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- Farmland is a unique asset class that can provide long-term stable returns, diversification, and inflation protection to an investment portfolio.
- There are different ways to invest in farmland, including direct ownership, farmland REITs, farmland funds, and farmland crowdfunding platforms.
- Direct farmland ownership involves buying and managing a farm, which requires significant capital, expertise, and time commitment.
- Farmland REITs are publicly-traded companies that own and operate farmland properties and pay dividends to shareholders.
- Farmland funds are private equity funds that invest in farmland and operate similarly to REITs but with a more diversified portfolio.
- Farmland crowdfunding platforms allow individuals to invest in farmland properties by pooling their money with other investors.
- When evaluating farmland investment opportunities, it is crucial to consider location, soil quality, water availability, and lease agreements.
- Farmland investments also have risks like weather-related events, commodity price fluctuations, and government policy and regulation changes.
- Farmland investments can provide tax benefits, such as depreciation deductions and favorable capital gains treatment.
- Investing in farmland can be a viable option for investors seeking stable long-term returns and diversification, but it requires careful due diligence and risk management.
Beginner's Guide To Farmland Investing
Savvy investors always search for ways to grow their net worth while diversifying across different assets. For most investors, this means spreading money across real estate, stocks, bonds, and maybe even precious metals or cryptocurrency.
However, there are numerous investment opportunities within real estate investing. You could go out and buy a duplex or a fixer-upper. You may have learned about real estate crowdfunding, where you can get in on private real estate deals.
But what about farmland?
This could be an investment in land that produces wheat, soybeans, avocados, limes, etc.
Previously, your only option for investing in farmland was to go out and buy a farm yourself. Most people, including myself, have no interest in managing or operating a farm. However, there are countless ways to capitalize on this investment opportunity from the comfort of your home. You don't need to step on a farm or worry about tracking mud in.
Farmland falls under the category of alternative investments. Many experts now recommend allocating as much as 15 to 20% of your total portfolio to alternatives.
So, in this article, we break down how to invest in farmland. Specifically, we cover various avenues to invest in this asset class and cover the pros and cons of each. But first, what is farmland investing?
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|$8,000+||View Investments||Yes||US Farmland, Timberland, Vineyards|
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What Is Farmland Investing?
Farmland investing means you are making an investment related to the production of crops. The land is real estate, so this is lumped in with real estate investing.
However, rather than investing in buildings for housing or retail space, you invest in farmland.
According to the USDA, there are approximately 895 million acres of farmland in the United States. You might be surprised that over half of that farmland is rented, meaning the farmer is paying the owner for the rights to use it. Billionaires like Bill Gates have been scooping up farmland for years.
Most of the rented farmland is owned by non-operator landlords. These are landowners that have no active involvement in the actual farming. On the other hand, operator landlords own the land and are actively involved in farming activities.
The USDA found that 283 million acres worth, or 30% of all US farmland, is owned by these non-operator landlords. These groups want to capitalize on the investment opportunity associated with farmland without getting their hands dirty.
Only 20% of the rented farmland is owned by operator landlords who work the farms themselves.
Each day, more people are finding out about investment opportunities in farmland that do not require actual farm work. As a result, new farmland investing platforms are constantly popping up, allowing you to get in on the action.
This investment shown above is an offering from FarmTogether, a platform that provides farmland investment opportunities to accredited investors with as little as $15,000 to get started. But FarmTogether isn't the only platform. We will be sure to cover more below.
Savvy farmland investors are not only helping their net worth grow, but they are also having a positive impact on the environment. Here are a few ways that farmland investments benefit the environment:
- Protecting open spaces from urban sprawl and Development
- Supporting farms that rotate crops can benefit soil conditions
- You are helping to keep our booming food and agriculture industry poised to grow as populations expand globally
- Farmland provides a home for wildlife
- Crops help to add fresh oxygen to the atmosphere
- Innovative farming practices can aid in water conservation efforts
Types Of Farmland Investments
Most of the rented farmland is used for grain production. These crops have strong demand and are an easy source of cash for farmers.
