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SNIGSEDATANS
IGWhat Is Farmland Investing?Types Of Farmland InvestmentsSFarmland Investing TrendsDHow To Invest In FarmlandEHow To Earn MoneyAFarmland Investments For Accredited InvestorsTFarmland Investments For Non-Accredited InvestorsANWhy Invest In Farmland?SWhy Not To Invest In Farmland?NHow To Invest In Farmland For Beginners 2020SContents01020305070911141723
Beginner’s Guide To Investing In FarmlandDESIGNSHow To Invest In Farmland For Beginners 2020ASavvy investors are always on the hunt for ways to grow their net worth while diversifyingacross different assets. For most investors, this means spreading your money out acrossreal estate, stocks, bonds and maybe even precious metals.ANTHowever, within the realm of real estate investing, there are numerous differentinvestment opportunities. You could go out and buy a duplex or a fixer upper. Maybe youlearned about real estate crowdfunding where you can get in on private real estate deals.But what about farmland? You know, the land that produces a very important resourceknown as food.SMaybe you had a bagel for breakfast this morning. They make them with flour, whichcomes from wheat. All over the United States, there are massive farms growing thisvaluable crop and more.In the past, 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 now countless ways to capitalize on this investment opportunity fromthe comfort of your own home. In fact, you don’t even need to step foot on a farm or worryabout tracking mud in.Here’s everything you need to know about farmland investing.By Ryan Scribner01
Beginner’s Guide To Investing In FarmlandDESIGNSWhat Is Farmland Investing?TAAs the name suggests, farmland investing means you are making an investment in someform related to the production of crops. At the end of the day, the land is real estate, so thisis lumped in with real estate investing.ANHowever, rather than investing in buildings for housing or retail space, you are investing infarmland.SAccording to the USDA, there are approximately 911 million acres of farmland in theUnited States. You might be surprised to find out that over half of that farmland is rented,meaning the farmer is paying the owner of that land for the rights to use it.The USDA found that 283 million acres worth, or 30% of all US farmland, is owned bythese non-operator landlords. These are groups that want to capitalize on theinvestment opportunity associated with farmland without getting their hands dirty.Only 20% of the rented farmland is owned by operator landlords who actually work thefarms themselves.By Ryan Scribner02
Beginner’s Guide To Investing In FarmlandSEach day, more people are finding out about the investment opportunity within owningfarmland but not necessarily being involved with the farming activities. New farmlandinvesting platforms are popping up all the time, potentially giving you the opportunity toget in on the action.NTypes Of Farmland InvestmentsIGMost of the rented farmland is used for grain production. These crops have strongdemand and are an easy source of cash for farmers.SHowever, there are a wide variety of crops grown across farms all over the United States.Let’s cover those now.EWhat Crops Do We Grow?DAccording to the USDA Economic Research Service, these are the 10 most popular cropsgrown in the United States.TA1. CornThis is by far the most popular crop we grow in the United States, accounting for over 90million acres.ANWe use corn for a variety of different products ranging from feed, alcohol and sweeteners(high fructose corn syrup).S2. SoybeansBelieve it or not, the United States is the leading producer of soybeans in the world! Wegrow so many that we are also the leading exporter of soybeans.These days, soy is in just about every product we eat. You can process soybeans for oil, usethem as feed for animals or human consumption.3. WheatComing in at number 3 is Wheat, another profitable crop we grow here.By Ryan Scribner03
Beginner’s Guide To Investing In Farmland4. CottonWe grow a lot of cotton too, coming in at the third largest cotton producing country in theworld!NS5. FruitThe United States has a vast climate, meaning many different fruits can be grown here.Whether this is apples in New York or Florida Oranges, we grow a lot of fruit too.IG6. SweetenersWe grow a lot of cane sugar in states like Florida, Louisiana, Hawaii and Texas. We alsoproduce a lot of stevia in the Southeast, used as a sugar alternative.ES7. VegetablesBeyond just corn, we grow a lot of vegetables here too. This could be tomatoes or romainelettuce for human consumption or vegetables that we process into other products.AD8. RiceHere in the US we grow short, medium and long grain rice.TThe only climate that supports rice crops is in the Southern parts of the United States. Infact, we grow a lot of the rice in California.AN9. PulsesThis crop category includes beans, legumes, peas and peanuts.S10. Tree NutsSurprisingly, peanuts are not tree nuts. These are actually pulses. Tree nuts includealmonds, walnuts, pecans, hazelnuts and more.By Ryan Scribner04
