns above and beyond the stock market.
The reason for the increased interest in farmland investing today is that the barrier to entry has been lowered. Platforms like FarmTogether have made it possible for the everyday investor to capitalize on this asset class for the first time.
In the past, investors needed to come up with hundreds of thousands of dollars to purchase a parcel of farmland. Today, these crowdfunded farmland platforms make the process easier and cheaper for investors like you and me.
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FarmTogether Review: Summary
- FarmTogether is a crowdfunding real estate investing platform specializing in farmland.
- They are capitalizing on making the $2.7 trillion US farmland market more accessible to everyday investors.
- As an asset class, farmland has consistently outpaced the S&P 500 while experiencing less than half as much volatility.
- By purchasing farms that are already operating and profitable, FarmTogether is able to provide investors with immediate cashflow.
- Their user-friendly platform is full of tools that will be useful to newer investors in farmland.
- The platform claims overall average returns of 7 – 13% and cash yields of 3 – 9%.
What Is FarmTogether?
FarmTogether is a crowdfunded farmland investing platform based out of San Francisco. The company was founded in 2017 and has since raised over $3.7 million in venture capital funding. Their mission is to radically democratize farmland investing by providing carefully curated deals to the public.
The majority of investors on FarmTogether fall under two categories: accredited investors, and wealth managers. Accredited investors are able to look through the deals on the platform and invest in those that they find appealing. Wealth managers can use the platform to further diversify the assets of their clients.
In order to qualify as an accredited investor, you have a few options. Either have a net worth of $1,000,000 excluding your primary residence, or make at least $200,000 per year. If you do not meet the income/net worth requirement, you can be deemed an accredited investor if you have a current Series 7, Series 65, or Series 82 license.
If you don't meet these criteria, you'll be unable to invest on the platform for the time being.
Most of the deals on the platform are located in California and the Pacific Northwest as these are the areas they are most familiar with. However, the platform has been expanding to include more regions over time.
Across the entire management team, they have a combined 70 years of experience in farmland investing and agriculture. This provides investors with significant market insights and confidence that good decisions are being made.
The CEO and founder, Artem Milinchuk has over 10 years of experience in farmland and agriculture. Additionally, Milinchuk was previously the CFO of a B2B platform that facilitated the buying and selling of produce. He is in good company among graduates from Harvard Business School and experienced agriculture professionals.
How Does FarmTogether Work?
FarmTogether buys well-managed farms across the US and opens them up for individual investors to purchase a portion. Their due diligence process is extensive and ensures that the farms they purchase are in prime production regions across the US. This means that the farm will have strong water resources, prime soils, and a suitable climate.
Once these farms are identified and purchased, they are listed on the FarmTogether platform for investors to browse. Each listing includes information on the total value of the land, the target IRR for the project, and the cash yield. Additionally, each project will have a different target holding period so investors know what to expect.
One thing that sets FarmTogether apart from some of the other crowdfunded real estate platforms for farmland is their use of debt. While many other platforms choose not to use any debt, some of the investments on FarmTogether will involve debt. This has the potential to increase potential returns for investors but also presents additional risk. If the cashflows of the farm do not cover the debt payment, there may be problems for investors.
FarmTogether Minimum Investment
Unlike many other farmland investing platforms, FarmTogether doesn't split their projects into specific-sized parcels. Instead, they allow investors to specify exactly how much they want to invest in each project.
Investments start at $15,000 and scale up to purchasing the entire project. This provides investors with much more flexibility because they do not have to work with pre-cut parcels of land.
The amount you choose to invest will determine how many acres of the property you will own. They pay out returns proportionately to the percent of the project that you own.
FarmTogether Holding Period
Each investment on the platform has a listed time horizon, at which point the firm plans to sell the deal. If an investor wishes to exit their position early, FarmTogether will assist in locating a buyer.
However, they cannot guarantee that they will be able to find a buyer in all situations. Additionally, you will run the risk of needing to sell at a discount or pay transaction costs. In general, your best bet will be to assume you will be holding this investment for its full duration.
In addition, there is a secondary market for FarmTogether within the platform. This means that investors are potentially able to exit their positions before the end of the holding period by selling to other investors. Most farmland investing platforms do not offer any kind of secondary market, so this is definitely a differentiator for FarmTogether.
While this does create more liquidity for investors, there actually needs to be someone willing to buy your shares in order for you to sell them. Given that this is a relatively new addition to the platform, it's not clear how much demand there will be to buy shares on the secondary market. As time goes on, we'll be able to get a clearer picture on how easy it is to sell your investment early.
Even so, with any investment in farmland, it's best to have a long-term time horizon and plan to hold your investment through the entire holding period. Investments like this are not meant to be held short-term so it's important for investors to go into this with realistic expectations.
FarmTogether Investment Size Calculator
As investors, it's important that we have realistic expectations going into any investment we make. On the FarmTogether platform, every deal will have an investment size calculator that you can use to estimate your returns.
By inputting how much you plan to invest, the calculator will tell you how many acres you would be purchasing. You will also see a dynamic graph with your expected returns over time and a breakdown of your return between appreciation and income.