However, various crops are grown across farms all over the United States. So let's go ahead and cover those now.
What Crops Are Grown In The US?
According to the USDA Economic Research Service, these are the ten most popular crops grown in the United States.
- Corn: Most popular crop grown in the United States, accounting for over 90 million acres. It's used for products ranging from feed, alcohol, and sweeteners (high fructose corn syrup).
- Soybeans: Believe it or not, the United States is the world's leading producer and exporter of soybeans! These days, soy is in just about every product we eat. In addition, you can process soybeans for oil and use them as feed for animals or human consumption.
- Wheat: Coming in at number 3 is Wheat, another highly profitable crop.
- Cotton: The US is the third largest cotton producer in the world.
- Fruit: The United States has a vast climate, meaning many different fruits can be grown here. Apples and oranges are the most common.
- Sweeteners: Cane sugar is grown in Florida, Louisiana, Hawaii, and Texas. Stevia is also produced in the Southeast and used as a sugar alternative.
- Vegetables: Beyond just corn, vegetables are common in the US too. This includes tomatoes or romaine lettuce for human consumption or vegetables that we process into other products.
- Rice: Rice crops are grown in the Southern parts of the United States. We grow much of our rice in California.
- Pulses: This crop category includes beans, legumes, peas, and peanuts.
- Tree Nuts: Surprisingly, peanuts are not tree nuts. These are pulses. Tree nuts include almonds, walnuts, pecans, hazelnuts, and more.
Farmland Investing Trends
According to a report by Farm Foundation, here are the current trends we see with farmland.
The first significant trend within farmland investing, mentioned earlier, is that more people are investing in farmland as non-operating landlords. This includes institutional investors, REITs, and even individuals buying farmland shares through online platforms.
With the current landscape of increased interest rates and high inflation, acquiring a loan for a farmland investment is more expensive than in years past. However, many investors are still looking for farmland because it is a low-volatility investment.
Another trend seen right now is consolidating smaller farm operations into larger ones. This is mainly due to weak commodity prices. Crops like wheat and corn are a commodity. Larger farms operate more efficiently, so combining operations is often cost-effective.
We are also seeing a shift away from gluten as more people are opting for a gluten-free diet. This results in less demand for wheat. However, these people often consume wheat alternatives such as soy or rice.
Lastly, a growing trend of individuals making direct equity investments in farmland is growing. In the past, it was primarily large institutional investors purchasing farmland as an investment. Now, countless platforms allow you to buy shares of farmland, similar to purchasing a percentage of a publicly-traded company.
How To Earn Money
Like the stock market and other real estate investments, a farmland investment can earn money through capital appreciation and monthly or quarterly distributions. However, farmland can also be quite lucrative through crop yields.
Growing and selling crops is the most obvious way to make money owning farmland. However, since most of us likely do not want to get our hands dirty, this could mean renting it out to a farmer. The farmer you lease the land to will pay monthly for the rights to grow on that land.
If you own the entire farm, 100% of that money goes to you. However, if you own shares of the farmland, you will earn a percentage of the rent payment based on what portion of the farm you own. Most farmland investing platforms will pay these distributions out quarterly or annually.
Like a stock, you can also make money with farmland by selling the farm for a profit. For example, suppose you bought farmland for $100,000; ten years later, it was worth $150,000. So, if you sold it, you would have a $50,000 capital gain from owning the land. But, as the old saying goes, they aren't making any more land. So, it tends to go up in value over time.
So, depending on the deal you invest in, you could earn money through rent payments, capital appreciation upon selling the land, or crops. Some contracts are also structured as debt investments. For example, rather than receiving rent from a farm, investors loan the money to a farmer and receive payments on the loan.
How To Invest In Farmland
How you invest in farmland will primarily come down to your status as an investor.
The SEC has rules about who can and cannot invest in certain investments. In addition, they have a specific status called accredited investor, meaning a more comprehensive array of assets is available. To be an accredited investor, you must meet certain income, net worth, or licensing requirements.