Beginner’s Guide To Investing In FarmlandDESIGNSFarmland Investing TrendsAAccording to a report by Farm Foundation, here are the current trends we are seeing withfarmland.ANTThe first major trend within farmland investing, mentioned earlier, is that more people areinvesting in farmland as non-operating landlords. This includes institutional investors,REITs and even individuals who are buying shares of farmland through online platforms.SThe United States has been in a period of low interest rates for over a decade now, andthis has pushed investors to seek alternate assets for a means of return. This is one reasonwhy many investors are getting into farmland. The stock market may be too volatile withthe constant ups and downs, but bond yields are relatively flat and not keeping up withinflation.Another trend seen right now is consolidation of smaller farm operations into largerones. This is largely due to weak commodity prices. Crops like wheat and corn are acommodity. Larger farms operate more efficiently, so combining operations is often a costeffective move.By Ryan Scribner05
DESIGNSBeginner’s Guide To Investing In FarmlandTAWe are also seeing a shift away from gluten, as more people are opting for a gluten freediet. This is resulting in less demand for wheat. However, these people are oftenconsuming wheat alternatives such as soy or rice.SANLastly, there is a growing trend of individuals making direct equity investments infarmland. In the past, it was mostly large institutional investors purchasing farmland as aninvestment. Now, there are countless platforms that allow you to purchase shares offarmland similar to how you purchase a share of a publicly traded company.By Ryan Scribner06
Beginner’s Guide To Investing In FarmlandDESIGNSHow To Earn MoneyANT1. Capital Appreciation2. DistributionsAJust like with the stock market and other real estate investments, there are two primaryways to make money with a farmland investment:SThe first, and most straightforward, way to make money owning farmland is to growsomething on your land. However, since most of us likely do not want to be getting ourhands dirty, this would mean renting it out to a farmer. The farmer you lease the land towill pay a set amount of money per month for the rights to grow on that land.If you own the entire farm, 100% of that money goes to you. If you own shares of thefarmland, you will earn a percentage of the rent payment based on what percentage ofthe farm you own. Most of the farmland investing platforms will pay these distributions outon a quarterly or annual basis.By Ryan Scribner07
Beginner’s Guide To Investing In FarmlandSThe second way to make money with farmland investing is by selling the farm for a profitdown the road. Let’s say you bought farmland for 100,000 and then 10 years later it wasworth 150,000. If you sold it, you would have a 50,000 capital gain from owning the land.As the old saying goes, they aren’t making any more land. So, it tends to go up in valueover time.SANTADESIGNSome farmland investments will allow you to make money in other ways. For example,some deals may allow you to get a cut of the crop grown. However, these are the mostcommon ways to make money.By Ryan Scribner08
Beginner’s Guide To Investing In FarmlandDESIGNSHow To Invest In FarmlandAHow you invest in farmland will largely come down to your status as an investor.ANTThe SEC has set rules about who can and cannot invest in certain investments out there.They have a specific status called accredited investor which means a wider array ofinvestments are available to you. In order to be an accredited investor, you have to meetcertain income, net worth or licensing requirements.SGoverning bodies like the SEC regulate public investments such as stocks. This is resourceintensive, and as a result the SEC cannot possibly regulate all investments out there. Thatis why some investments are limited to accredited investors only. They view this group asfinancially stable enough to take on higher risks. It is also expected that this type ofinvestor performs their own research and due diligence.Unfortunately, many farmland investments out there require you to be an accreditedinvestor. First of all, let’s define the requirements so you can determine if you areaccredited.By Ryan Scribner09
Beginner’s Guide To Investing In FarmlandAccredited Investor RequirementsSIn order to be an accredited investor, you need to meet 1 of the following requirements:IGN1. You must have a net worth of 1,000,000 or more, excluding the value of your primaryresidence.2. Annual income of 200,000 or more ( 300,000 if married) for the last 2 years, with3. expectations it will remain this high going forward.4. You hold an active Series 7, Series 65, or Series 82 license.SANTADESYou don’t have to meet all of these requirements, just one. At this point, you should knowwhether or not you are accredited. Based on that, here are the farmland investmentopportunities available for both accredited and non-accredited investors.By Ryan Scribner10
