My grandfather used to own a small, 8-acre fruit and plant farm on the western side of Oahu. It was a magical place nestled next to the majestic Waianae mountain range. The farm was part of his retirement income strategy as he rented out a portion of the land to his neighbors who grew green onions.
When I was going through my quarter-life crisis in 2001, I thought about quitting finance altogether and moving to my grandfather's farm to help him maintain the crops. I longed for a simple life where I'd clear the brush and water the trees in the early morning, eat mangos and papayas for brunch, take a midday nap, box up the fruit to sell at the local grocery store, and then go surfing in the early evening before coming home.
Unfortunately, I never made the move. And as my grandfather grew older, the weeds started to overtake much of the plantation and we eventually sold the property. In retrospect, I wish I had at least taken a sabbatical to live on the farm and help out my grandfather.
Given my connection with farming, I was intrigued when Artem Milinchuk, founder of FarmTogether, asked if he could sponsor me to do some research about the benefits of farmland investing. Here's a post about what I learned about the asset class. Here is my FarmTogether review for 2021 and beyond.
How FarmTogether Works
FarmTogether is a farmland investment manager that connects accredited and institutional investors with farmland investment opportunities in America. The main company, FarmTogether Management LLC, a 100% owned FarmTogether Inc. company, purchases farmland with the help of investors. After inspecting potential investment areas, land may be purchased if it passes rigorous inspection.
Investors in the land are paid out from two different types of returns.
One way is through income from the land. These are typically cash lease payments or revenue/profit share paid by the farmers who are using the land.
The second way investors may profit is through the appreciation and eventual sale of the land. FarmTogether focuses on purchasing land below market value, improving the land, and reselling it for profit in 10-15 years.
The FarmTogether Team
The FarmTogether team is a group of individuals who have worked in various sectors of finance and agriculture.
Across the different board members, they have extensive experience in investing, agriculture, and real estate, not only in the United States but globally. Having people who actually have knowledge of the agricultural industry is extremely important.
To learn more about their team you can check out their about page.
FarmTogether Partnerships
FarmTogether works with investment managers, farmland brokers, appraisers, water and agriculture experts, and advisors before they purchase any land.
Investing in farmland is an interesting and potentially long-term profitable asset class due to the following reasons:
- The decreasing availability of farmland – 1.3 million acres of farmland were lost in 2021 due to development. Farmland acreage has decreased by over 13.62 million acres since 2014, an average loss of over 1.9 million acres per year.
- An increasing population. The global population is expected to go up by 27% by 2050.
- Increased food demand – better quality of life, rising income, and dietary trends point to a rise of 58% to 98% in food demand
- Farmland has historically provided high returns, lower volatility, and has acted as a superior inflation hedge.
Until recently, investing in farmland required you to know about the agriculture business as well as a good deal about the quality of the soil. If you went out and bought a useless plot of land, you would end up unable to rent out the land or find a farmer willing to pay you rent.
In the increasing age of the internet and cyber connectivity, investing in farmland is becoming easier. You should already know about REITs, but farmland is starting to take on a similar approach.
FarmTogether is making it easier for regular investors to get a stake of profitable farmland without having to know everything about the agriculture industry. Purchasing farmland may become an increasingly popular way to diversify your investment portfolio.
Historical Farmland Investment Returns
Over the last 47 years, farmland in the United States has yielded returns of over 10%. However, between 1992 – 2016, the returns have been even more significant -yielding 12% according to a white paper done by TIAA-CREF/Nuveen, LLC.
In contrast, real estate (NCREIF) has provided a return of 8.49% and the Russel 3000 a return of 8.8%. Not bad, but not as high.
Here is a farmland investing review article I published that highlights returns and future opportunities. It's been good to see how steady farmland investing has been during the pandemic.
