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Institutional investors like university endowments and pension funds have long known about the benefits of investing in farmland.
However, until the last decade, investments in farmland were only available to investors with millions of dollars to invest. In order to get exposure to this asset class, you had to purchase farmland directly which is both expensive and time-consuming.
In recent years, a number of crowdfunding platforms have popped up to solve this issue and make farmland more accessible. These platforms allow investors to pool their money together to access larger deals. They also provide management of the farms so investors can be completely hands-off.
This has been a game-changer for the everyday investor who can now access farmland investments. As an asset class, farmland has consistently outperformed stocks while taking on less volatility.
Additionally, the negative correlation with the markets as a whole makes farmland an attractive piece of a diversified portfolio.
Harvest Returns is one of the newer platforms to enter the scene and is determined to democratize agricultural investing.
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Harvest Returns Review: Summary
- Harvest Returns is a crowdfunded investing platform specializing in sustainable agriculture and farmland.
- Deals on the platform span the US and include some international deals as well.
- All investments are fully managed by Harvest Returns and hands-off for investors.
- Investments have a negative correlation to the stock market providing for effective diversification.
- Minimum investment of $10,000 to start out on the platform.
- Harvest Returns partnered with 9 different self-directed IRA companies allowing for IRA investing.
- Some deals on the platform are open to a limited number of non-accredited investors.
What Is Harvest Returns?
Founded in 2016, Harvest Returns is a quickly-growing crowdfunded farmland platform. Since they started, Harvest Returns has raised over $11 million and funded over 23 deals.
Immediately it is clear that the average deal size on Harvest Returns is smaller than many other platforms. Instead of purchasing deals for multiple millions of dollars, the Harvest Returns team is on the lookout for smaller deals that have been overlooked.
Deals on the platform range anywhere from $150,000 – $1,000,000 and the average deal size is around $500,000. Most deals will have a minimum investment of around $10,000, however, some go as high as $25,000.
Due to the smaller deal size and required investment, Harvest Returns is particularly attractive for newer investors.
The company values revolve around sustainability, integrity, partnership, and profitability. These values are reflected in the deals that are listed on the platform. Many of these deals involve some aspect of sustainability and focus on creating a partnership between farmers and investors.
Both of the cofounders are military veterans that came together to democratize the agriculture investing industry. Throughout their time in service, they began to appreciate the integral role agriculture plays in our lives. So when they arrived home, they decided to come together and do something about it.
Supporting Local Farmers
Harvest Returns has always been focused on supporting farmers. On the other side of every investment is a farmer looking to raise capital to expand their operations.
When investors participate in deals on the platform, they are supporting small farmers to grow their businesses. These investments also end up supporting local communities as farmers are able to upgrade their equipment and become more productive.
Many farmers previously had to rely on bank loans to fund expansion efforts. This was often not an ideal scenario for farmers who were unable to have much of a say in how deals were structured.
With Harvest Returns, farmers can choose to structure deals as equity or debt and make sure their needs are met. This allows for a greater variety of investment opportunities on the platform.
How Does Harvest Returns Work?
The platform is set up similar to other crowdfunding farmland platforms. Management performs due diligence on many deals and decides whether or not to list them on the platform.
Then investors get to decide whether or not to invest in each deal. With the minimum investments as low as they are, it's easy for investors to diversify across multiple deals. You're also able to specify exactly how much you want to invest rather than buying in increments.
Within each deal, Harvest Returns publishes detailed information on the structure, financials, strategy, risks, and more. This allows investors to get the full picture of any investment before committing to it.
The financial information includes a detailed pro forma and goes in-depth beyond most other similar platforms. For investors that really want to see the numbers, this is a big plus.
Additionally, each deal outlines the major risks faced by investors specific to the deal. This feature is particularly important for investors that may be newer to agricultural investments and aren't as familiar with the various risks.
Each listed deal will have a time horizon for investors. These typically range anywhere from 12 months to 10 years. While some deals will have a secondary market for investors to sell out early, it is best to plan to hold the investment through to completion.
Farmland is not generally a liquid investment, this is important to keep in mind going into any investment.
Who Can Invest With Harvest Returns?
Most deals on the platform allow for accredited investors as well as 35 non-accredited investors to participate. This is a unique feature of the Harvest Returns platform because most other farmland crowdfunding platforms are only open to accredited investors.
Additionally, most deals on the platform are open to international investors. As far as accessibility goes, Harvest Returns is open to many more investors than most other crowdfunding platforms.
This includes IRA investors who wish to diversify some of their retirement dollars into farmland. Through partnerships with 9 large self-directed IRA providers, Harvest Returns makes it easy for investors to go down this route.
As IRAs typically contain a high concentration of stocks, adding farmland to the mix could be an effective diversification strategy due to the negative correlation between the two assets.
