This post is sponsored by FarmTogether. All opinions are my own.
Investors are often looking for alternative investments that will provide some diversification for their portfolio and, in some cases, allow for potential greater overall returns. Real estate is a common type of alternative investment and the growth of real estate crowdfunding has made it easier than ever for the average person to invest in real estate without the need to own or manage property.
While most real estate investments focus on commercial real estate, rental properties, or flips of residential properties, farmland is another type of real estate that has produced very strong returns for investors historically. The major downside to farmland investing is the fact that it hasn’t been accessible to most people in the same way as real estate or stocks and bonds.
What is FarmTogether?
FarmTogether is a crowdfunding platform that focuses exclusively on farms and agricultural land, making farmland investments accessible to more investors than ever before. FarmTogether purchases farmland with a syndicate of investors and the land is then leased to or contract-operated by experienced farmers.
As an investor, at this time you’ll be investing in a specific property, not a pool or portfolio of properties. Each investment offering is a separate Delaware LLC and investors become shareholders in that LLC, making investors fractional owners of the farmland.
FarmTogether’s approach is to buy off-market farmland below market value. Investments aim to produce returns in two ways:
- Income from farmland
- Appreciation and the eventual sale of the land
The company was founded by Artem Milinchuk who serves as FarmTogether’s CEO. Milinchuk has more than a decade of finance experience in food, agriculture, and farmland. FarmTogether’s first investment closed in 2019.
The investments at FarmTogether are currently only available to accredited investors. To qualify as an accredited investor, you must have an annual income of at least $200,000 ($300,000 for joint filers) for the past two years, or a net worth of at least $1,000,000 excluding your primary residence.
How it Works
Before an opportunity becomes available to investors through FarmTogether’s platform, the FarmTogether investment committee reviews and performs due diligence on a large number of properties. Some of the due diligence is done internally, and they also hire experts to conduct tests related to aspects like the soil, tissue, water rights, and the farm’s potential for capital improvements. If the committee is confident about all aspects of the opportunity, it will become available to investors through FarmTogether’s website. This way, even if you may not necessarily know if almonds or pistachios are what you want, you’ll know that every opportunity still passed a rigorous test.
Potential investors are able to view the details of any open investment offering through FarmTogether’s website. Details will include the location and size of the farm, specific crops that are farmed, the anticipated cash yield, the target internal rate of return (after fees), target hold, and the minimum investment. Offerings will be available until they are fully funded or until the announced deadline for investments is reached. So far most deals have sold out before the deadline. In a rare case that a deal isn’t funded your funds would be fully returned to you. Typical deal timeline is 30-60 days.
Details like the target hold can vary depending on the offering, but they are typically around 7-10 years. Minimum investments will also vary depending on the offering, but they can range from $10,000 – $25,000.
Once you’ve invested, you’ll receive regular updates on your investment from FarmTogether. You’ll also receive cash distributions from the rental proceeds on either a quarterly or annual basis, depending on the harvest sales schedule or lease agreement.
At the end of the target hold period, FarmTogether will look to sell the property at a profit, and when that happens, investors will receive their share of capital gains from the sale. The target hold period of each offering is a rough guide and the actual time of sale will depend on factors that influence the sale price of the property. FarmTogether’s goal is to maximize the appreciation by purchasing land below market value and benefiting from things like inflation and decreasing supply of farmland.
At the time this article is being written, there is one offering currently available. The opportunity involves investing in a 53.5-acre almond and orange farm in California. The target hold is 7 years with an anticipated cash yield of 11.3% and a target IRR of 11.4% (net of fees). The minimum investment for this offering is $10,000.
Pros of FarmTogether
Here are some of the reasons why you may want to invest with FarmTogether.
Diversification of Your Portfolio
If you’re looking for an alternative investment with a low correlation to the stock market, farmland could be an excellent choice.
Historical Performance of Farmland Investing
Although FarmTogether is a new platform, you can look at the historical performance of farmland as in investment. The graph below (provided by FarmTogether) shows the annualized returns of farmland compared to timberland, real estate, stocks, and bonds.