Governing bodies like the SEC regulate public investments such as stocks. This is resource intensive, so the SEC can only restrict some investments. That is why some investments are limited to accredited investors only. They view this group as financially stable enough to take on higher risks. It is also expected that this type of investor performs their own research and due diligence.
Unfortunately, many farmland investments require you to be an accredited investor. So, first of all, let's define the requirements so you can determine if you are accredited.
Accredited Investor Requirements
To be an accredited investor, you need to meet 1 of the following requirements:
- You must have a net worth of $1,000,000 or more, excluding the value of your primary residence.
- An annual income of $200,000 or more ($300,000 if married) for the last two years, with expectations it will remain this high going forward.
- You hold an active Series 7, Series 65, or Series 82 license.
You don't have to meet all of these requirements, just one. However, at this point, you should know whether or not you are accredited. Based on that, here are the farmland investment opportunities for accredited and non-accredited investors.
Farmland Investments For Accredited Investors
As an accredited investor, you have your pick at several online platforms, which we cover in more detail below. (A few platforms below are open to accredited and non-accredited investors.) Of course, an accredited investor can also participate in any investments for non-accredited investors.
Here's our full article comparing the best farmland investing platforms.
Crowdfunded Investment/Farmland Lending Platforms
Earlier in this article, we discussed farmland investing trends. One of them mentioned that more and more individuals are directly investing in farmland. In the past, it was essentially just institutional investors making these investments in farmland. This was because accessibility was low.
Now, there are countless farmland investing platforms out there that allow accredited investors to purchase shares of farmland.
Each platform is a bit different, but they often have the following similarities:
- The minimum investment ranges from $10,000 to $20,000.
- A team of market experts performs due diligence on farmland investments before offering them on the site.
- There is rarely a secondary market to sell shares, meaning you should expect to hold on for the duration.
- The time horizon is 5 to 10 years.
- You pay fees to the company for facilitating deals and taking care of all the paperwork.
- You are typically buying shares of an LLC that owns the farmland.
Here's a summary of the current farmland investment platforms available to investors. Check out our dedicated reviews or article on the best farmland investing platforms for more info.
FarmTogether is a farmland crowdfunding platform that purchases already profitable farmland along the west coast. In doing so, investors can receive cash flow from their investments.
- FarmTogether deals typically involve debt, which increases overall returns and potential risk.
- This platform offers a secondary marketplace to sell your shares early
- The minimum investment is $15,000, and you can specify dollar amounts to invest
- FarmTogether principals invest alongside others on the platform
- The fee structure is a little bit complicated, however
AcreTrader is one of the most well-established farmland crowdfunding platforms out there. Their low fees and competitive returns set them apart from many other platforms. As a result, AcreTrader has carved out a niche for itself that has led to rapid market dominance.
- Deals are highly vetted, with around a 1% acceptance rate
- Some values have minimum investments as low as $10,000
- You pick and choose what specific farms you want to invest in
- Investors do not have access to a secondary market yet, so you should be familiar with the time horizon
- Investment time horizon can range from 5 to 20 years
FarmFundr is a crowdfunding platform that allows investors to buy shares in a farm, not just the land it sits on. As a result, investors share in the profits from the yearly harvest. This gives investors the additional potential for upside and risk if crop yields are reduced.
- Lower minimum investment than peers at $10,000
- Most of the deals are located in California
- No secondary market is available to sell shares early
Farmland LP is a platform specializing in converting conventional farmland to organic farmland. By capitalizing on the supply and demand imbalance in the organic market, Farmland LP can generate 4x as much profit per acre as traditional farms. In addition, investors on the platform cannot invest in individual projects but instead in a fund created by Farmland LP.
- The minimum investment is significantly higher at $50,000
- The typical holding period is 1 to 7 years
- Value is added to farmland via repositioning
Harvest Returns is a farmland crowdfunding platform that puts the relationship with farmers first. The terms of deals on their platform can vary significantly depending on what the farmer needs and include both equity and debt-based deals. In addition, most sales are open to several non-accredited investors.
