Fractional farmland investing & other cool ideas.
This week’s issue is about investing in farms & farming operations, and explores some interesting things you can do with rural land.
Let’s dive in!
Why invest in farmland?
Farming is, well, about as far away from digital assets as you can get.
One of mankind’s earliest economic activities, agriculture is as old as civilization itself, dating back 10,000 years.
Farming generates returns from both the crops they produce, and from the appreciation of the farmland itself. Because it produces both active & passive returns, farmland is a very attractive income-generating asset class.
Historically, farmland has been one of the most resilient asset classes over the past 40 years.
According to NCREIF, which aggregates privately owned agricultural properties, over the past 25 years farmland has averaged ~10% total annual returns, including income + land appreciation).
It has low volatility, low cyclicality (at least with permanent cropland) and rather low correlation with the stock market as a whole. It’s generally less risky than industrial space and commercial real estate — especially lately. People may not need to go into the office anymore, but they’ll always need to eat.
It’s also relatively recession-proof. Since 1999, U.S. farmland has delivered just one quarter of negative returns. (Although it is definitely not depression-proof. Being an American farmer in the 1930s would have to be one of the most depressing lives ever, ugh…)
Anyways, NCREIF tracks quarterly returns across the United States via their Farmland Index. Over the past year, the largest returns have been seen in the Southern Plains states (6.0%) and the Southeastern states (6.6%).
They ain’t making any more of it
Like real estate, farmland is an income-generating appreciable asset, with a strong record of returns. Just like with real estate, there’s only so much of it to go around. However, unlike with residential & CRE, farmland has far less of an ability to expand vertically.
But that’s not all. Thanks to climate change, the amount of arable land around the world is actually decreasing. Only 7% of Earth’s land is suitable for cultivation to begin with, and over the past 40 years, a third of that has already disappeared. Oh, and with the global population expected to hit 10 billion by the year 2050, food production will have to increase by 70% to match this demand.
Thankfully technology is stepping up. Which brings us to the next reason farmland is a great investment.
Technology is improving yields (and reducing waste)
Since land is expensive—and God ain’t making any more of it—agriculture has turned to technology to optimize crop yields and squeeze every possible dollar out of each hectare of land.
Ever since the British Agricultural Revolution, humanity has experienced a continuous wave of new technologies which have improved farming productivity. From advanced irrigation, to mechanical tractors, to herbicide-tolerant corn, technology has led to both improved yields and lower production costs, boosting farmers’ profitability and land values.
A fantastic example of recent technology improving agricultural profitability is a company called Apeel. They’ve developed a natural, invisible, tasteless coating which is sprayed onto fruits & veggies and seals in moisture in while keeping oxygen out — thereby massively reducing the colossal amount of food that goes to waste each year. I cannot say enough good things about what this company is doing. Get them on your radar, now.
In a nutshell, as technology pushes productivity higher, land appreciates in value. Combined with low interest rates and suburban/exurban sprawl pushing the edges of cities further outwards, it’s no wonder from 2004 to 2012 farmland values in the United States doubled.
It’s a doomsday prepper’s dream
Look, I’m not one of those weirdo preppers. If we ever move to New Zealand, it’s because it’s objectively one of the best countries in the world, not because the world is ending and I think a bunker will save me.
That said, farmland is pretty much the ultimate “bailout investment.” If you do believe the end is near, it’s hard to find a better hedge than a plot of land you own which produces sustainable food for you and your family, while you ride out the apocalypse wearing a tight-fitting tinfoil hat.
And hey, at a minimum, you have a nice quiet spot to relax & unplug for the weekend.
How to invest in farmland
Now, not everyone has the cash to buy a farm outright. Luckily, this asset class which has been historically dominated by large institutions and HNWIs, is becoming increasingly accessible to passive financial investors of all shapes and sizes.
Today, I’m looking at three of these: FarmTogether, FarmFolio, and CultivateFarms.
Having raised 1.8m in funding, FarmTogether sources top properties across the United States, purchases shares of the land, manages the farmland, and sells it at the end of the holding period.
As an investor, you become a part owner of a real farm, without the hassle of managing or operating it yourself. You are entitled to both proportional cash payouts from the farm’s income, and your share of capital gains from the sale of the farm.
Isn’t this sort of like a farmland REIT, you ask?
Well, not really. With a REIT, you have no say in which farmland you invest in. With FarmTogether, you choose the location and the type of crops. You can choose oranges, almonds, lavender…whatever suits you. As an investor, you have full control of where your money goes.