Farmland And Stability Versus Volatility
Similar to real estate, farmland has shown to be much more stable than stocks. The ability to diversify a portfolio via investments in assets that have low to negative correlation is one way to protect your investments. In 2022, with the stock market and bond market down, farmland has significantly outperformed just like real estate.
According to Morningstar, the standard deviation of the S&P 500 Total Return index is about 13.5% over the last 15 years. The standard deviation of the 7-10 year US Corporate Bond Total Return Index over the last 15 years, was 7.6%. The same calculation for NASS cropland total returns is only 6.7%.
Further, let's take a look at the 10-year correlations for annual returns across asset classes. As you can see from the chart below, farmland investing is not correlated with the S&P 500. Farmland is negatively correlated with Bonds, Emerging Markets, Gold, and Cash. Farmland is most closely correlated with real estate at 0.549.
How Much Farmland Is Available?
The potential for profits from the farming industry is large. If you look at the United States, farmland is a $2.7 trillion dollar market. This is significant, especially if you look at the global real estate market that averages around $8.5 trillion under professional management.
In addition, if you look at the aging farmer population (average age of 60 years old), large amounts of farmland are set to change hands in the near future; either heirs or investors.
Farmland Industry Markets
Chances are, you don't know too many people currently investing in farmland. This may be an indication that investing in farmland is still in its infant phases. However, there are still successful investors pouring money into this relatively new investment vehicle.
Value Advisors did a study of global investment funds from 2005 to 2017 and found that funds specializing in assets in the food and agriculture business increased from 38 to 446. The total amount of assets exceeded $73 billion. In other words, more capital is chasing farmland investing.
Even institutional investors such as Ontario Teachers’ Pension Plan and investors such as Michael Burry (famous from “The Big Short”) have poured significant amounts of capital into farmland.
Portfolio Diversification and Farmland
The shrinking size of available farmland and the increasing need for more food may be a good hedge against inflation. Farmland, after all, is a real asset that will always have intrinsic value.
Possible Risks Of Investing In Farmland
Like all investments, farmland does have inherent risks. Most common risks are overpaying for land and not understanding the prevailing lease rates and their drivers in the area – both can lead to sub-par returns. FarmTogether mitigates these risks by being conservative in their underwriting and partnering with highly experienced farmers and farmland investment managers.
One common misconception is that farmland is volatile due to the volatile nature of the crops. Long-term prices on agricultural commodities do influence farmland returns. However, at FarmTogether, the investments mostly lease out the land, not operate it. Therefore, they do not bear the operating risks or the short-term risks of crop pricing.
Less Volatility In Farmland
This may sound a little too good to be true, but the historical volatility and returns of farmland investing show why it is an attractive asset class. It makes sense when comparing farmland to real estate. If you own a building in which Starbucks leases a space from you, your rent doesn’t fluctuate with the price of coffee beans.
Of course, long-term crop prices still will influence the farmland return. So how do you choose which crops to invest in? As with any investment platform, you need to trust the team’s due diligence and underwriting in what deals they bring to the market.
While I imagine that most of us are not experts on, say, the almond markets, FarmTogether does provide fairly comprehensive, yet easily digestible overviews of the crop markets they target, outlining supply/demand and price forecasts.
FarmTogether is constantly adding new educational materials. They conduct regular webinars where anyone can ask the team any question on their mind. Farmland investing is even a way to take advantage of the growing health movement since COVID began.
Finally, as with any investment, it is recommended to diversify with multiple properties across different crops, regions and geographies. With a minimum investment currently at $10,000, you don’t need to spend too much to achieve broad diversification.
Internal Diversification Between Crop Types
With FarmTogether, you are not just investing in farmland in general. You invest in land geared towards certain types of crops. Some farmland may be perfect for one crop, but those crops may be highly dependent on the weather. If the weather is unusual for a few years, it may be difficult to find farmers willing to lease the land.
This is where farmland diversification comes into play. You may invest in certain parcels geared towards orchards, leafy plants, or any other combination in between. FarmTogether’s team/board is also invested in their product. Therefore, it's in their best interest to only purchase/publish the most stable and reliable land investment offerings.
