How to invest in farmland

Summary 

• Farmland investing can be done by directly purchasing land or by investing indirectly through REITs, ETFs, stocks, and fractional share ownership.
• Investors may choose to invest in farmland to diversify their portfolios, hedge against inflation, and generate income.
• Farmland investing can be risky and capital- and time-intensive. Unbiased can connect you to a financial advisor to guide you through all your alternative investment options. 

What is farmland investing?

Farmland investing is the strategic investment in agricultural land for profit. Investors purchase farmland directly, or seek investment through indirect vehicles, such as REITs, ETFs, stocks, and crowdfunding platforms. Returns come in the form of income from land rent and appreciation of the property.  

Investors may choose to invest in farmland to diversify their portfolios, hedge against inflation, and generate income. It’s also attractive because you own a physical asset that holds value. 

This article covers the different ways you can invest in farmland, how it works, the advantages and disadvantages, and what kind of returns you can expect. A conversation with a financial advisor can help you determine whether or not it belongs in your portfolio. 

Ways to invest in farmland

The main ways to invest in farmland include direct ownership, REITs, crowdfunding platforms, and farmland-focused ETFs and stocks. 

Farmland REITs

A REIT (real estate investment trust) is a company that owns and operates income-generating properties. They’re publicly traded, and investors can share in the profits. A farmland REIT is a REIT focused on generating income from farmland. 

There are currently two farmland REITs that you can buy through your brokerage.

• Farmland Partners (FPI): Farmland has a portfolio of more than 70,000 acres over 190 farms. Farms produce both specialty crops, such as nuts and avocados, as well as row crops that include corn, soybeans, and cotton. 
• Gladstone Land (LAND): Gladstone has a portfolio of 99,000 acres over 144 farms that produce 60 types of fresh produce and permanent crops, including berries, vegetables, almonds, pistachios, and vineyards. 

Farmland crowdfunding platforms

Farmland crowdfunding platforms like AcreTrader and FarmTogether allow for fractional ownership. You own a portion of the investment without having to manage it. Your investment does entitle you to a portion of the profits from income and property appreciation. 

However, they’re not open to everyone. You must be an accredited investor and meet the SEC’s definition. Some examples of what that means include:

• An annual income over $200,000 (or $300,000 per household).
• Net worth greater than $1 million excluding the value of your primary residence.
• Invest as a bank, insurance company, registered investment advisor, etc. 
• Invest as an employee benefit plan, a trust, charitable organization, partnership, or company with total assets over $5 million. 
• Is a “knowledgeable employee” of certain investment funds or holds a valid series 7, 65, or 82 license. 

Direct ownership

Owning farmland directly requires a substantial capital and time investment. To produce income from crops, the farmer is responsible for the upkeep, including tilling the fields, planting the crop, controlling weeds and pests, harvesting, transporting, hiring workers, and selling the crop. 

Directly owning farmland can result in income when a farmer sells a crop and pays you rent income on the land. 

How much you’ll earn on the investment depends on how involved you want to be, what the crop is, market and geopolitical conditions, and who the farmer is. Much of the success of your investment depends on how skillfully the farm is managed.  

There are several ways you can go about managing your land, including custom farming, sale leaseback, and leasing to a tenant.  

Custom farming: You take on the management and operations of running a farm yourself. The expenses and profit are all yours. 

Sale leaseback: You buy a farm and lease it back to the previous owner. The landowner is typically paid a percentage of the profit of the crop as rent. 

Leasing to a tenant: You own the land, but lease it to a farmer. The landowner is typically paid a percentage of the profit of the crop as rent. 

Farmland ETFs and agricultural stocks

If you’re interested in exposure to farmland without the risk and commitment of direct investment, investing via farmland and agricultural ETFs and stocks is an option. 

That may include individual stocks of agriculture-related businesses. Examples include John Deere, Corteva, Nutrien, Archer-Daniels-Midland, Bunge, and Tyson. 

This is a list of the largest agricultural ETFs listed in order of total assets. Symbols, name, commodity, and year-to-date returns are also listed. 

Source: ETF Db 

How much do you need to invest in farmland?

How much you need to invest in farmland depends on the type of investment. 

• Direct investment: Often, lenders require a 15% to 20% down payment, though there are federal loan programs where you may be able to put down as little as 5%. Beyond the initial investment, you’ll need capital for ongoing expenses. 
• Stock: The price of the stock, or if your brokerage offers fractional investing, as low as $1. 
• ETF: Fractional shares start at $1.  
• REIT: Price of the share, or $1 for brokerages that offer fractional share trading. 
• Fractional ownership: $10,000 to $15,000, depending on the investment. 

What are the pros and cons of investing in farmland?

While investing in farmland is an interesting alternative investment, there are considerable advantages and disadvantages you’ll want to evaluate. For your financial portfolio, be sure to evaluate your investment with a professional. 

Pros

• Diversifies portfolio: Farm income isn’t directly tied to the market, which can help diversify your portfolio. 
• Ownership of real assets: Farmland ownership is a tangible asset that holds value.  
• Appreciates over time: Farmland can increase in value over time. 
• Income potential: Directly owning farmland can result in income when a farmer sells a crop and pays you rent income on the land. 
• More affordable: Fractional ownership, especially, may be more affordable than many other investments you’re looking at. 

Cons

• High upfront costs: Direct ownership of farmland comes with high upfront costs, which can vary widely depending on where you buy land and how historically profitable crops grown on the land have been. 
• Hard to sell: It may be difficult to sell your farm. Farmland isn’t very liquid.
• Difficult to make a profit: If you choose to farm or rent to a farmer, profits may be difficult to come by. 
• Management: With direct ownership, it may be difficult to find someone reliable to farm the land for you. 

Is farmland a good investment?

Farmland investments are an interesting alternative investment to consider. They’ll diversify your portfolio with returns that aren’t directly tied to a market, and offer the chance to have physical ownership of an asset. 

But it’s not for everyone. It’s time- and cash-intensive, even if you choose to rent to someone else. 

That said, AcreTrader estimates the average annual return for farmland at 12.75%. However, it does vary drastically by state and industry. 

The top states for returns are as follows (with average price per acre included):

The bottom line

Farmland investing is complex, and you may need a second head to help you understand the money side of it. 

A financial advisor can help you evaluate this type of investment and whether or not it belongs in your portfolio. 

Unbiased can connect you to a financial advisor today and get all your questions about farmland investing answered.