This tool adds to the user-friendly experience that FarmTogether creates for investors and demonstrated their dedication to transparency. While these numbers are only estimates and do not guarantee returns, they are useful for visualizing the trajectory of your investment.
FarmTogether Sole Ownership
An offering unique to FarmTogether is the ability to purchase bespoke deals of $1,000,000+. This is clearly only for ultra-wealthy investors who are looking to purchase an entire farm themselves.
However, there are a number of benefits to this route. Namely, the customization available to the investor in terms of legal structure, capital structure, and holding period. Investors going down this route will also have the opportunity to participate in 1031 exchanges. This is not an option for other FarmTogether investors to take advantage of.
A 1031 Exchange is an optional tax strategy you can use when you sell an asset, in this case farmland, for a profit. If you have capital gains, you have to pay taxes on them. However, with a 1031 Exchange, you are able to roll the proceeds into another like-kind investment in order to defer the taxes. You could sell one farm, and purchase another within 45 days to qualify for the deferment.
Farming as a whole has been in a constant state of change as additional technologies arise. Many of these new innovations allow for more sustainable farming practices to take place at scale.
As a platform, FarmTogether is remaining at the forefront of this movement. They have been selected to demo a number of new products that directly benefit growers and accelerate regenerative practices. Additionally, they will be adding regenerative technologies through a partnership with Indigo Ag's Terraton Challenge.
Their mission through these sustainability efforts is to develop carbon-negative farming practices on a large scale.
Is FarmTogether Safe?
All investments involve risk and farmland is no different. There is always the potential for loss if an investment goes south. With this asset class, some of the risks you'll experience are weather risk, crop risk, and liquidity risk.
Through their extensive due diligence process, FarmTogether is able to mitigate some of these risks. For example, through negotiating sustainable farmland practices with farmers, soil quality can be maintained.
Additionally, over time farmland has been a significantly less volatile asset class than stocks or other types of real estate. This leads to a more consistent return over time for investors.
FarmTogether is also listed with the SEC as an exempt reporting adviser.
All of the deals on the FarmTogether platform contain investments from executives at the company. Seeing those at the top participating in deals should give investors a level of confidence in the quality and safety of deals on the platform.
On their website, FarmTogether boasts strong overall returns in the range of 7 – 13% net of fees. This is impressive given their tendency to take on low volatility projects. Over time, farmland as an asset class has produced an average return of about 11.5%. This compares to an 11% return from the S&P 500 over the same time period.
The returns generated by FarmTogether come in two forms: capital appreciation, and income. Capital appreciation is generated when a property is sold for more than it was bought for. Income, on the other hand, is generated when farmland is rented out to farmers to use.
Depending on the particular deal, sometimes the bulk of the return will come from appreciation and sometimes it will be income. For example, a recently closed deal has an expected return of 12.1%, 11.2% of which will come from income. In this case, the deal was an already-operating farm that was profitable and wasn't expected to appreciate much.
In general, FarmTogether estimates a 3 – 9% of the returns to be in the form of income, and the rest to be appreciation.
They pay income distributions either quarterly, semi-annually, or annually directly to investors' bank accounts. They pay out appreciation at the end of the holding period when they sell the property.
So far, 17 deals have been funded through the FarmTogether platform. The most recent of which was a $22 million deal which set the record for the largest single-asset crowdfunded farmland investment to date. As the platform is still fairly new, no deals on the FarmTogether platform have reached completion yet.
The fees for each deal on the platform tend to vary, but they list them clearly for investors to see. Through their use of technology and increased efficiency, these fees tend to be much lower than what you are likely to find on other crowdfunded real estate deals.
In general, all deals will include two fees: a 1-2% upfront fee when purchasing a new investment and a 1-2% per year asset management fee.
- Skilled management team with extensive experience in agriculture and farmland investing.
- International investors are able to participate in deals on the platform.
- Full flexibility in exactly how much money to invest in each deal.
- Ability to access sole ownership bespoke deals through FarmTogether's deal sourcing pipeline.
- Investment size calculator provides an immediate snapshot of the predicted investment over time.
- Simple onboarding process allows investors to quickly begin browsing investment opportunities.
- Secondary market allows investors to potentially sell their shares early.
- Only accredited investors can participate in deals on the platform.
- $15,000 minimum investment may be out of reach for many investors.
- As a newer platform, we don't have data for an entire investment from purchase to sale.
FarmTogether Review: Final Thoughts
As far as crowdfunded farmland investing platforms go, FarmTogether has a lot of things going for it. With a middle-of-the-road minimum investment of $15,000, it is easy for investors to start by diversifying a small portion of their portfolio into farmland.
Additionally, the user-friendly interface and transparency provided by the platform make it easy for investors to feel confident. This includes their investment size calculator which is a unique and valuable offering of the platform.
However, the fact that the platform has only been around for a few years means that we don't have a massive amount of data. Plenty of deals have been funded on the platform, but not enough time has passed to see them through to sale.
With the growing popularity of platforms like FarmTogether, we're only becoming more confident in the asset class as a whole. As the saying goes “the best time to plant a tree was 20 years ago, the second-best time is today.“
So whether you choose to invest with FarmTogether or one of the many other farmland investing platforms out there, happy investing!