Farmland Crowdfunding Platforms: A Real Estate Investor's Guide
As an asset class, farmland is both everywhere and nowhere.
Everywhere in the sense that you can scarcely drive an hour outside a major metro area without seeing farmland, and nowhere in the eyes of many property investors. On the everywhere side of the equation, the nation’s agricultural real estate was worth $2.7 trillion as of February 2022, according to the U.S. Department of Agriculture, and farmland covers wide swaths of the Midwest, the South and even California.
What’s more, farmland is central to the very survival of humanity – agricultural plots and pasture lands are the source of our food. Office space and distribution centers might be relatively new in historical terms, but farmland has existed since the dawn of civilization. And yet farmland is overlooked as an investment. Swashbuckling property developers focus on urban high-rises, oceanfront resorts and cavernous distribution centers. Ditto for real estate investment trusts and other institutional investors.
The REIT space is dominated by companies focused on offices, warehouses, shopping malls, hotels, data centers, apartments, even prisons and communications towers – farmland is a mere afterthought. If you believe there’s opportunity in overlooked corners of the property market, read on.
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Why invest in farmland?
In the first place, farmland often delivers stable double-digit returns that outpace other better known real estate asset classes. According to statistics posted on the site of crowdfunding platform AcreTrader, farmland produces annualized returns of 11%, trailing only stocks’ 12% and ranking ahead of commercial real estate’s 9% return.
Farmland offers a variety of benefits. It’s a hard asset with low volatility, and agricultural land offers a strong hedge against inflation. Farmland is a broad category that includes diverse crops and geographies – corn, wheat and soybeans in the Midwest and Great Plains, almonds, avocados and grapes in California, potatoes and berries in New England, oranges, sugar and vegetables in Florida.
At the most fundamental level, food is mostly recession-proof, it can’t be replaced by technology and doesn’t go out of style (although trends and tastes change, of course). What’s more, the planet’s population is growing in number and getting more affluent. In China and India alone, hundreds of millions of people have been lifted from poverty in recent decades. That means more and more people around the world are consuming food like middle-class Westerners – and that translates to more demand for food.
Yet the supply of farmland isn’t expanding – it is contracting.
Agricultural uses are competing with residential and commercial developers for increasingly scarce land. Suburban development keeps moving farther away from urban cores. There’s even a name – “exurban” development – for the housing trend. Meanwhile, demand for distribution centers and solar power means some farmland is being converted to warehouses and to solar farms.
Furthermore, water reserves in major farm belts like the Central Valley of California, are running dry in some areas which will lead to further contraction in supply at a time when demand continues to grow.
And those with access to water in the Central Valley will be sitting on gold mines.
As clichéd as the term location, location, location is in real estate, it remains a truism as much for farmers with access to steady, reliable supplies of water as it does to sponsors developing buildings in the middle of cities.
For farmers, those with the water will win in the same way as the apartment developer with access to high paying tenants wins their game.
How can I invest in farmland?
Buy land directly
If you’re feeling bold, you could take a flyer on direct ownership of agricultural land. A quick search on LoopNet reveals no shortage of agricultural properties for sale – but you might feel a little bewildered by the options. There’s a 2,456-acre cattle ranch near Okeechobee, Florida, for sale for $20.9 million, but is that a good deal? What about that 13,000-acre tract in Nebraska, listed for $90 million? Clearly, direct ownership of farmland requires no shortage of expertise. A savvy investor needs to know many things – soil quality, water availability, weather patterns, crop cycles, threats from pests, market conditions for corn and cattle, just to name a few.
Purchase shares of specialty REITs focused on farmland
If becoming a land baron isn’t in the cards right now, there is a lower-barrier alternative. Real estate investment trusts are publicly traded landlords that allow investors to play the real estate market by assembling property portfolios and then offering ownership through shares of stock. REITs are required to pay at least 90% of their profits as dividends, and most pay 100% of their taxable profits to shareholders, so the vehicles typically generate healthy yields. What’s more, REITs trade as stocks, so investors can easily enter and exit these companies with few restrictions and low transaction costs.
Farmland Partners (NYSE: FPI) is one such REIT. At the end of 2021, the REIT owned more than 160,000 acres of farmland across a number of states. Most of the land is leased to farmers, Farmland Partners said in its annual report. The Denver-based company says 70% of its portfolio is used to grow primary crops, such as corn, soybeans, wheat, rice and cotton, and approximately 30% is used to produce specialty crops, such as almonds, citrus, blueberries and vegetables. Farmland Partners’ market capitalization was $627 million as of March 15, 2022. The REIT reports in its latest annual report that shareholder returns were 128% over the past five years, lagging the 233% return for the Standard & Poor’s 500 and the 180% gain for Dow Jones REIT index.
Another agricultural REIT, Gladstone Land Corp., owned more than 112,000 acres of farmland as of its latest annual report. Gladstone Land’s holdings are primarily in California, Colorado and Florida, but it has holdings in other states, too, including Nebraska, Arizona and Texas. Gladstone, headquartered in McLean, Virginia, had a market cap of $1.2 billion as of March 15, 2022.
Invest through a crowdfunding platform focused on farming
In recent years, a new breed of crowdfunding platforms has emerged to allow investors to get into the farmland game. In general, these companies buy a piece of agricultural property on behalf of investors, who can get a small piece of a project for as little as $10,000. All of the platforms promise to make investing easy by screening properties and negotiating the deal. The investor simply signs up and sends the money.
