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There’s no shortage of investment options for everyday investors to take advantage of.
Thanks to the rise of new financial apps, stock, ETFs, and other financial products continue to become easier to buy. While this is definitely a net positive on the investing landscape as a whole, it may disincentivize individuals from looking elsewhere.
Many investors look to get ahead of trends when selecting their investments. And while there are certainly trends to get ahead of in the stock market, one that is much more fundamental is the need to eat.
While we grow more disconnected from the source of our food, it’s important to remember that it starts with farmers. Most of the time, these farmers are operating on a small scale. In 2015, 90% of farm production came from family farms.
These farms often have significant difficulty in raising money from traditional lenders like banks. This is because banks like “safe” investments, and despite the fact they may have been in business for generations, a small family farm rarely fits that definition.
As a capital-intensive business, this makes things particularly challenging for farmers who want to expand.
In recent years, a number of crowdfunding platforms have popped up exclusively focused on solving this issue. Many of these platforms have taken off fairly quickly thanks to the returns of farmland typically outperforming the stock market.
One of these platforms is Steward Farmland, which has a focus on ensuring sustainable farmers have the cash they need.
- Steward Farmland is the first CrowdFarming platformTM and specializes in sustainable farms.
- The founder was a co-founder of Fundrise, one of the largest crowdfunding platforms to date.
- Investors allow small farmers to expand operations while taking advantage of the benefits of investing in farmland.
- All investments are structured as debt, so investors are loaning money to farmers for a pre-determined timeframe.
- With a minimum investment of $100, the platform is extremely accessible for investors.
- Most deals do not require investors to be accredited and are open to international investors.
- Deals on the platform are exclusively debt-based, providing more stability for investors.
- There have been 20+ deals successfully funded on the platform since inception.
- Most deals are made with interest rates ranging from 8% – 12% and are structured as mortgage loans.
- Steward charges investors a flat 1% management fee annually and there are no hidden fees on the platform.
What Is Steward Farming?
Steward Farming is a platform designed to empower smaller sustainable farmers to expand their farms. Through the platform, farmers can raise money for new projects and investors can put as little as a few hundred dollars into investments.
This provides an easier way for farmers to access capital than going through a bank. Banks deem farmers “risky” despite the fact that their farm may have been running profitably for generations. This makes it difficult for farmers to raise money through the traditional path.
By instead allowing everyday investors to participate in these projects, Steward creates socially-conscious investing opportunities.
Not only that, but farmland as an asset class has a history of delivering returns higher than the stock market, with less volatility. Institutional investors have known this for decades and typically keep 10% of their portfolios in agriculture.
However, it’s only with the recent rise of platforms like Steward, that this asset class has become available to mainstream investors.
While many other farmland crowdfunding platforms cater to larger operations, Steward focuses on the little guys. These farmers typically go overlooked by other financial institutions that prefer to work with larger clients.
By identifying this underserved market, Steward can create a deeper connection between investors and the farmers they are supporting.
This has allowed Steward to operate as a purpose-driven organization and register as a certified B Corporation.
For investors with an interest in connecting with the farmers they are funding, each farm has a professionally-produced short video that allows you to meet the farmers and hear their story.
The management team has extensive experience in the crowdfunding and agricultural industries. For investors familiar with real estate crowdfunding, they will likely have heard of a platform called Fundrise.
This platform was founded in 2010 and was one of the first platforms that allowed non accredited investors to participate. Dan Miller, the founder of Steward, was a co-founder at Fundrise and served as the President of the company for 5 years before leaving to start Steward.
The similarities between the two platforms are significant and the rapid success of Fundrise bodes well for the future of Steward.
Since founding Steward, Miller has invested over $4 million of his own money into the company. By doing so, Miller creates alignment between his goals and the goals of investors.
How Does Steward Farming Work?
Farmers are able to submit their projects to Steward who then performs thorough due diligence on the deal. If it’s deemed a good fit for the platform, it’s listed for investors to browse.
Most deals on the platform range in size from $5,000 on the low end, all the way up to $600,000 on the high end. Even the largest deals on Steward would be deemed too small for many other crowdfunding platforms.
A significant benefit of this for investors is that minimums are much lower. Instead of $10,000+ minimums, Steward can allow investors to participate in deals with as little as $100.
All of the deals on the platform are structured as loans rather than equity deals. This means that investors know from the get-go what the rate of return will be on the project. There is also more certainty on the repayment schedule and investment duration compared to equity investments.
Now that does not mean that there are no risks for investing on the platform. Each deal has the potential to go belly-up if the farmer is unable to pay.
Currently, all of the deals on the platform are individual projects other than one fund created by Steward. This is the Steward Farm Trust.
Steward Farm Trust
The Steward Farm Trust is a fund created by Steward Farmland that contains multiple projects across the country. The diversified portfolio of investments held within the fund makes it an attractive starting place for newer farmland investors.