If you're curious, row crops (e.g. corn) typically will have less volatility in returns than permanent crops (e.g. almonds).
As an investor, you are given the choice on what plot of land to invest in. You don't have to pool your money with other investors without any choice of the specific investments. You are very much in control of your investments. If you don't want to invest in land designated for cotton, you don't have to. You direct the type of land your money buys.
Partnerships With Farmers
In addition to having industry experts as part of their board of directors, FarmTogether has created partnerships with farmers they actively work with and lease the land to. By collaborating closely with farmers, FarmTogether ensures they have available farmers who are willing to lease the land after their initial purchase.
Additionally, FarmTogether has leasing benefits for farmers. Investors lend substantial capital to farmers looking to expand their operations in a flexible and capital-light manner.
By being transparent and working with farmers on the front end, FarmTogether is able to set future purchases up for immediate revenue and land management. This is quite different than many other companies who purchase properties first and then focus on trying to find renters.
Evolution Of Farmland Investing
Farmland hasn’t always been the easiest asset class to add to your portfolio. Buying a farm isn’t a feasible strategy for an average investor. Traditionally, the asset class costs several million to enter, with low liquidity. Even if you could afford it, the specialized knowledge and efforts needed to source and manage the land would deter most investors.
As a result, many investors overlooked this asset class with a history of strong returns. Previously, investing in farmland was only available to extremely net worth investors who were able to invest millions of dollars.
FarmTogether has helped broaden access to farmland investing and lowered the minimums.
Minimum Requirements To Invest With FarmTogether
FarmTogether offers three products: their crowdfunded offerings, their bespoke offerings, and their Sustainable Farmland Fund. The minimum investment differs per product.
Their crowdfunding product has a minimum investment of $15,000 per transaction. FarmTogether's Bespoke product has a minimum of $3,000,000 for permanent crop offerings, $1,000,000 for row crop offerings. Their Fund has a minimum of $100,000.
Investors must be accredited. This typically means having a yearly income of $200,000 as an individual or $300,000 if married or having a net worth of at least $1 million, excluding your primary residence. Alternatively, you can be an accredited investors if you qualify as an Investment Professional. Meaning you have the professional knowledge, experience, or certifications in addition to the existing tests for income or net worth.
Fees, Tax, & Regulatory Information
FarmTogether uses a fee structure that is unique to each property. They do not have a set fee schedule due to the difference in properties. For each plot of land available to purchase, the fee structure is clearly displayed before you invest any amount.
Right now most of their deals have a one time 1% expense reimbursement fee and an annual 1% management fee.
The target average returns from FarmTogether properties range from 6%-13% net of fees.
As far as taxes, each accredited investor income from the land is taxed on a Schedule E, IRS Form 1040. Capital gain tax is added when an individual plot is sold for a profit. FarmTogether provides all investors with electronic K1s
FarmTogether is an Exempt Reporting Advisor under the SEC regulations. Their CRD # is 304511 and their SEC # is 802-117227.
Farmland Investing For The Future
Farmland is both one of the oldest and one of the newest asset classes. With the supply of farmland shrinking and the demand for food growing, investing in farmland for income or resale makes logical sense.
I hope you have enjoyed my research on farmland investing today. Check out FarmTogether and see what they have to offer.
I live in Nevada with no state income tax. If I invest in a FarmTogether opportunity in a state that does have an income tax, will I be required to file a state return for that state?
Man the “accredited investor” designation is so bogus. I’m 24 years old, sorry I’m not worth $1mm yet? I don’t see how this correlates to understanding an investment. Thanks for the write-up though, Sam. Very insightful as usual. FYI my sassiness was directed toward the IRS, not your or the platform.
You can still shoot to make over $250K a year though :)
The government just doesn’t want people to lose money they cannot afford to lose. The accredited investor definition is somewhat arbitrary that’s for sure.