Beginner’s Guide To Investing In FarmlandDESIGNSFarmland Investments For Accredited InvestorsTAAs an accredited investor, the main option you have available to you is investing throughonline farmland investing platforms. You are also allowed to participate in anyinvestments for non-accredited investors too.ANHere’s our full article comparing the best farmland investing platforms.Crowdfunded Investment PlatformsSEarlier in this article, we discussed farmland investing trends. One of them that wasmentioned was that more and more individuals are making direct investments intofarmland. In the past, it was largely just institutional investors making these investments infarmland. This was because accessibility was low.Now, there are countless farmland investing platforms out there that allow accreditedinvestors to purchase shares of farmland.By Ryan Scribner11
Beginner’s Guide To Investing In FarmlandEach platform is a bit different, but they often have the following similarities:IGNS1. The minimum investment ranges from 5,000 to 20,000.2. A team of market experts performs due diligence on farmland investments beforeoffering them on the site.3. There is rarely a secondary market to sell shares, meaning you should expect to holdon for the duration.4. The time horizon is 5 to 10 years.5. You pay fees to the company for facilitating deals and taking care of all the paperwork.6. You are typically buying shares of an LLC that owns the farmland.ESHere’s a summary of the current farmland investment platforms available to investors. Formore info, check out our dedicated reviews or our article on the best farmland investingplatforms.DFarmTogetherTAFarmTogether is a farmland crowdfunding platform specializing in purchasing farmlandalong the west coast that is already profitable. In doing so, investors are able to receivecashflow from their investment from the get-go.ANClick here to view current offerings on FarmTogether!AcreTraderSAcreTrader is one of the most well-established farmland crowdfunding platforms outthere. Thie low fees and competitive returns set them apart from many of the otherplatforms that are charging high fees just to stay afloat. AcreTrader has carved out aniche for themselves that has led to rapid market dominance.Click here to view current offerings on AcreTrader!By Ryan Scribner12
Beginner’s Guide To Investing In FarmlandFarmFundrNSFarmFundr is a crowdfunding platform that allows investors to buy shares in a farm, notjust the land it sits on. As a result, investors share in the profits from the yearly harvest. Thisgives investors additional potential for upside as well as additional risk if crop yields arereduced.IGFarmland LPESFarmland LP is a platform specializing in converting conventional farmland to organicfarmland. By capitalizing on the supply and demand imbalance in the organic market,Farmland LP is able to generate 4x as much profit-per-acre as traditional farms. Investorson the platform cannot invest in individual projects, and instead, invest in a fund createdby Farmland LP.DHarvest ReturnsANStewardTAHarvest Returns is a farmland crowdfunding platform that puts the relationship withfarmers first. The terms of deals on their platform can vary significantly depending onwhat the farmer needs and include both equity and debt-based deals. Most deals areopen to a number of non-accredited investors.SSteward is a crowdfunding platform specializing in loans for smaller farmers. By loaningmoney to farmers instead of buying land, returns will generally be more stable. However,returns will likely also be lower due to the decreased risk. Non-accredited investors canget started on this platform with as little as 100!By Ryan Scribner13
Beginner’s Guide To Investing In FarmlandDESIGNSFarmland Investments For Non-Accredited InvestorsTAIf you are not an accredited investor, don’t fret. There are other options out there forgetting in on this investment. Many of the online farmland investing platforms haveexpressed plans to have options for non-accredited investors in the future. However, sofar, there are no current offerings.ANThat being said, here are your options for investing in farmland as a non-accreditedinvestor.SBuying LandThis is certainly not the most passive route, but if you can secure a loan from a bank, youcould go out and purchase farmland directly.There are website out there like Buy A Farm where you can bid on farmland or see whatproperties are for sale. A big difference between this route and going with a farmlandinvesting platform is that you will be doing all of the legwork. You may choose to be anoperator landlord, meaning you will be growing on the land. Or, you could be anon-operator landlord and rent the land out to a farmer.By Ryan Scribner14
