4 Ways to Buy Farmland as an Investment
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This article was originally published on November 20, 2018 and updated June 13, 2022.
Overview of Land Buying Options
Investing in agricultural farm land is difficult. That is why options for investing in land have historically been limited.
Before we get into the discussion, let's take a quick look at why we believe AcreTrader is the most attractive option to diversify your portfolio with a long term investment in farmland.
While institutional private equity farmland funds, farmland REITs, and outright ownership of farmland assets all provide solutions for how to invest in farmland, each has distinct drawbacks.
Investing in Land With Private Equity
Agricultural land funds offer institutional alternative asset investors the ability to invest in land at scale.
Indeed, the attractiveness of farmland as an investment has drawn a large amount of investment in farmland private equity. The chart below shows over $25 billion raised by global farm funds since 2007.
Many of these private equity farmland funds measure their assets in the hundreds of millions or even billions of dollars. We think there is well over $20 billion invested already in the U.S. market alone. (For context, the value of total U.S. farmland is measured in the trillions of dollars.)
This type of scale provides great leverage in farming, back office functions, and ability to participate in auctions of large farms.
However, this scale also means that these funds are creating a much more "efficient" market with these large farms, as multiple funds show up as bidders on the mega deals.
Further, this scale means that many of these funds require an investment minimum of $1 million with often 10-year lockups on investor funds. This compares to AcreTrader, where investors can start investing with as little as $10,000-15,000.
To reiterate, we think farm funds have a place in the U.S. market, and some of these funds have great teams, processes, approaches, and returns. However, for the overwhelming majority of investors looking to diversify their portfolio with farmland, AcreTrader offers a more practical approach.
Investing in Ag Land With Publicly Traded REITs
Real Estate Investment Trusts (REITs) are an asset class that has been around for a long time. A type of agriculture stock, REITs are publicly traded companies that typically own and operate real estate utilizing debt to pay out attractive dividends.
Agricultural REITs are relatively new, with the two publicly traded companies having been listed just in the last five years.
Farmland REITs provide investors easy access to farmland, but because they're publicly traded, they may not fill the role of an alternative investment in a portfolio.
Buying Land Directly
The most common method to invest in farmland by far is direct ownership. Despite the exceptional friction and headache that can accompany investing in farmland, some astute investors have historically invested directly in farmland assets.
Indeed, over 30% of U.S. farmland is owned by non-operator landlords:
Though direct ownership in farmland is well established, it historically required investors to commit hundreds of thousands in capital (taking portfolio concentration risk) and manage the business and complexities associated with it.
A typical outright investment in farmland goes something like this: search for and identify attractive land, conduct due diligence, negotiate terms with a bank, coordinate a lengthy closing process, identify a manager and/or farmer for your land, open bank accounts, negotiate leases and contracts, manage payments and collections, pay taxes and insurance, deal with problems, constantly monitor operations, etc.
You get the point. Buying land directly is hard. AcreTrader helps eliminate the friction involved by allowing investors to skip these pain points with a few clicks and keystrokes.
Each of the above options provide access to buying land. However, these land purchase options tend to work only under certain circumstances and leave the majority of investors without a real ability to invest in agricultural land under attractive terms.
Thus, despite the historically sound and appealing investment characteristics of farmland, it hasn't been highly publicized as an investment alternative.
AcreTrader changes this. We are democratizing the farmland investment process by providing users transparency, ease of use, access, and experience otherwise unavailable. AcreTrader.
Create your account today to discover upcoming farmland investment opportunities.
Supplemental Information: Data referenced herein Preqin, USDA, Yahoo Finance, and Company Filings, with additional calculations and analysis performed by AcreTrader.
The above content is not intended to be a comparison between products, but is intended for general, educational and informational purposes only. Any performance noted is historical and there is no guarantee any trends will continue. All investing involves risks, including the complete loss of principal. Diversification does not guarantee a profit or protect against loss in a declining market. It is important for each investor to review their investment objectives, risk tolerance, tax liability and liquidity needs before investing. Investment vehicles have differences in fee structure, risk factors and objectives. Investments are considered speculative, involve a high degree of risk and therefore are not suitable for all investors.
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