- Typically working with smaller farms allowing them to offer a lower minimum of $10,000
- Some deals have as long as a 10-year time horizon
- You can invest in farmland via an IRA with Harvest Returns
Steward is a farmland lending platform specializing in loans for smaller farmers. These farmers typically need help securing funding via traditional means, such as going to the bank for a loan.
Returns will generally be more stable by loaning money to farmers instead of buying land. However, returns will likely also be lower due to the decreased risk. Non-accredited individuals can get started on this platform with as little as $100!
- Open to both accredited and non-accredited
- $100 minimum
- Debt investment, not equity
Canadian Farmland Investments
Not surprisingly, there are also lots of farmland investing platforms in Canada.
This includes but is not limited to:
- AGinvest – An Ontario farmland investment manager and provider of capital financing for farmers.
- Area One Farm – This helps Canadian farmers buy farmland, expand existing farms, increase farming efficiency, and maximize fa.
- Bonnefield – With over $1 Billion in assets under management supporting farmers.
Farmland Investments For Non-Accredited Investors
If you are not an accredited investor, please don't worry. There are other options out there for getting in on this investment. Many online farmland investing platforms have expressed plans to have opportunities for non-accredited investors in the future. However, so far, there are limited offerings.
That being said, here are your options for investing in farmland as a non-accredited investor in addition to Farmfolio and Steward mentioned earlier.
This is certainly not the most passive route, but if you can secure a bank loan, you could purchase farmland directly.
Websites like Buy A Farm, allow you to bid on farmland or see what properties are for sale. A significant difference between this route and going with a farmland investing platform is that you will be doing all of the legwork. For example, you may choose to be an operator landlord, meaning you will grow on the land. Or, you could be a non-operator landlord and rent the land out to a farmer.
To buy land outright, you should get ready to have tens of thousands of dollars to secure a mortgage. You will also need decent credit, and they may want to see some track record related to your experience in farmland and farming.
In addition, you can cut out the intermediary and own the land if you want more legwork. You won't be paying any management fees this way.
Another option for non-accredited investors is to invest through an ETF or exchange-traded fund.
When discussing real estate, this is an investment we call a REIT or real estate investment trust. First, the fund owner raises money to purchase real estate. Then, the fund is split into individual shares that can be bought and sold on major stock exchanges. To be classified as a REIT, 90% or more of its taxable income to shareholders is in dividends.
While this may sound great, there are a few downsides to investing in a REIT.
First of all, there are more transparent investments out there. It isn't easy to figure out exactly what properties you own when investing in a REIT. This would require you to comb through complicated financial documents to answer that question.
Second, since REITs trade on the same exchanges as stocks, they tend to behave similarly. One of the core reasons to invest in real estate is to diversify your portfolio. Diversification is important because it ensures you take on only a slight risk by being too heavily invested in one asset. Unfortunately, REITs tend to see some of the same panic selling often seen with stocks.
That being said, if you are a non-accredited investor, your options for farmland investment are limited. Unfortunately, there are few farmland REITs, but here's a quick summary of the available ones.
1. Gladstone Land (LAND)
Gladstone Land is an equity REIT focusing on selling fresh produce in the US rather than commodity crops.
The REIT currently owns over $900 million in farmland and takes advantage of diversification by growing over 45 individual crops across 100+ farms. Since its inception in 1997, LAND has delivered consistent monthly dividends to its investors.
2. Farmland Partners (FPI)
Farmland Partners is a newer equity REIT that has surpassed LAND regarding market capitalization.
The REIT specializes in farms that grow commodity crops like corn, soybeans, and cotton. By doing so, they can use economies of scale and deep knowledge of best practices. The company has paid a stable quarterly dividend since its IPO in 2014.
Here's our full article on farmland REITs.
Why Invest In Farmland?
So, why might you want to own a piece of farmland yourself?
Investing in real estate carries a lot of unique benefits, one of them being the tax benefits you do not see with other investments out there. In addition, spreading your money across different asset classes helps mitigate risk.