Beginner’s Guide To Investing In FarmlandIn order to buy land outright, you should get ready to have tens of thousands of dollars tosecure a mortgage. You will also need to have decent credit, and they may want to seesome kind of track record related to your experience in farmland and farming.NSIf you are willing to do more of the legwork, you can cut out the middleman and own theland directly. You won’t be paying any management fees this way.IGFarmland REITsAnother option out there for non-accredited investors is to invest through an ETF orexchange traded fund.DESWhen discussing real estate, this is actually an investment we call a REIT or real estateinvestment trust. The fund owner raises money to purchase real estate. Then, the fund issplit up into individual shares that can be bought and sold on major stock exchanges. Inorder to be classified as a REIT, 90% or more of its taxable income to shareholders in theform of dividends.AWhile this may sound great, there are a few downsides to investing in a REIT.ANTFirst of all, they are not the most transparent investment out there. It is difficult to figureout exactly what properties you own when investing in a REIT. This would require you tocomb through complicated financial documents to answer that question.SSecond of all, since REITs trade on the same exchanges as stocks they tend to behavesimilarly. One of the core reasons to invest in real estate is to diversify your portfolio.Diversification is important because it ensures that your not taking on too much risk bybeing too heavily invested in one asset. Unfortunately, REITs tend to see some of the samepanic selling that is often seen with stocks. Since they trade on the same exchanges, theycan be unloaded at the click of a button just like stocks.That being said, if you are a non-accredited investor your options for farmland investmentare limited. There are not too many farmland REITs out there, but here’s a quick summaryof the ones that are available.By Ryan Scribner15
Beginner’s Guide To Investing In FarmlandGladstone Land (LAND)NSGladstone Land is an equity REIT focusing on growing fresh produce for sale in the US,rather than commodity crops. The REIT currently owns over 900 million in farmland andtakes advantage of diversification by growing over 45 individual crops across 100 farms.Since its inception in 1997, LAND has delivered consistent dividends to their investors everymonth.IGFarmland Partners (FPI)SANTADHere’s our full article on farmland REITs.ESFarmland Partners is a newer equity REIT that has gone on to surpass over 1.1 billionfarmland. The REIT specializes in farms that grow commodity crops like corn, soybeans,and cotton. By doing so, they are able to take advantage of economies of scale and deepknowledge of best practices. The company has paid out a stable quarterly dividend sincetheir IPO in 2014.By Ryan Scribner16
Beginner’s Guide To Investing In FarmlandDESIGNSWhy Invest In Farmland?ASo, why might you want to own a piece of farmland yourself?ANTInvesting in real estate carries a lot of unique benefits, one of them being the tax benefitsthat you do not see with other investments out there. In addition, spreading your moneyout across different asset classes helps to mitigate risk. Lastly, returns from farmland havekept pace with and at some times exceeded the stock market, with significantly lessvolatility.Let’s cover each of these reasons in a bit more detail now.S1. DiversificationHave 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 onebasket, and that basket breaks, all of your eggs will fall out and break. You instead wantyour eggs spread across many different baskets.By Ryan Scribner17
Beginner’s Guide To Investing In FarmlandSDiversification means spreading your money out across different investments. Within thestock market, this means buying companies within different industries. This could alsomean investing in both US companies and foreign companies. It also means investing indifferent assets that will have a different reaction to the same events.IGNIf the stock market crashes, that does not necessarily mean the real estate market willcrash as well. Not to mention, even if the real estate market tanks, farmland may not seethe same jarring drop. There could be high vacancies among commercial properties, buteveryone still has to eat. This could mean that farmland remains in demand.ESNobody has a crystal ball. There could be a drought or a blight in the next few years thatnegatively impacts farmland. The point here is that most financial experts recommendspreading your money out across different things, and investing in farmland is one way toaccomplish this.D2. Tax BenefitsTAOne huge benefit to investing in real estate over stocks/bonds is the array of tax benefitsavailable to you. Based on the current tax laws, real estate follows a favorable set of ruleswhen it comes to taxes.ANIf you buy shares of farmland through online platforms or buy a farm directly, you can takeadvantage of these tax benefits. Unfortunately, publicly traded REITs do not carry the sametax advantages.Here’s a list of the common 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.S1.2.3.4.5.6.7.By Ryan Scribner18
