How to Invest in Farmland

Learn how to invest in farmland and invest today with FarmTogether.

The investment mainstream has mostly forgotten commodity crops since their historically high 2009 levels. Farmland rents reached record levels from demand in emerging markets and net farm income (NFI). But even as commodities prices fell in the late 2010s, rents stayed at their zenith. 

Investing in farmland means understanding a cross-section of factors — weather patterns, soil type, telephone pole location, cropping history, field size — and balancing that against the farmland rent you can extract from the tenant. Investors must also contend with the higher number of retail investors in the commodities market, a relatively recent change that causes higher volatility in the short-term market.

Modern Investing Options

Learning how to invest in farmland means nailing down a number of different financial vehicles. Most retail investors do not have the means or the access to directly purchase pastureland. There can be a huge upfront cost because of the volume of land involved, not to mention you would need to find someone who could properly maintain the land and pull a profit from it.

Modern technology provides many new ways to invest in farmland, from direct investment to passive real estate investment. Here are some basic tips to keep in mind regardless of the financial vehicle you choose.

Steps for How to Invest in Farmland

Here is how beginners can get started investing in farmland.

Direct Investors

The direct purchase of farmland to rent brings the highest returns and the highest risk. The upfront cost is high because you must purchase a plot of land large enough to house a farm. Your first step is to find a good price, The cost of farmland can vary widely from county to county and state to state.

You can purchase land in a number of ways:

• Land conversion: Just like you can buy a house to upgrade and flip, you can buy land to convert to pastureland or cropland. Conversions can be advantageous because of the low sale price as long as the conversion costs are kept low.
• Sale-leaseback: Some farmers don’t want the added responsibility of owning the land they work on, or they may be unable to handle the costs. In these cases, they may sell the land to you and pay rent to continue profiting from its utility.
• Buy-lease: You have an opportunity for high returns if you buy farmland with no tenant, as long as you can find one.

Communal Investors

If you want to invest passively in farmland with other investors, you can invest through a real estate investment trust (REIT) with a specialization in farmland. Gladstone Land Corp. (NASDAQ: LAND) and Farmland Partners (NYSE: FPI) are two publicly-listed choices and great real estate investing for beginners in the farmland space.

• Farmland Partners: The largest publicly traded U.S. farmland REIT, FPI manages more than $1 billion in assets, featuring over 150,000 acres in 17 states. The company leases to more than 100 tenants with a diversified investment portfolio of crops and cropland.
• Gladstone Land Corporation: LAND manages 111 farms in 10 states with a specialty in health foods. Its farms are valued at around $890 million and comprise more than 86,000 total acres.

Passive Investors

Crowdfunding brings together funds from many investors and provides access to farmland. Although the first wave of these platforms is limited to accredited investors (high-net-worth individuals with more than $1 million in assets or two years of $200,000+ income per annum), managers have stated they will have options available for nonaccredited investors soon.

Why Invest in Farmland?

Farmland represents an inflation-proof investment that has shown consistent growth

since the data has been tracked by the National Council of Real Estate Investment

Fiduciaries (NCREIF) starting in 1991. The reason farmland is considered an inflation-proof investment is simple: More land isn’t being created, and people will always need to eat. Combining this with the fact that the global population is expected to peak in 2050 at 9.7 billion, a lot more food will need to be produced.

In periods of economic downturn, where stocks can lose half of their value in a single year, farmland returns have been positive every year since the data has been tracked. With little-to-no correlation to other major asset classes, investment in farmland represents economic freedom from the mainstream financial system. The low volatility nature of the asset allows investors to combat the ups and downs of the traditional market with a portfolio-diversifying option.

How Farmland Generates Returns

Farmland offers a few income streams — none of which are get-rich-quick but over time have shown consistent growth. One of the sources of passive income comes from the sale of the crops produced on the land. It is important to understand the distinction between crops as there are two categories that differ in both their potential yield growth as well as inherited risk. 

Row crops are annual crops and include corn, squash and soybeans among others. Row crops offer lower annual yields and limited growth, but they are also less volatile representing a higher floor of return. Permanent crops, such as pistachios, almonds, grapes, berries and avocados, offer a higher profitability opportunity but are more susceptible to market volatility and therefore assumed risk.

Source: NCREIF’s Farmland Index

Another stream of passive income is simply the value of the farmland itself, which follows a similar trend to that of overall property value trends. For potential investors, it would be wise to monitor the rising interest rates and the flattening of property values occurring in the market right now. As rates go up, values go down, and this is part of the risk associated with the investment and a metric worth monitoring. 

The final income source comes from the annual rent received from the farmer of the land. Typically, farmers are given three- to five-year lease terms with the property owner often including a flex component that allows the property owner to rework the rent to match the market should yields come in higher than projected.

Source: NCREIF’s Farmland Index

Historical Performance of Farmland 

The historical performance of farmland can be defined by consistent and resilient growth combined with low volatility. According to NCREIF, between the years 1992 and 2020, farmland offered an 11.01% return outperforming U.S. equities (8%), U.S. government bonds (5.46%), U.S. real estate (8.66%), and U.S. real estate investment trusts (REITs) (9.86%).

With talks of a possible looming recession or period of economic downturn, farmland represents one of the most durable asset classes on the market. 

“Farmland is a wise candidate for diversification because it often moves in the opposite direction of other asset classes, proving itself as a recession-proof asset class,” according to the Farmfolio platform. “During economic downturns, when the values of cyclical stocks, bonds and other investments fall, farmland has historically maintained or increased in value. 

“For example, even as real estate and land values declined during the Great Recession of 2008, farm operations (comprising land, equipment, business, livestock, improvements and other associated assets) increased by more than 8%.”

Where to Invest in Farmland

Invest in farmland through the a reputable broker like FarmTogether, here's what you can expect from the platform.

FarmTogether

Using FarmTogether, you can earn farmland returns from quarterly rent payments and land value appreciation. The website is intuitive and beginners benefit from extensive investor education tools. It specializes in institutional-quality farmland, so investment minimums can be high.

Min Investment: $15,000

Fees: 1% of your initial investment, 1% management fee

Pros

• Diversification: FarmTogether offers portfolio diversification through U.S. farmland investment.
• Sustainable Focus: It emphasizes sustainable farming practices for environmentally conscious investors.
• Investment Channels: Multiple options like crowdfunding and bespoke investments suit diverse preferences.

Cons

• High Minimums: Minimum investments, ranging from $15,000 to over $1,000,000, may limit access.
• Long-Term Commitment: Investments tie up capital for around 8 to 12 years.
• Complex Fees: Fees vary and can include admin, annual and performance-based charges.

Farmland can be a solid, valuable investment that pays off in cash rent yields and land appreciation. Experts estimate that investor groups hold more than 30% of active U.S. farmland, so there is plenty of room for passive investors or investors without huge amounts of capital. With the access that new technology provides, it could be worth considering this essential part of the American economy in your portfolio.

Frequently Asked Questions