How to Invest in Farmland (Without Buying a Farm)

How to Invest in Farmland (Without Buying a Farm)

You can invest like Bill Gates and Michael Burry by buying farmland. Here are the best ways to add farmland to your portfolio.

How to Invest in Farmland (Without Buying a Farm)
Liz Aldrich

Updated Oct 28, 2022

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Farmland

Farmland

Stock Trading

Stock Trading

Real Estate

Real Estate

Whether you've always dreamt of retiring on your own farm or you simply want to add another alternative asset to your portfolio that can help stabilize your investments, a farmland investment is more accessible than ever.

From farmland ETFs, stocks, and REITs to new crowdfunding platforms that let you invest in a portion of an operational farm that's already generating revenue, the options for investing in farmland are as abundant as the crops these farmers produce.

Farmland has been considered a secure, stable investment for decades, and farmland investing still has benefits in 2022.

Read on to learn how you can make money with a farmland investment, how to invest in farmland without buying a farm, and whether or not farmland is a good asset class to invest in 2022.

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How do you make money with farmland?

If you're wondering how to invest in farmland, you're probably also trying to figure out how you make money with farmland. There are two main ways you make money with a farmland investment: capital appreciation and regular income.

Capital appreciation occurs when the value of the land you hold increases. If you buy a plot of land for $100,000, hold it for five years, and then sell it for $150,000, that's a return on investment (ROI) of 50% and an annualized ROI of 8.45%. For example, the value of U.S. farmland increased by 7% in 2021 compared to the previous year.

In addition, you can also generate regular passive income with farmland. This can come in several different forms: crop sales, rental income, or dividends. You'll earn a profit on crop sales if you own a farm or a portion of a farm, or if you rent your land out, you'll earn rental income

Farmland investing can be done through farmland stocks, ETFs, or REITs, all of which could potentially earn you dividends. No matter how you're investing in farmland, it is the most unique type of real estate investment because it enables you to gain exposure to other asset classes, namely agricultural commodities.

Is farmland investing worth it?

Farmland investing comes with several major diversification benefits. Agricultural land is one of those sought-after low-risk, high-return investments that manages to offer returns comparable to the stock market in the long run while being significantly less volatile.

If you'd invested $1,000 into Iowa farmland in 1960 and another $1,000 into the S&P 500, your farmland investment would be doing better today than your stock market investment.

On top of being a relatively stable investment, farmland is also an uncorrelated asset. This means it doesn't follow the same patterns as the stock market, so if your stocks tank during a market crash, there's a good chance your farmland returns could help make up for your losses in other areas. 

What's more, farmland can act as an inflation hedge. It's positively correlated with inflation, meaning farming sector returns tend to go up when goods' prices increase, making it a popular way to keep the profit rolling into your portfolio when inflation starts eating away at your returns.

E-I-E-I-O

Are you investing in farmland?

Another huge benefit of investing in farmland is passive income. In addition to land value appreciation, you can also enjoy the additional stream of regular income that comes from crop sales and/or rental income.

Of course, no investment is perfect. Buying farmland requires a large initial investment and a good deal of agricultural knowledge to get started. What's more, managing a farm—even if you're renting the land out to someone else—is far from hands-off. Luckily, if you're looking for a passive investment with fewer barriers to entry, there are other ways to invest in farmland without having to buy a whole farm.

How to invest in farmland without buying a farm

Farmland investing without actually owning farmland can be done in four main ways: 

  • Farmland stocks 
  • Farmland ETFs
  • Farmland REITs 
  • Farmland crowdfunding platforms.

Here's what you need to know about each method.

Farmland stocks

You can invest in farmland through the stock market by buying shares in a public company with high levels of exposure to the farming sector. These are companies producing agricultural products or involved in agribusiness. Farmland stocks are appealing because they often offer consistent returns, even during economic downturns, thanks to the stable demand for farmland and agricultural products.

Farmland ETFs

If you want to automatically diversify your farmland holdings, you can also invest in the best farmland ETFs. These ETFs are made up of a diversified portfolio of futures contracts with heavy exposure to the agricultural industry. While they don't hold farmland directly, these funds track indexes with holdings in various popular agricultural commodities like corn, wheat, sugar, coffee, soybeans, cotton, cattle, livestock, and more. Keep in mind that futures-based ETFs can be risky

Farmland REITs

If you want to invest more directly in farmland rather than the products it produces or the companies that support it, you can invest in farmland real estate investment trusts (REITs). A REIT allows you to purchase shares in a diversified fund made up of real estate investments, so publicly traded farmland REITs are funds invested in various land real estate. This land is rented out to farmers who generate regular revenue, so there's potential to earn dividends with REITs.

The most popular real estate investment funds with farmland exposure are:

1. Gladstone Land Corporation (LAND) 

• Owns 140+ farms spread across 13 different states

• Price:

• Market capitalization:

Net Profits up 196.82% YoY (June 2022)

• Dividend yield of 2.79% (Sept. 2022)

 

2. Farmland Partners Inc. (FPI)

• Owns 150,000+ acres of land across 16 different states

• Price:

• Market capitalization:

Net Profits Up 181.14% YoY (June 2022)

• Dividend yield of 1.52% (Sept. 2022)

 

You can buy farmland stocks, ETFs, and REITs with most stock brokers. The best trading apps and online brokers, like Stash, are now commission-free and have user-friendly mobile apps that make investing in farmland quick and easy.

Stash

4.3

Stocks

Farmland investing platforms

While buying shares of farmland stock, ETFs, and REITs can mirror the benefits of a farmland investment, they don't always track the same patterns as investing in farmland directly. Often, these funds tend to track the stock market and other asset classes more closely than the underlying farmland asset class, which reduces the diversification benefits of investing in farmland.

Thankfully, there are now crowdfunding platforms that make direct farmland investing easy since they manage the land for you.

FarmTogether

FarmTogether lets investors choose specific farms or crops that are already being managed and generating revenue. You can then invest in a portion of that farm or crop with a minimum investment of $15,000, and you can earn returns from land value appreciation and farm income. FarmTogether is currently only open to working with accredited investors.

FarmTogether

4.7

Farmland

Acretrader

Similarly, AcreTrader is a platform that gives accredited investors access to institutional-grade U.S. farmland. Farmland listed on AcreTrader is expertly vetted, and their process is so selective that 99% of land parcels they review aren't chosen. They handle all the administrative and managerial tasks required to make your farmland investment possible. Start with the $10,000 minimum investment to earn up to 12% target returns.

Acretrader

Farmland

Is agricultural land a good investment in 2022?

Farmland has been considered a secure, stable investment for decades, and farmland investing still has benefits in 2022. As cities expand and land developers take over every last acre of open space, farmland is becoming an increasingly scarce asset class. That scarcity, paired with the necessity of farmland (we all have to eat), makes now a great time to invest in farmland.

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