Beginner’s Guide To Investing In Farmland8. You can deduct travel costs like driving to and from the property.9. Certain locations have individual tax incentives, such as opportunity zones.SSpecifically related to farmland investing, these are the main tax benefits to consider.IGNDepreciationUnfortunately, 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, onthe other hand, cannot be worn out. It is infinitely usable.SHowever, certain crops can be depreciated based on their production cycle. Crops likefruits and nuts have a useful life cycle, and as such they are exhausted over time.DEDepreciation of these crops begins when they are able to be harvested. At this point, youhave a means of producing income from the plant. The IRS allows you to depreciate fruitand nut plants under the General Depreciation System, where they are depreciated overa 10 year period.TAIf there are any structures on the farmland, such as barns, these structures can bedepreciated since they wear out over time. Simply put, the land itself cannot bedepreciated. What is grown on or built on the land may be able to be depreciated.ANLower Tax RatesSome states have lower property taxes for agricultural land. This is to encourageinvestment in farmland here in the US. If you end up owning a farm in one of these states,you may pay less in property taxes.SThese tax breaks vary from state to state, so it is important to do your own research whenassessing farmland in a given state.1031 ExchangeFarmland, like other real estate, qualifies for a 1031 exchange. This allows you to defercapital gains tax by rolling the profits of one real estate investment into a like kindinvestment.By Ryan Scribner19
Beginner’s Guide To Investing In FarmlandFor example, let’s say you purchased a piece of farmland for 100,000 and you sold it 10years later for 150,000. You would have 50,000 of capital gains to pay taxes on.NSIf you wanted to defer those taxes and pay them later, you could purchase another pieceof farmland for 150,000. As long as you complete the exchange within the IRS timeline, youcan say “catch you later” to the IRS when it comes to the taxes.IGIndividual Retirement AccountsAnother tax benefit is taking advantage of investing in farmland through an IRA.SNot all assets are permitted to be owned in a retirement account, but real estate isallowed to be. An IRA is a type of investment account that allows you to invest with certaintax advantages. The two most common ones are the Traditional and Roth IRA.EWith a Traditional IRA, you avoid taxes now but pay them later.DWith a Roth IRA, you pay taxes now but avoid them later.TAIndividual IRA’s give investors a lot more flexibility when it comes to what they are investingin. You are not solely limited to mutual funds or other funds like you are with most 401(k)plans.ANSome of the platforms such as Harvest Returns allow you to invest through an IRA to reapthese benefits. You simply have to fund an IRA account using one of their partners anddirect those funds to one of the agricultural investments on their platform.S3. Farmland Investment ReturnsLastly, one of the biggest reasons to invest in farmland is based on the historical returns.Keep in mind, past results do not guarantee a similar outcome. However, when you look atthe returns over the long run, farmland has performed better with significantly lessvolatility than many investments.When analyzing a potential investment, two important factors to consider are thehistorical performance as well as the volatility.By Ryan Scribner20
Beginner’s Guide To Investing In FarmlandHistorical Performance shows you what kind of return this investment has generated overa set period of time.IGLet’s compare farmland to two other popular investments now.NSVolatility is a measurement of the ups and downs of that investment, or how drasticallythe price changes. Highly volatile investments have greater ups and downs, which is oftenseen as a negative among long term investors.ESFarmland vs StocksThe most popular investment out there is owning stocks, or shares of individualcompanies. As companies grow, share prices increase over time and profits are oftenshared in the form of dividends. That being said, how does the stock market compare tofarmland investing?DOver the last 20 years, the average return for farmland has been 12.1% annually. During thesame time period, the