One potential downside to crowdfunding: You’ll have to work to diversify. The platforms’ investments typically are limited to one property growing one type of crop. So if you want geographic diversification and exposure to a variety of types of agricultural products, you’ll need to invest in multiple deals.
AcreTrader is a real estate crowdfunding platform. It connects investors and farmers, giving investors a way to play farm properties and farmers access to capital to operate their farms. The company says investment vehicles typically are divided into shares equal to a tenth of an acre. If you buy 20 shares, your ownership represents 2 acres of land and the associated dividends.
AcreTrader tells investors to expect yields of 3% to 5%, paid each December, and overall returns of 7% to 9%. The platform says it takes an active role in the management of the farms where it acts as landlord, and charges a management fee of 0.75%.
AcreTrader advertises individual farms for sale. In one recent offering, a 126-acre farm in Illinois was listed for $1.19 million, or $9,440 per acre. The minimum investment was $9,440, and AcreTrader told investors to expect an 8.2% annual return. In another offering, a pistachio and almond farm in California sought investors for a minimum of $25,000.
The company says its vetting is strict -- it buys just 1% of the farm properties it reviews each year.
FarmFundr is a real estate crowdfunding platform that focuses on farmland devoted to specialty crops. The platform requires that investors be accredited, and the minimum investment ranges from $10,000 to $100,000, depending on the property.
While most of the farmland crowdfunding platforms invest in the underlying farmland and collect rent from farmers, FarmFundr says it takes a more active role in the management of the farms it markets to investors. FarmFundr pays investors after each year’s crop is harvested. CEO Brandon Silveira positions himself not just as an expert in farmland acquisition but also in farm management.
FarmTogether is a real estate crowdfunding platform that specializes in farmland. The site requires you to be an accredited investor. FarmTogether investors receive shares of limited liability companies that own the underlying farmland. This approach gives investors exposure to small slices of independent farms. You can add geographic diversification by buying shares in farms located across the country.
FarmTogether says it examines numerous criteria before investing in any given farm, and it says it approves only 2% of the deals it considers. “FarmTogether currently incorporates over 150 data sets from public, private and proprietary data sources,” the company says on its website. “We then apply our proprietary technology and investment expertise to zero in on the best investment opportunities in our target geographies and crops.”
Farmland LP is a real estate investment trust with more than $175 million in assets. The company’s 15,000-acre portfolio is concentrated in California, Washington and Oregon. Farmland LP focuses on sustainability and organic farming. The company says it “generates returns by converting conventional farmland to sustainable.”
In its latest fund, Farmland LP is seeking minimum investments of $50,000 from accredited investors. The fund targets returns of 11%, and investors will pay a management fee of 1.75%. The company takes pains to inform investors that their money is likely to be tied up for a decade.
“Farmland is a long-term asset and adding value by converting conventional farmland to sustainably farmed and organic crops can take years,” the company tells potential investors. “For example, the organic certification process can take three years, and planting permanent crops such as organic blueberries or wine grapes can take 3 to 5 years to generate cash flow. That said, we will distribute cash flow as soon as we are able, beginning in two to three years.”
Farmland LP stresses patience – the company says most of the returns come at the end of the 10-year investment cycle.
Harvest Returns is a crowdfunding platform that focuses on farmland and on indoor growing operations. Investors participate in deals that are smaller than those offered on other platforms, and the minimum investment can be as little as $5,000.
As a relative newcomer – Harvest Returns launched in 2016 – to the farmland crowdfunding space, Harvest Returns offers a slightly more exotic mix of operations. The company has raised a series of funds for CBD and hemp processing facilities, for a cocoa farm in Ghana, and for a hydroponic produce company in Texas.
The company directs its efforts toward sustainable agriculture. Harvest Returns directly manages its investments. The platform stresses its policy of supporting small, local farmers who are looking for capital to expand their farm operations.
Steward is crowdfunding platform that invests in smaller deals, with a heavy emphasis on sustainability. Recent deals on the site include $148,000 for a grass-fed beef ranch in Louisiana and $102,000 for a bison farm and agricultural tourism operation in West Virginia. Steward embraces the go-small trend, focusing on such issues as biodiversity, regenerative agriculture and animal welfare.
Steward allows investors to get started with stakes as small as $100.
Steward’s focus is different from many of the other farmland platforming sites. For instance, a Vermont property on the platform as of early 2022 was looking to raise $1.2 million to fund an expansion of ecotourism efforts. Investors who put in $100,000 were promised a three-night stay on the farm, along with a sheepskin rug and a “farm dinner.”
A growing number of ways to invest in farmland
The pitch for investing in farmland is a compelling one. Humanity’s appetite for food is growing faster than the planet’s supply of arable land, creating a buy signal straight from Economics 101. What’s more, farmland is a low-volatility asset that’s mostly owned outright, rather than with debt. However, for non-experts, finding a profitable deal isn’t easy. That’s why farmland-focused REITs and crowdfunding platforms have emerged. Both investment vehicles give investors low-maintenance, low-barrier ways to buy a piece of farmland.
Contact us to learn more about how to invest with a seasoned expert farmer directly and to ask any questions you may have about the pros and cons of investing through a crowdfunding platform.