There are many different ways to invest in farmland. One way is to purchase land and lease it to farmers. This option would require the most work, but it could yield the highest returns.
The land is in finite supply. As the global population continues to grow, demand for farmland is rising. Investing in farmland allows investors to diversify their portfolios with a tangible alternative asset that provides stable returns.
Scarcity of Land Suitably for Food Production
While there are more than 2 million farms and almost 900 million acres of land suitable for food production in the United States, farmers only own about 40% of that land. Non-farmer landlords, including investment groups, rent the rest. Investing in land for sale Iowa can provide stable, consistent returns, low correlation with other investments, and a hedge against inflation.
Buying physical farmland is an option, but it involves much work and risk for novice investors. A less labor-intensive option is to buy a sale-leaseback deal. This consists of a buyer purchasing farmland from an operator already working it, then leasing that land back to the farmer.
Accredited investors can also purchase shares in public real estate investment trusts (REITs) that specialize in farmland—for example, some own and lease farmland in 19 states valued at over a billion dollars. The company leases the land to farmers growing vegetables, nuts, and fruit.
Permanent Crops
Permanent crops like grapes, tree nuts, citrus, and apples have a long lifespan, making replanting cost-prohibitive. They also tend to deliver higher average income returns and offer a better hedge against inflation.
The problem is that these benefits aren’t traditionally factored into farmland valuations. That’s because the data needed to analyze farmland — at both the portfolio and parcel level — isn’t easily accessible or granular enough for risk-driven investors.
Fortunately, new investment vehicles make it easier than ever for accredited investors to invest directly in farmland. For example, real estate crowdfunding platforms allow you to purchase shares of entities that own farmland, ranchland, and timberland with varying minimum investment amounts. Others pool farmland through REITs that can be traded like any other stock. There are also ETFs and mutual funds that invest in farmland. Investing in farmland adds a physical and tangible asset to your financial portfolio, keeping pace with inflation and diversifying your investments.
Diversified Investment Opportunities
Farming has become a popular asset class as more investors diversify their portfolios. Investors can buy and sell physical land directly or invest in agricultural companies that produce crop products.
Adding farmland investments to your investment portfolio could help stabilize it. Unlike real estate or stock investments, farming land steadily increases in value rather than seeing turbulent price swings like other asset classes.
Investing in physical farmland requires significant capital and expertise. However, farmland crowdfunding companies have made it easier for non-farmers to access the asset class. These companies handle everything from land selection to income distribution, often offering a lower minimum investment. Farmland investments also can come with tax advantages. For example, many states tax farmland more favorably than residential or commercial property. This type of tax break can boost your bottom line.
Increased Value
One of the key benefits of investing in farmland is that it increases in value. Because the supply of agricultural land is limited, this investment provides a haven against inflation. Inflation rates have been historically high, making this an ideal asset class to protect your money against rising prices.
In addition, if you invest in permanent crops, such as avocados, limes, and other trees that produce perennial harvests, your income-producing property can increase over time. These investments often come with tax benefits that can help offset other expenses associated with your portfolio.
There may be better options than buying physical farmland for those new to the investment scene or those with a limited budget. Fortunately, several other options exist for those interested in this lucrative opportunity. These include crowdfunding investment platforms and farmland REITs, public companies investing in agriculture-related assets. In some cases, these REITs offer direct investment in physical land, while others provide a more indirect approach by investing in companies that own or lease farmland.