Historically, farmland investments have outperformed stocks and bonds over the past four decades (source). And even with returns in the low double digits, farmland investing has not proven to be high-risk or to experience significant volatility.
As an investor, you’ll receive cash distributions quarterly or annually, making your investment a great income producing asset. Many investors are looking for options that will provide passive cashflow.
Fractional Ownership of Farmland
In the past, your options were fairly limited if you wanted to invest in farmland. Most people don’t have the capital required to purchase a farm on their own, nor do they have the desire to take on a project of that size. With FarmTogether, you can become a fractional owner of a farm. This makes the opportunity to invest in farmland much more practical and accessible.
Produces Returns Through Cashflow and Appreciation
Investors can earn returns through lease payments as well as through appreciation. The lease payments produce cash flow that leads to recurring distributions for investors (great option if living off dividends is your goal), and the appreciation can result in larger capital gains when the property is eventually sold.
FarmTogether performs due diligence to find investments that they believe will produce solid returns in both of these areas.
Cons of FarmTogether
Like any other investment opportunity, there are also some cons to investing with FarmTogether.
Open to Accredited Investors Only
The most significant con is the fact that investments through FarmTogether are available only to accredited investors. If you don’t meet the requirements to qualify as an accredited investor, you won’t be able to invest through FarmTogether.
Relatively High Minimum Investment
Compared to some other investment opportunities, the minimum investment requirements at FarmTogether can be on the high end. The minimum will vary depending on the offering, but generally, it will be $10,000 – $25,000.
Although the minimum is higher than some other types of investments, it’s much lower than the cost of investing in farmland on your own.
Short Track Record
Although farmland has historically proven to be a very strong investment, FarmTogether’s track record is limited at this point. Their first offering closed in 2019, so there is not much of a track record to analyze. However, the leadership team of FarmTogether has very strong experience in the industry prior to the formation of FarmTogether.
The Risks of Investing in Farmland
It’s always good to consider the potential risks of any investment that you are evaluating. The major risks of farmland investing involve:
- Overpaying for the land
- Overestimating potential rental income
- Liquidity issues
If you overpay for the land, it will be very hard to produce a return through appreciation when the land is eventually sold. FarmTogether addresses this risk by performing extensive analysis to determine the market value of any farm that is being considered, and then they only move forward with a small percentage of the properties they evaluate. In order for an investment offering to become available through FarmTogether’s platform, the investment committee of FarmTogether must be convinced that the property is being purchased well below market value.
Likewise, FarmTogether also addresses risks related to rental income through extensive due diligence by performing tests to be comfortable with the land that is being purchased. FarmTogether also partners with top-quality farmland operators with the goal of adding stability.
Liquidity is something that should be considered before making an investment. With target hold periods of around 7-10 years, this is not a short-term investment. FarmTogether states that they will attempt to help investors find a buyer before the target hold period if needed. However, there is no guarantee that an investor will be found and you may wind up selling the investment at a loss. FarmTogether is aiming to offer a secondary liquidity market in 2021, which will help to address this concern.
Who Is It For?
The opportunity to invest through FarmTogether may be a good fit for you if:
- You are an accredited investor
- You are looking for a long-term investment (7-10 years) and won’t need the money before then
- You are looking to diversify your portfolio
There is a lot to like about investing in farmland. The historical returns are very strong, risk and volatility are relatively low considering the returns, and there are strong indications that farmland will become even more valuable in the future (increasing population, decreasing availability of farmland).
Many of the details in this section have already been covered at other points throughout the article, but here are all of the most important details in one place.
- Investments through FarmTogether are open to accredited investors only.
- Minimum investments range from about $10,000 – $25,000, depending on the offering.
- Target holds are usually 7-10 years.
- Investors own a share of a particular farm.
- Fees vary depending on the deal, but details can be found on the investment opportunity page of the FarmTogether website.
- Investment opportunities are available for international investors.
- Investors are paid cash distributions monthly or quarterly depending on the offering.
- Offerings will be available for a limited time on the FarmTogether website. Once the offering is fully funded or the deadline is reached, the offering will be no longer available.
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