Something to shoot for. And yes, like many government regulations, good intentions, but ultimately idiotic.
So how is it profitable to invest in farm land when tariffs and embargoes have negatively affected our farmers?
I think A.T.’s comment below gives a glimpse into your question. The profit on these investments come from rental income, not farm output. But if rental prices are artificially high, farmers will not be able to keep paying the rent. It may work right now, but I am unsure about long term profitability.
“The Dutch Tulip Bulb Market Bubble was one of the most famous asset bubbles and crashes of all time. … Tulips were introduced to Holland in 1593 with the bubble occurring primarily from 1634 to 1637.”
Having said that, I want to invest millions in cashew farms and banana farms as long as I can visit the farm and test the products whenever I get hungry.
Invest in your own farm. Buy some vegetable seeds and plant them in your yard. That will give you the largest return on investment. $5 packet of tomato seeds, 1 Plant, will give you $50-100 worth of tomato
Trouble is your veggie garden is only scalable to your stomach…. But it’s a start
Guess this is what I’m’a do. Hopefully this will catch on just enough to let non-accredited investors hop in on it.
Great post. Any plans to review Acre Trader or other platforms in this space? I wonder how FarmTogether differs from other options like Acre Trader
I stumbled across FarmTogether just a few weeks ago, so I was very interested to see your post. Thanks for the additional information!!
Sam, always appreciate you bringing new things to light for your readers! This is my .02 on this one. Maybe not so well thought out but you guys will catch my drift.
T his is a hard one for me, the free market/capitalism believer that I am thinking is, this is great. The small land owner/small farm supporter that I am despises this. I am a huge believer in farm land investment, I own 160 acres. But I want to physically own it, just like my rental property.
I first came into this type of investment vehicle when Ceres Partners started to buy up large pieces of land local to me. A lot of negative things happen, a lot of farm bankruptcies and small farms getting ate up for various reasons. I understand the market demands efficiency but this is a hard is a hard one to swallow.
When these companies come in and buy the land they demand a certain amount for rent to get their returns. The market is not setting these rental rates and it’s causing problems.
For example, the average land rent around me is $100/acre. Then a farm land investment firm comes in and buys up some large tracts of land and demands $200-250/acre from area farmers. As of now, farmers take on the volume and spread that higher cost out amongst their cheaper leases, lowering their average cost to rent per acre. But it’s not sustainable, eventually they will run out of farmers willing to pay these high rents. The margins for them are tight. These high rents artificially raise the price of land, where farmers are already competing in our area with real estate developers. A lot of the land around me that I’ve seen go up for sale to these investment companies is almost always over valued. If it was at a fair or below market price a local farmer or local investor would of bought it. The deep pockets of the investment company are paying more then locals are willing to. I laughed a little when I read these guys buy land below market value. Where a local would be willing to pay 3500-4000/tillable acre these guys will come in and pay 5000-5500. (Just using numbers relevant to my area)
Historically, farmers owned much of the land they farmed, a solid asset backing their farming business. This dramatically changes that.
An excellent example of things going south with this arrangement would be Ceres Partners and Boersen Farms, if anyone wants to look into that.
I live in the midwest corn belt and have to agree there is no undervalued farmland available in my area. If investors purchase the land it is at a premium price. Many farmers broker their own deals, and the buyer is often a nearby farmland owner or the younger farmer who has been renting the property.
This is an investment pool that interests me. In another life I would have liked to have been a farmer. I also like that this gives you a choice of crop type. I would never invest in almond trees as I fell they are environmental bandits taking too much water and causing issues with the bees. However leafy greens would interest me. I have made a few donations for farms in Hawaii via GoFundMe as I believe the work of the farmer is so important and I would love to be a part of it.
Separate topic than my comment above: I think this kind of investment is somewhat different than what Warren Buffet did…namely buy 400 acres and let someone else farm it for him.