Lastly, returns from farmland have kept pace with and, sometimes, exceeded the stock market, with significantly less volatility.
Let's cover each of these reasons in a bit more detail now.
Have you ever heard the saying, “Don't put all your eggs in one basket?”
This perfectly portrays the concept of diversification. If you have all your eggs in one basket, and that basket breaks, all of your eggs will fall out and break. You instead want your eggs spread across many different baskets.
Diversification means spreading money across different investments. Within the stock market, this means buying companies within various industries. This could also mean investing in both US companies and foreign companies. It also means investing in different assets that react differently to the same events.
If the stock market crashes, that does not necessarily mean the real estate market will also crash. Farmlands may not see the same jarring drop even if the real estate market tanks. There could be high vacancies among commercial properties, but everyone still has to eat. This could mean that farmland remains in demand.
Nobody has a crystal ball. There could be a drought or a blight in the next few years that negatively impacts farmland. The point is that most financial experts recommend spreading your money across different things and investing in farmland is one way to accomplish this.
2. Tax Benefits
One huge benefit to investing in real estate over stocks/bonds is the array of tax benefits available to you. Based on the current tax laws, real estate follows a clear set of rules when it comes to taxes.
If you buy shares of farmland through online platforms or buy a farm directly, you can take advantage of these tax benefits. Unfortunately, publicly-traded REITs do not carry the same tax advantages.
Here's a list of the expected tax benefits for real estate investors:
- You can depreciate the property to offset some of the income.
- Mortgage interest is deductible.
- If you pay a mortgage insurance premium, this is deductible.
- You can defer capital gains through a 1031 exchange.
- Repair, upkeep, and maintenance costs can be deducted.
- Rental property management and other services are deductible.
- Utilities are deductible.
- You can deduct travel costs like driving to and from the property.
- Specific locations have individual tax incentives, such as opportunity zones.
Specifically related to farmland investing, these are the main tax benefits to consider.
Unfortunately, physical land cannot be depreciated in the same way that real estate is. You can depreciate buildings and structures because they wear out over time. Land, on the other hand, cannot be worn out. It is infinitely usable.
However, certain crops can be depreciated based on their production cycle. For example, crops like fruits and nuts have a proper life cycle, and as such, they are exhausted over time.
Depreciation of these crops begins when they can be harvested. At this point, you can produce income from the plant. In addition, the IRS allows you to depreciate fruit and nut plants under the General Depreciation System, where they are declined over ten years.
If there are any structures on the farmland, such as barns, these structures can be depreciated since they wear out over time. Simply put, the land itself cannot be declined. What is grown on or built on the ground may be able to be depreciated.
Lower Tax Rates
Some states have lower property taxes for agricultural land. This is to encourage investment in farmland here in the US. So if you own a farm in one of these states, you may pay less in property taxes.
These tax breaks vary from state to state, so it is essential to research farmland in a given state.
Farmland, like other real estate, qualifies for 1031 exchanges. This allows you to defer capital gains tax by rolling the profits of one real estate investment into a like-kind investment.
For example, let's say you purchased a piece of farmland for $100,000 and sold it ten years later for $150,000. You would have $50,000 of capital gains to pay taxes on.
If you wanted to defer and pay those taxes later, you could purchase another piece of farmland for $150,000. If you complete the exchange within the IRS timeline, you can say “catch you later” to the IRS regarding the taxes.
Individual Retirement Accounts
Another tax benefit is taking advantage of investing in farmland through an IRA.
Not all assets can be owned in a retirement account, but real estate is allowed. An IRA is an investment account enabling you to invest with certain tax advantages. The two most common ones are the Traditional and Roth IRA.
With a Traditional IRA, you avoid taxes now but pay them later.
With a Roth IRA, you pay taxes now but avoid them later.
Individual IRAs give investors a lot more flexibility regarding what they are investing in. You are not solely limited to mutual funds or other funds like you are with most 401(k) plans.