S&P 500 returned 9.2% annually.TAThis may not sound like a huge difference, but a study from AcreTrader found that if youinvested 10,000 in farmland in 1990, it would now be worth 199,700. That same investmentin the stock market would only be worth 117,500.ANWhen comparing returns, it’s also important to consider the volatility of the investment.Farmland clearly comes out ahead here. In the last 20 years, there have been a number ofcorrections in the stock market including the dot-com bubble and Great Recession.SFarmland on the other hand, has not had a year with negative returns since before 1990.As a result, an investment in farmland is about 1/3 as volatile as an investment in the S&P500.Long term investors look for assets with solid returns that are low in volatility. Especiallyas 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 stockmarket.For more information, check out our full guide on farmland investing vs stock investing.By Ryan Scribner21
Beginner’s Guide To Investing In FarmlandFarmland vs Commercial Real EstateWhen it comes to owning real estate, one of the most popular segments is commercialreal estate. This is large apartment buildings, offices, retail space and things like that.NSSo, how does a less common real estate investment like farmland compare tocommercial real estate investing?IGGoing back to 1990, commercial real estate has returned an average of 8.3% per year.During the same time period, farmland returned 11.5% annually to investors on average.SFrom year-to-year, commercial real estate has experienced 8.2% volatility on average,where farmland has only seen 6.7%.DEWhile commercial real estate has been less volatile than the stock market, it stillexperiences more volatility than farmland. The returns for farmland have also exceededreturns from commercial real estate from 1990 to today.SANTAFor more information, check out our full guide on farmland investing vs traditional realestate investing.By Ryan Scribner22
Beginner’s Guide To Investing In FarmlandDESIGNSWhy Not To Invest In Farmland?AAll of this being said, there is no such thing as a perfect investment opportunity.TEvery investment will carry some degree of risk. It is up to you to consider the risk/rewardspread to see if it is worth it in the long run.1. RisksANHere are a few reasons why farmland might not be a good investment for you.SFirst of all, there are some unique risks associated with farmland investing that you maynot see with other assets.VacancyThe first risk factor is seen in all real estate investments. This is the fact that your tenantcould move out, leaving you with a vacancy. They could also stiff you on rent, leading to aneviction.By Ryan Scribner23
Beginner’s Guide To Investing In FarmlandIf you invest through a farmland investing platform, they will likely facilitate the processof finding a new farmer to lease the land. The good news is, most of these are multi-yearleases for farmland.NSIf you buy a piece of farmland directly with no middleman, you will have to find a newtenant yourself for the land. During vacancies, you are not making any money from rents.IGWeatherSPerhaps the biggest risk when growing things in the ground is the weather. Crops aresusceptible to a number of different weather related risks. For example, excessive rain,droughts, hail or frost can all damage crops.DEThe good news for you is that farmers have to pay rent for the land regardless of the cropconditions. Obviously, it is in everyones best interest for the farmer to have a profitableventure. However, a few bad growing seasons could lead to a farming operating having toshut down.ANPoliticalTAIn addition, some farmland investments give you a cut of the profits associated with thecrop. If weather negatively impacts the crops, that means less money in your pocket.Another risk factor for farmland investing is the political risk. A lot of what is grown herein the US is exported to other countries. As mentioned earlier, the US is one of the leadingexporters of soybeans.SPolitical tension like we have seen with China over the last few years could lead to tariffsbeing placed on US exports. This can significantly impact the demand for crops, whichcould hurt farmers.One other thing to consider here is that the current tax laws favor real estate investors,including farmland investors. These laws could change, making real estate investing lesslucrative.By Ryan Scribner24
Beginner’s Guide To Investing In Farmland2. LiquiditySOne of the biggest reasons not to invest in farmland is if you prioritize investment liquidity.For those who are not familiar, liquidity is a measureme
Beginner’s Guide To Investing In Farmland By Ryan Scribner 02 What Is Farmland Investing? As the name suggests, farmland investing means you are making an investment in some form related to the production of crops. At the end of the day, the land is real estate, so this
