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It is no secret that farmland investing can be a lucrative opportunity. However, most of us don't know the first thing about farming.
In the past, the only real way to gain exposure to this asset class was to go out and buy a farm yourself. Or, you could purchase land that you rent out to a farmer.
While this may seem like a good choice for some, there are a few major drawbacks:
- Purchasing a farm or a large plot of land could cost you $100,000+
- If you are trying to get a loan, the bank will likely want you to have prior farming experience
- Owning a single farm does not provide you with any diversification
- All management duties fall on your shoulders
If all of that sounds like a big risk or headache to you, you've come to the right place.
In this article, we will be covering the different ways that you can buy farmland without purchasing an entire farm or land yourself.
Not only are these other methods far cheaper in terms of the minimum investment, they can even provide you with diversification across many properties. Also, the management duties are handled by someone else.
Here's how to own farmland without getting your hands, or boots, dirty!
|$8,000+||View Investments||Yes||US Farmland, Timberland, Vineyards|
|$15,000+||View Investments||Yes||US Farmland|
|$30,000+||View Investments||No||South American Farmland|
1. Crowdfunded Farmland Investing
The best option for getting exposure to farmland in a passive manner is to purchase shares of real farms via an online platform.
Due to changes in regulations over the last few years, individual investors from all over are now able to pool money together for a crowdfunded investment.
In the past, these private real estate deals usually involved a small number of people pitching in large sums of money.
Now, a larger group is able to collectively pitch in smaller sums of money. Most of these farmland platforms have a minimum investment ranging from $10,000 to $20,000. This is still out of reach for some, but a lot less than the cost of purchasing an entire farm yourself.
AcreTrader is one of the most popular platforms for accredited investors looking to invest. They have new farms going live weekly with minimums around $15,000.
2. Farmland REIT
If you don't have $10,000 to invest, or if you are not accredited, don't fret. The next two options for investing in farmland have lower minimums and do not require you to be accredited.
A REIT is a real estate investment trust, aka real estate that trades like a stock. There are two REITs available today that allow you to invest in farmland via the public markets:
Both of these have been around for a few years, but you should definitely read our full article on both before investing (links above). Farmland has become a “trendy” investment over the last year thanks to billionaire investors like Bill Gates, so share prices have climbed as a result.
The minimum cost associated with a REIT is the price of a single share. However, if you use a brokerage that offers fractional shares, you can could theoretically invest as little as $1.
REITs pay out dividends on a quarterly basis in most cases. Rent collected from the farmland is distributed to the shareholders. However, REITs are heavily correlated with the stock market. This is a major con to investing in them.
When stocks go up, REITs usually do too. When stocks go down, REITs follow. This defeats one of the major reasons behind diversification; less asset correlation.
Nonetheless, it is still an option that should be considered!
3. Lending To Farmers
The first two options we discussed for buying farmland involve you being an equity owner of the land.
An alternative option is to invest in farmland debt.
Instead of owning part of the farm, you lend money to help support farmers who pay you back interest. Often times, these loans are secured with collateral. For example, if the farmer doesn't pay, you might have rights to his or her farm.
Returns with debt investments are usually lower than equity, but they are also lower risk.
The most popular platform for farmland lending is Steward.
The funding model is called a “Participated Loan,” where qualified individuals can buy a piece of the loans made to farms and ranches, and then are repaid their principal plus interest over the term of that loan.
Good news! They don't require you to be accredited and the minimum to start lending is just $100.
It is now easier than ever before to gain exposure to farmland within your portfolio. There are numerous options for both accredited and non-accredited investors.
While it does require a minimum of $10,000 to invest directly in a farm, you can still accomplish this via REITs or lending for a much lower minimum.