Personally I looked into Virginia farmland and whether to get a 100 acres that was already being rented out for farming, subdividing a wooded section out and getting a perc for a 5 BR house and look to increase the value there. I’ll be depending on Northern VA sprawl to get there in a decade or so.
I found an orchard with apple trees and one corner is wooded with a stream. Orchards are an ass ton of work but the concept is appealing.
But meh…it’s really is a lot of work. It might be fun work so I’m considering it but it’s hard to beat indexing for low level of effort.
With the FarmTogether sort of thing I still have to do my due diligence and if I’m going to have to do that in any serious way…might as well actually own the land.
The other option I looked at was getting a 10 acre ranch in Kohala on the Big Island and do my own agriculture tech startup learning how to build hurricane resistant versions of Dutch green houses and fiddling with agricultural robotics (something I can semi claim to have some experience with…robots anyway).
Man would that be a huge potential money pit and a lot of stress.
Still though…it’s like building a high tech grow farm only for organic veggies and stuff instead of weed. That might be interesting.
Very cool your grandfather had farmland and leased it out for retirement income. A smart man!
I like the clarification of how investors on FarmTogether make money by leasing out the farmland to an established pool of farmers, thereby, not being too dependent on crops.
Any idea how long the average farmland lease is and what is the penalty or solution to get out if there is a really bad drought or something?
Thanks
Thanks. The man was very forward thinking and knew how to take care of his family. He did tell me a story where he could’ve bought property in Waikiki right on the waterfront, but decided to pass because a butcher was next-door! Darn.
I read your article. I have farmed for close to 50 years and finally decided to rent my land to a neighbor. I also have a BS in accounting and an MBA. Have served as a member of State Grain Commission, on board of US Wheat Commission, on board of National Association of Wheat Growers, in addition to a number of other organizations. Also have a large stock portfolio.
Today the average farm is operated as a family operation rather than independently. Equipment is very expensive and uses many of the components developed in the world of technology. Costs of equipment is staggering and companies that supply products to agriculture (seed, chemical, etc) are much different than what your grandparents used.
* edited to remove offensive language
As a farmer’s daughter, I’m glad to hear you actually farmed the land you own. On the whole, this concept makes me very sad. My dad owns his land, and I’d like to see the majority of farmer’s on their own land, as they take better care of it. Having non-farm entities control the lane just seems wrong. Your points about the high entry costs are lost on those knowing little about agriculture.
Farmland leases vary greatly. Historically just a handshake on a verbal agreement we’re all that was done. Timeframe wise though I’d say 1-10 years are pretty common.
Derek, this is Artem from FarmTogether. The average farmland lease is 1-3 years in row crops. This is preferred by both landowners and farmers as it gives both flexibility. In permanent crops, it’s a more complex arrangement as you want the farmer to be invested into the health of the trees.
Yes, there are always mechanisms to reprice the lease or get out of the lease, no one is better off if the farmer is struggling financially. Having said that, we typically work with farming families that are well established and have been doing this for decades so they are well-capitalized and diversified across many properties.
Oh wow, fascinating. There sure is an investment product for everything these days. I don’t know much about farm land but its certainly an intriguing asset class to explore with decreasing supply and increasing demand. I have a much greater appreciation for farm land after moving to California. There are so many farmer’s market in San Francisco with fresh produce and I’ve gone fruit picking several times. So much work goes into maintaining farms and growing produce! I’m glad to hear there are ways to gain exposure to such an important type of land/property!
It’s interesting but not having $300K family income that means I’m out even though I meet the other requirements.
If you don’t have over $1M net worth (minus house) with a $300K family income you’re doing something wrong.
And a family with $10M net worth may not be generating $300K of income because their equities are geared toward growth rather than dividends and they aren’t selling enough because they don’t spend that much. Just because 4% might be a SWR doesn’t mean folks draw down 4% or even the 3% required to test the waters with $50K.
