If you have ever dreamed of moving to the countryside, collecting fresh eggs from the chicken coop, and watching the grass move with the wind, you are not alone. According to the United States Department of Agriculture, there are almost 900 million acres of farmland
in America. Farmers and ranchers own approximately 61% of the land they use, renting the rest from landlords. Investors groups, including retired farmers, corporations, and individuals, hold 31% of America’s farmland. More people are investing in farmland to increase the value of their real estate portfolios.
Why invest in farmland?
In the past, the only way to invest in farmland was to buy a plot of land and till the fields or wait for the land’s value to appreciate. That limited the scope of investing; farmland only made sense for those who could work the land, often families who had already been farming for generations. However, farmland has a long history of producing solid returns. The value of farmland tends to increase, and further value is added by crop yield and rental payments. Over the last 50 years, the value of farmland in America rose by approximately 6.1% per year. According to USDA, farmland has produced a positive yearly return
, resulting in an average return of 11.5%.
Additionally, you can live on the land and enjoy the benefits of living on a farm without farming. Investing in farmland also has environmental benefits. Farmland provides homes to local wildlife, farmers rotate crops to benefit from soil conditions, crops add fresh oxygen to the atmosphere, and innovative farming practices can aid in water conservation efforts. So, now the question is: how do you invest in farmland?
Buy the land
Farming remains a nontraditional asset for real estate investors. You can look for homes for sale in Redwood City
with plenty of acreages or buy the land directly. If you purchase usable farmland, you can rent it to a rancher or farmer. Essentially, owning land allows it to function like an investment property.
In 2022, United States cropland
averaged $5,050 per acre, and pastures were valued at $1,650 per acre. Investors buying land have several options, such as purchasing an existing farm via a sale-leaseback transaction, where the current farmer continues to work the farm and pay rent to the new owner. An investor looking to buy farmland directly could also buy existing agricultural land or an existing farm and lease it to a new tenant. Alternatively, you could purchase land that is not currently used for agriculture and convert it into an urban farm, cropland, or pastureland.
Real estate investment trusts (REITs) can also invest in farmland, office buildings, and apartment complexes. REITs are an excellent way for investors to enjoy the benefits of real estate investing without the burden of management. Farmland REITs are more liquid, make diversification easier, and often have a lower minimum investment. Farmland REITs are typically used to buy and lease farmland to farmers, allowing the investor to have interests in multiple farms nationwide. Additionally, they are more liquid investments as most shares can be sold quickly on stock exchanges. Gladstone Land and Farmland Partners are the two most prominent farmland REITs.
An alternative to owning farmland directly is to invest in agricultural stocks. Investors can own agricultural stocks in crop production, equipment manufacturing, or fertilizer production and distribution. Shareholders can invest directly in growing and producing crops or in various industries supporting farmers.
Farmland mutual funds and ETFs
Unlike the other investment options, farmland mutual funds typically invest in sectors adjacent to the agricultural companies and don’t always invest exclusively in agriculture. There is the option to buy stock in individual agricultural companies; investing in a mutual fund or exchange-traded fund (ETF) is typically more straightforward. Some mutual funds focus on farming and pool investor money into supporting the agriculture industry. For example, the Fidelity Agricultural Productivity Fund (FARMX) invests 80% of its assets in agricultural productivity companies. Their largest holding is Deere, which produces high-quality, long-lasting agriculture equipment. It’s important to note that mutual funds can come with high fees.
Many farmland crowdfunding platforms handle everything for you, from land selection to income distribution. In addition, these platforms allow you to buy a portion of a farm, which significantly lowers the minimum investment. Farming crowdfunding platforms include FarmTogether, AcreTrader, and Farmfundr. If you choose to invest through a crowdfunding platform, it’s essential to consider the holding period, which can be three to five years.
Today, there are many options to invest in farmland
. Investors can be involved in the farm as much or as little as they want. If you crave more space and self-sustainability, directly investing in farmland may be your best option. For instance, if you live in Redwood City and want to explore the possibility of starting your own farm or investing in farmland, many local farms are available — Full Belly Farm, Oya Organics, and Camiller Family Farms, to name a few.
There are also vacant lots for sale that can be converted into farmland. That route appeals to anyone who enjoys life in Redwood City, which boasts many dining options, from casual cuisine to fine dining, an exceptional public school system, wonderful museums and theaters, many parks, and easy access to the Pacific Ocean.
Do you dream of a house with plenty of land to create your own small farm? Does farmland appeal to you as a real estate investment? Either way, Stephanie Nash
can help you realize your dreams. A peninsula native, Stephanie
is passionate about Redwood City real estate and its attendant lifestyle. If you love sunny weather and country property with large lots, hiking trails, and ocean views, contact Stephanie Nash today
.*Header photo courtesy of Unsplash