As of this writing, the site has a dozen or so offerings — nearly all of which are located in California, and nearly all of which are already sold out. They have a nice interface, and while browsing the site is less exciting than driving a tractor yourself (on my bucket list for sure), it’s probably a lot more fun than playing Farming Simulator.
Minimum investments start around $10,000, with holding periods starting from 5 years. Investments target a 3-7% cash yield, and an annual IRR of between 7-13%.
It’ll be good to see FarmTogether increase their inventory and expand beyond California and the US. In the meantime, I’ll be watching for new farms available in Central Oregon, which over the coming decades will have a climate increasingly similar to California’s Central Valley — which is currently some of the most productive farmland in the world.
Headquartered in Medellín, Colombia (don’t worry, they aren’t producing cocaine. Ahem). Farmfolio has created a socially responsible way of bringing agribusiness investors, landowners, and developers together across the Latin America.
The problem they are solving is real, and so is their solution. From their website:
Smaller producers struggle to enter the global supply chain. Without adequate access to capital financing, logistical support, and modern corporate management…it can be difficult for these businesses to succeed, no matter the quality of their products. By partnering with Farmfolio, these businesses can obtain the capital they require, receive financial oversight from Farmfolio’s team, and connect to an international community of agribusiness professionals.
By strategically investing dollars into sustainable agriculture projects, FarmFolio seeks to improve the quality of life in underprivileged communities, while meeting the highest standards of environmental protection, and generating returns for investors. Like Apeel, Farmfolio is proof that agribusiness can do both well and good.
The website is beautiful, slick, and clearly outlines investment opportunities, which currently focus on tropical fruits and hardwoods.
What’s interesting to me about FarmFolio is that you aren’t just investing into farmland: you’re investing in potentially all phases of the agricultural supply chain; from farmers, to packers, to distributors.
You’re also putting capital exactly where it’s needed. FarmFolio provides some fantastic financial breakdowns; detailing exactly who owns each asset, and how each dollar will be spent:
Minimum investments start around $100,000, and they target IRRs of over 11%. So this is for serious investors that are looking for a solid return while having a truly positive impact on the world.
Australia-based CultivateFarms has a different take on farmland investing.
Instead of hosting an investment marketplace, CultivateFarms is a matchmaking service that connects aspiring farmers/investors with retiring farmers across Australia, New Zealand, and most recently, South Africa.
Basically, if you want to own an actual, real farm and find a quality farmer to operate/co-own it with you, look no further. To apply, you fill out a proposal which is sent directly to farmers for consideration.
Once you get connected with a farmer, the company is no longer involved. It is then up to both parties to find the ideal investment/ownership arrangement that suits them.
So if you’re looking to buy and help run an actual farm in AU or NZ, this could be a fantastic way to get your foot in the door. (But remember, as of 2018 in order to buy property in New Zealand you must be a resident of NZ, Australia, or Singapore!)
Another idea for rural land
If you follow this space, you may have heard of Codie Sanchez.
Codie is the co-founder of Unconventional Acquisitions. She also has a fresh writing style that I enjoy, and a cool Substack where she writes about, well, unconventional acquisitions.
Recently, she showcased one acquisition in particular that really caught my eye. Codie tells the story of a friend who bought 3 acres of land in Joshua Tree for $10k. But she didn’t build on it. Instead, she rents it out on AirBNB, VRBO, and Hipcamp as a campsite for $50/night.
Some back of the napkin math indicates this is a seriously fantastic investment. At $50/night and assuming full capacity, she’d be earning $1,500/month. That means she’d have a payback period of just 7 months, which is absolutely phenomenal. And this doesn’t even take into consideration potential land appreciation of 3-5% per year. (Oh, and she didn’t even have to develop the land!)
When I read this, I immediately went down a 2-hour rabbit hole, excitedly searching for potential land near National Parks in Australia and New Zealand that I could turn into a campsite. Or maybe find a spot to start building a luxury treehouse, like this unique gem that rents for $1,000/night…
…Until I realized how much work this would actually take. ? Finding an opportunity like this isn’t easy. You’ll need to do a ton of due diligence on a project like this. Otherwise you risk ending up with a useless stretch of dirt that’s illegal to build a fence on, let alone run a campsite, and is possibly overrun with deadly coyotes.
But if you search long enough, you might find the right spot, with the right combination of camper traffic and natural beauty, with low maintenance, low taxes, and high opportunity.
In a nutshell, it’s tough, but probably a lot easier than you think. Go get ‘em.
How’d you like this issue?