I dunno why they care what my income is if I’m accredited and I can blow $10K-50K on a whim.
The other risks not mentioned is climate change and technology.
The climate change is obvious as many states that are current agricultural producers are looking at water shortfalls or changed growing conditions in the near future. Water management and who gets how much of what rivers is a big deal. Buying farmland in these states is a complete crapshoot as they aren’t sustainable without a lot of water from somewhere else.
The technology risk is if you look at the Dutch…their farms are seeing 10x the yield as other countries and the type of farming they do (greenhouse) are more amenable to automation cutting one of the major farming costs (aka labor) and reduces insect and weather risks to yields. Closed loop water systems reduce the water demands for growing crops…and for some of the states looking at water problems the farms that survive will be the well capitalized farms able to invest in high tech agriculture and using one tenth of the land. Those farms currently dependent on traditional irrigation will die.
You also see a lot of investment in vertical farming. Something that also would increase yields and reduce farm footprints.
Isn’t it easier to do traditional farming? Kinda. But a lot of current smaller farmer incomes are marginal given bad years of drought with poor harvests and great years with poor prices because supply exceeds demands. Without subsidies a lot more family farms would disappear.
I’m sure these guys will make money medium term but given they lock out many HNW/VHNW folks it’s not as interesting a diversification route for folks.
Easier to invest in the farming sector and a few swing for the fences high tech agriculture start ups.
You may enjoy this post: What Is an Accredited Investor And Is The Definition Fair?
I remember investing in my first private equity investment at age ~25. I had to be an accredited investor and earn over $200K, which I did not at the time. I invested $70K anyway b/c I believed I would make over $200K by the time the investment paid out and I knew all the risks. I did end up making over $200K eventually, but boy… investing $70K when I was making less than $200K now seems like a lot! A more appropriate amount would have been $10K – $20K.
The investment did finally pay out 10 years later… but only at about a 4% compound annual return. Better than nothing given during this time, we went through a large correction and a large bear market.
Accredited investor is either income OR net worth. Not both.
“In addition, investors must be accredited, have a yearly income of $200,000 as an individual or $300,000 if married. Finally, the minimum requirement is for an investor to have a net worth of at least $1 million, exclusive of their home.”
This wants both. Do they really care or just if you qualify under SEC 501 Reg D?
I could have $0 income with a net worth of $5M and a $50K investment is 1% of my net worth. Not the end of the world if I lose it. Not a game changer either if it makes the expected IRR.
If you don’t have at least 5% into something it doesn’t matter much up or down. Your asset allocation didn’t really change.
Let me double check. Should be easy to clarify. I’m pretty sure it’s either or and someone with a $5 net worth but $0 income is still eligible.
Hi NHT,
David from FarmTogether here. Thanks for the question and apologies for any confusion – we do not require both the income and the net worth standards to be met. An investor can qualify for accreditation through a number of ways, but most often, we see accreditation based on a single net income of $200,000 or a combined net income of $300,000 OR a net worth of $1 million excluding the value of the investor’s primary residence.
Regarding your point on climate change, it is certainly a risk we consider and one we underwrite for. The team has academic experience in atmospheric science and climate, as well as industry experience in navigating California’s new riparian rights regulation, the Sustainable Groundwater Management Act (“SGMA”). We actually believe our knowledge here gives us a competitive advantage.
Technology risk and opportunity is always present, and the Dutch have been at the forefront of innovation in agriculture for centuries (I believe one of the first or the first forward contract was on Amsterdam tulip bulbs in the 17th Century). We look to embrace technology on our properties and believe those who do will outperform those who remain opposed to innovation.
At the end of the day, we are excited about the asset class and believe the opportunity to bring investors 10-15% net IRR opportunities, which provide great diversification and are uncorrelated with virtually every major asset class.
If you have any other questions or would like to learn more about our offerings, feel free to reach me at david@farmtogether.com
Best,
David