Some platforms, such as Harvest Returns, allow you to invest through an IRA to reap these benefits. However, you have to fund an IRA account using one of their partners and direct those funds to one of the agricultural investments on their platform.
3. Farmland Investment Returns
Lastly, one of the biggest reasons to invest in farmland is based on historical returns.
Past results do not promise a similar outcome. However, when you look at the returns over the long run, farmland has performed better with significantly less volatility than many investments.
When analyzing a potential investment, two critical factors to consider are historical performance and volatility.
Historical Performance shows you what kind of return this investment has generated.
Volatility measures the ups and downs of that investment or how drastically the price changes. Highly volatile investments have more significant ups and downs, often seen as a negative among long-term investors.
Let's compare farmland to two other popular investments now.
Farmland vs. Stocks
The most popular investment is owning stocks or shares of individual companies. As companies grow, share prices increase, and profits are often shared as dividends. That being said, how does the stock market compare to farmland investing?
Over the last 20 years, the average return for farmland has been 12.1% annually. During the same period, the S&P 500 returned 9.2% annually.
This may sound like a slight difference, but a study from AcreTrader found that if you invested $10,000 in farmland in 1990, it would now be worth $199,700. However, that same investment in the stock market would only be worth $117,500.
When comparing returns, it’s also essential to consider the volatility of the investment. But, again, farmland comes out ahead here. In the last 20 years, there have been several corrections in the stock market, including the dot-com bubble and Great Recession.
On the other hand, Farmland last had a year with negative returns in 1990. As a result, an investment in farmland is about 1/3 as volatile as an investment in the S&P 500.
Long-term investors look for assets with solid returns that are low in volatility. Especially as you are getting older, you do not want to hold assets that fluctuate in value like crazy. Farmland has delivered consistent returns with significantly less volatility than the stock market.
Check out our complete guide on farmland investing vs. stock investing for more information.
Farmland vs. Commercial Real Estate
When it comes to owning real estate, one of the most popular segments is commercial real estate. This typically looks like large apartment buildings, offices, retail space, etc.
So, how does a less common real estate investment like farmland compare to commercial real estate investing?
Going back to 1990, commercial real estate has returned an average of 8.3% per year. During the same period, farmland returned 11.5% annually to investors on average.
From year to year, commercial real estate has experienced 8.2% volatility on average, whereas farmland has only seen 6.7%.
While commercial real estate has been less volatile than the stock market, it still experiences more volatility than farmland. The returns for farmland have also exceeded returns from commercial real estate from 1990 to today.
For more information, check out our complete guide on farmland investing vs. traditional real estate investing.
4. Farmland Is A Natural Hedge Against Inflation
Another prime reason to consider farmland as an investment is the natural hedge it offers investors against inflation.
There are a few reasons for this. First, as mentioned previously, farmland is not highly correlated with the stock market as an asset class. Farmland returns closely follow the Consumer Price Index or CPI. As the prices of goods rise in inflationary times, so do farmland returns.
Because land is a physical asset, it carries with it intrinsic value. Farmland is a finite asset and is not increasing each year. The US lost 1.3M acres of farmland in 2021 alone. Farming is difficult work, so fewer people are engaging in farm work each year. However, food demand is not slowing down. Therefore, farmland is an asset class that experiences constant need while becoming increasingly scarce.
This is a recipe for success in inflationary times.
Historically, stocks do not perform well when inflation rises above 4%. On the other hand, farmland has done quite well. While this asset class will not produce high-yield returns like many stocks, it does provide consistent and stable returns.
Why Not Invest In Farmland?
All of this being said, there is no such thing as a perfect investment opportunity.
Every investment will carry some degree of risk. Therefore, you must consider the risk/reward spread to see if it is worth it in the long run.
Here are a few reasons farmland might not be a good investment.
First, there are some unique risks associated with farmland investing that you may need to see with other assets. These risks include vacancy, weather, and politics. Let's take a closer look at each of these 3.