The trust specializes in small deals ranging anywhere from 1 – 100 acres and farmers with at least 3 years of experience. Following the company’s overall strategy, the fund makes loans to farmers for expanding their operations.
These loans typically range anywhere from $25,000 – $1,000,000 and carry interest rates from 6% to 12%.
As of the beginning of the year, the trust held 4 loans with an average interest rate of about 9%. The total amount funded was over $1,400,000.
The cost of stock in the fund is $10 per share and returns are paid out to investors as dividends. Investors must purchase a minimum of 10 shares (or $100) as their initial investment in the fund.
Steward projects an average return for fund investors of 6% – 8%.
Steward Farmland Returns
Returns on debt investments are typically lower than that of equity investments. This is because debt holders typically get paid out first in the event of a company failing.
In the case of Steward, most of the loans on the platform are mortgage loans. This means that if the borrower is unable to pay off the loan, the investors are able to seize the underlying property and sell it to make back some or all of their investment.
This is not the case when investing in equity deals. If a company goes belly-up and you are an equity investor, you are likely out of luck.
Most of the investments on the Steward platform have interest rates between 8% – 12%. Due to the fees associated with the platform, returns will end up slightly lower than this.
In general, these returns are marginally lower than the 11% – 12% average returns that equity investors will see. So it’s up to the investor to determine if the decreased risk of these investments justifies a lower return.
Most of the projects on the platform have a 5-year time horizon, but the range is anywhere from 12 months to 10 years. During the loan period, investors will receive periodic interest payments corresponding to the interest rate of the loan.
After the investment has reached completion, investors will receive the remainder of their principal. This leads to more predictable cashflow than an equity investment would.
It’s important for investors to keep in mind that there is no secondary market for their investments. As a result, you won’t be able to liquidate your investment early. This is fairly standard across crowdfunding platforms and investors should ensure they won’t need the cash in the near-term before investing.
Steward Farmland Fees
The fee structure on the Steward platform is simple and straightforward. Investors are charged an annual 1% management fee on all assets invested through the platform.
There are no sales commissions, upfront fees, or performance-based fees on any of the investments.
Compared to other farmland investing platforms, a 1% fee is reasonable. This covers the costs associated with maintaining the platform, performing due diligence, and legal fees.
Steward Farming Taxes
When investing in debt vs equity, the tax consequences are going to be slightly different.
Most equity-based crowdfunding platforms send investors form K-1 each year. This form is specifically for partnerships and most equity-based platforms are structured as limited partnerships.
One advantage that being issued a K-1 offers is that there is the potential for investors to receive some losses from the partnership that they can deduct on their taxes.
With a debt-based platform like Steward, investors will receive a 1099-INT form at the end of the year. This form will report the interest received from your investments and will not include any losses. Interest income is taxed at your typical income tax rates.
Steward Farmland Pros
- Everyday investors gain access to farmland investing through the platform.
- Ability to support small and medium-sized farmers to expand their operations.
- CEO co-founded Fundrise, one of the largest crowdfunding platforms on the market.
- Non-accredited investors can invest in all deals on the platform.
- Low barrier to entry with minimum investments starting at $100 per deal.
- Access to debt investments that typically involve less risk than equity investments.
- More consistent and predictable returns can be achieved through debt instruments.
- History of 20+ successfully funded projects on the platform.
Steward Farmland Cons
- Returns on debt investments are typically lower than equity investments.
- The platform is still relatively new and there is not yet significant data on past returns.
- Currently, there is no secondary market for investors to sell early.
Steward Farmland Review: Final Verdict
For beginner investors looking to diversify a portion of their portfolios into agriculture, Steward is one of the best crowdfunding platforms we have come across.
The low minimum investment of only $100 makes it accessible for anyone to invest. In addition, the fact that investors do not have to be accredited is a big plus. Virtually all other farmland crowdfunding platforms are going to require investors to be accredited.
Additionally, the platform’s history of successfully funding 20+ different deals shows that there is staying power here.
Deals structured as debt investments as opposed to equity investments will be a pro for some and a con for others. With debt investments, there is typically less risk, but with less risk typically comes a lower return. Some investors will prefer the consistent cashflow stream of debt over the potential inconsistency of equity.
One thing that all investors will be able to agree on is the importance of supporting smaller farms. Through investing in small farmers, investors can help to create a more sustainable future for the food production industry.
It has historically been very difficult for these farmers to acquire funding and so through Steward, it is possible to help them expand.
Whether you decide to invest in Steward or through one of the many other farmland crowdfunding platforms, it’s crucial that you do your homework first. These platforms are not all created equal and they tend to vary quite a bit.
If you’ve heard of a farmland crowdfunding platform, the odds are good that we have written an article or two about them!