For additional legal protection or tax advantages, investors can also choose to invest through a legal entity like an LLC. Harvest Returns makes it easy for entities to directly invest in deals on the platform which provides for greater flexibility.
Returns From Harvest Returns
Every deal on the Harvest Returns platform has a target IRR that is set. From deal to deal, there is significant variation in the target IRR. This variation is due to a number of factors including the risks of the deal and the time horizon.
IRRs on the platform range anywhere from 8% on the low end all the way up to 61% on the high end. Deals with higher IRRs typically involve a greater level of risk so investors should ensure they understand each investment they plan to pursue.
To date, 23 investments have been successfully funded and a number of those have come to completion and met IRR expectations. As the platform is still relatively new, there is not an abundance of data on actual returns vs. projected returns.
However, there are a number of sponsors that have raised money on the platform multiple times. This suggests that investors were satisfied with their returns and willing to invest with the same sponsor again.
Deals on the platform vary in terms of their payout schedule. Some will make distributions to investors on a quarterly basis, but most will pay out annually.
The structure of most deals is that investors will receive a relatively small cash yield annually and a large payout when the investment is sold.
Harvest Returns Taxes
The tax treatment of returns will vary between deals depending on how they are structured.
Most deals on the platform are structured as limited partnerships. As a result, Harvest Returns will issue a K-1 to all investors detailing their tax consequences.
In general, investors pay ordinary income tax on any income received from the investment and receive capital gains treatment on gains from the sale of the property.
There will be different tax consequences based on whether the deal involves debt or equity.
It's important to talk to a tax professional before making any investments in farmland because everyone's situation is different.
Sustainable Agriculture Opportunity Zone Fund
A unique investment currently listed on the platform is the Opportunity Zone Fund. It is the only fund listed on the platform and allows investors to benefit from the tax-advantaged status of opportunity zones.
Opportunity zones are typically located in low-income communities and provide investors with tax breaks for investing there. It's rare to see farmland in opportunity zones as they typically contain residential and commercial real estate.
The objective of the fund is to support small and medium-sized agriculture businesses while receiving tax advantages.
By holding an investment in the fund for 5-10 years, investors can reduce and potentially eliminate all taxation on their gains. This is what makes opportunity zones particularly attractive for investors.
The minimum investment for the fund is $25,000.
The Opportunity Zone Fund is an attractive prospect for investors currently sitting on significant unrealized gains. This is because if investors use those gains to buy shares in the fund within 180 days or recognizing them, they can defer recognition of their gains until 2027.
For example, if you were holding stocks that had increased in value from $50,000 to $150,000, you could defer the $100,000 in gains by selling your investment and putting it into the Opportunity Zone Fund.
Harvest Returns Fees
There are no fees for investors on the Harvest Returns platform. However, this does not mean that the platform is entirely free.
There are two types of fees that will need to be paid for all deals on the platform. The first are the fees associated with running the project. These are paid by the issuer and not by the investor.
The fundraising costs will vary from deal to deal. They state these costs in the deal financials.
The second type of fee is the cost of verifying an investor's accreditation status. If you are investing in a deal that requires you to be accredited, Harvest Returns may have to verify that you are in fact accredited. In this scenario, they will pay for this and you will not be charged as the investor.
Harvest Returns Pros
- Gain exposure to farmland, an set class that has consistently outperformed the stock market.
- Lower minimum investments starting at $10,000 per deal.
- Ability for a limited number of non-accredited investors to participate in deals.
- Detailed financial information and pro forma available before investing.
- History of successfully funded deals delivering returns.
- Diverse array of projects spread across the globe to choose from.
- Very competitive returns on many deals on the platform.
Harvest Returns Cons
- No uniform fee schedule across all investments.
- Limits on maximum contributions could prevent high net worth investors from fully investing.
Harvest Returns Review: Final Verdict
As far as crowdfunded farmland platforms go, Harvest Returns is definitely one of our favorites. This is due to a number of factors including the variety of deals, the accessibility of the platform, and the deal structures.
Most other crowdfunding platforms only have a couple of options for investors to choose from. With over a dozen deals on the platform, there is a significant variety for investors to choose from.
Deals range from private placements to tax-advantage funds and allow investors to find exactly what they are looking for.
The platform also offers greater access than many others. The ability for non-accredited investors to participate in many of the deals is very unique. Additionally, allowing investors to invest through an IRA makes it easier to design an ideal investment.
Deals are structured in a way that is easy to understand for all investors. There are many resources available to investors on each deal to help them make the best decision. These include detailed proformas, market analysis, and risks.
All investments present a level of risk and farmland is no different. Do your research before pulling the trigger and putting any of your hard-earned cash on the line.
As an asset class, farmland has continued to provide consistent returns over time. For investors looking to get a foothold in farmland, we think Harvest Returns is a platform worth considering.