The first risk factor is seen in all real estate investments. This is the fact that your tenant could move out, leaving you with a vacancy. They could also stiff you on rent, leading to an eviction.
If you invest through a farmland investing platform, they will likely facilitate finding a new farmer to lease the land. The good news is most of these are multi-year leases for farmland.
You must find a new tenant if you buy a piece of farmland directly with no intermediary. During vacancies, you are not making any money from rent.
It's worth noting that increased interest rates hurt farmers as they seek out loans for equipment. Higher interest rates may slow production and thereby reduce the farmer's income.
The most significant risk when growing things in the ground is the weather. Unfortunately, crops are susceptible to several different weather-related risks. For example, excessive rain, droughts, hail, or frost can all damage crops.
The good news is that farmers must pay rent for the land regardless of the crop conditions. Therefore, it is in everyone's best interest for the farmer to have a profitable venture. However, a few bad growing seasons could lead to a farming operation shutting down.
In addition, some farmland investments give you a cut of the profits associated with the crop. If weather negatively impacts the produce, that means less money in your pocket.
Another risk factor for farmland investing is political risk. Much of what is grown here in the US is exported to other countries. As mentioned earlier, the US is one of the leading exporters of soybeans.
As we have seen with China over the last few years, political tension could lead to tariffs on US exports. This can significantly impact the demand for crops, which could hurt farmers.
Another thing to consider is that the current tax laws favor real estate investors, including farmland investors. As a result, these laws could change, making real estate investment less lucrative.
All investments have risks. But some assets are far more liquid than others. One of the biggest reasons to refrain from investing in farmland is if you prioritize liquidity. Liquidity measures how easily a purchase can be converted into cash for those unfamiliar.
Investments like stocks have high liquidity because, in most cases, you can sell them with the click of a button. In addition, the shares trade on major US exchanges, so there is almost always a buyer and a seller available when you are looking to transact.
Real estate, on the other hand, is a low-liquidity investment. The best example to use is selling a house. Unfortunately, finding a buyer usually takes many weeks, not a matter of seconds. As a result, it is more challenging to turn real estate into cash than stocks into cash.
When investing in farmland through online platforms, you should be prepared to hold onto this investment for the entire duration. Each forum should specify how long this holding period is.
Some of these online platforms already offer or have plans to provide a secondary market where you can sell your shares, but this is not guaranteed. They cannot say there will be a buyer on the other side when you want to sell.
This is just the nature of private real estate investments, which you must be familiar with and comfortable with before diving in.
Of course, if you choose to invest in farmland through a REIT such as Gladstone or FPI, you have the benefit of high liquidity, as both options are traded through the stock market. However, with these options, what you gain in liquidity, you lose in volatility.
3. High Barrier To Entry
The last reason you should avoid investing in farmland is the high barrier to entry. For one thing, many investments require you to be an accredited investor. This alone is a significant hurdle to overcome.
In addition, even if you are accredited, many of these online platforms have an investment minimum of $10,000 or more. Some are even as high as $50,000. Only some have this much cash sitting around to invest in farmland.
It is possible to get around these hurdles by investing in farmland REITs. However, many experts would agree that private real estate investments are less desirable than publicly traded REITs.
Final Thoughts: How To Invest In Farmland
Farmland has long been sought after as an investment by high-net-worth individuals and institutions. With its ability to act as a hedge against inflation and perform throughout market uncertainty, farmland offers investors a great way to diversify their total portfolio.
For years, however, farmland has been almost reserved for a select few. Today, investing in farmland is much easier and more accessible. From multiple online farmland investment platforms to REITs, investors can start investing in this asset class right from their living room.
Now, you should be ready to make an informed decision about investing in farmland. In this guide, we have covered the pros, cons, and risks.
If you plan on investing in farmland through an online platform, check out all of our farmland investing platform reviews here.
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This is a sponsored promotion for the AcreTrader platform. Farmland Riches, LLC and it's members may have investments in companies represented on the AcreTrader platform. This informational post is by no means a promotion, solicitation, or recommendation of any specific investment.