FarmTogether Review: Invest in Farmland to Diversify Your Portfolio
Find out how a unique platform is making it easier than ever to invest in farmland.
Building wealth isn’t always necessarily about following traditional advice.
We know that investing in stocks, bonds, and index funds are proven strategies that people have used to amass wealth over the years. But what about those of us who are searching outside of the box for new and lucrative opportunities to make passive income?
If you’re looking for an alternative investment to add to your portfolio, farmland could be an excellent option. Until recently, investing in farmland just simply wasn’t a practical option for most people.
Thankfully, a company by the name of FarmTogether is changing that by making it easy to benefit from the strong upside of investing in farms without the usual hurdles that come with it.
What Is FarmTogether?
The crowdfunding approach has become a very popular way to invest in real estate and FarmTogether, founded in 2017, uses the crowdfunding concept and applies it to farmland. If you’re interested in investing in farmland but you don’t have a million dollars or more to buy a large farm and you don’t have the time or desire to manage a farm, crowdfunding is an ideal solution.
With FarmTogether, accredited investors can get an ownership interest in a specific farm for as little as $15,000. Your investment will generate passive income as the farm is rented out, and when the land is eventually sold, you’ll receive (ideally) a nice return on your investment.
To be an accredited investor, you will need to meet one of the three qualifications listed below.
- Income that exceeds $200,000 in each of the past two years (or $300,000 for those who file jointly).
- Net worth of at least $1,000,000, excluding your primary residence.
- Hold a series 7, Series 65 or Series 82 license
Why Invest in Farmland?
Obviously, there are many different investment options out there. Although investing in farmland may not be the first option that comes to mind, there are some very compelling reasons why you might want to consider adding farmland to your investment portfolio.
Strong Historical Performance for Investors
When you’re considering a particular investment, one of the first things you’ll check is past performance. While FarmTogether is a relatively new platform, we can look at the historical returns of farmland investing in general to see that it has produced excellent returns for investors, averaging more than 10% per year.
The chart below shows that investments in farmland have outperformed other investment types like stocks, bonds, real estate, and timberland over a 20-year period.
Chart courtesy of FarmTogether
The returns from farmland are the result of appreciation as the value of the land increases, as well as income from renting the land out to farmers.
These historical returns are fairly consistent with the target internal rate of return (IRR) listed for most of the offerings available through FarmTogether. The deals typically range from about 7% - 13% target IRR.
If your portfolio consists mostly of more traditional investments like stocks, bonds, mutual funds, and ETFs, an investment in farmland could be an ideal way to add some diversification.
Low Correlation to the Stock Market
While we all know that investments in the stock market can be volatile, the ups and downs of the market can also impact many other types of investments as well. Some alternative investments are more closely correlated to the stock market than others.
Overall, farmland offers a very low correlation to the stock market and the value of farmland is not likely to be significantly impacted by swings in the market. If you’re looking for a stable and predictable investment, farmland could be a good choice.
Farmland Will Always Be Needed
Many of us don’t give a lot of thought to where our food comes from. We simply go to the grocery store when we need something. However, the empty shelves in the grocery stores that we all experienced in 2020 served as an eye-opening reminder that farms are essential for our lifestyle and for our survival.
The need for farmland will never go away, and the supply is constantly dwindling due to development that keeps encroaching and taking away farmland. As a result, the value of farmland is likely to increase in the future.
Because farmland will always be needed, it’s thought to be somewhat of a recession-proof investment. It provides the potential for a strong return with a relatively low level of risk.
How it Works
There are two different ways to invest with FarmTogether:
- Crowdfunded Farmland Offerings
- Sole Ownership Bespoke Offerings
- US Farmland Fund LP
The US Farmland Fund LP and sole ownership options are available for those who are willing and able to invest between $100,000 and $5,000,000. The vast majority of investors will participate in the crowdfunded offerings, so that’s what we’re focusing on for this review.
The crowdfunded offerings make it possible for investors to have an ownership interest in a particular farm with an investment as low as $15,000. You won’t be investing in a pool or a portfolio of properties, you’ll be investing in a particular farm.
The typical holding period will be at least 5 years, which means the farmland will be rented out for several years (producing rental income for investors) and then sold when the market conditions allow for an ideal selling price. When the farm is sold, investors are paid and the investment is complete. There is no way to know exactly how long an investment will last because it depends on the value of the land and when it can be sold for a desirable price.
Investment opportunities are listed on FarmTogether’s website. You can create a free account, which generates your investor profile. Once you’re logged in, you’ll be able to invest in any offerings that are currently available.
Plenty of details are provided for each investment opportunity. You’ll be able to see:
- The size and location of the farm
- Target net IRR and net cash yield
- Target hold
- Crops that are farmed
- Other relevant details related to the farm and the investment
The offerings are open only for a limited time and they tend to be fully funded rather quickly. This means that if you’re interested, you should keep an eye on the available offerings and be willing and ready to take action when you see something that would be a good fit for you.
One of the benefits of investing through FarmTother is the fact that all of the offerings that make it onto the platform have been thoroughly vetted by the experts at FarmTogether. Only the opportunities they deem to be the best will make it onto the platform. While that doesn’t guarantee that any investment will be successful, it does provide some added peace of mind for those who don’t have experience with farmland investing.
Each investment offering is its own legal entity, usually an LLC. When you invest, you’re purchasing shares in that LLC. Investors receive cash distributions quarterly or annually from rental income. When the property is sold, investors receive their share of capital gains and the investment is complete.
FarmTogether’s approach involves finding excellent value through off-market property acquisitions and then making improvements to improve the value of the land.
FarmTogether Pros and Cons
Any investment you consider will come with some pros and cons, so let’s look at the specifics for FarmTogether.
- Potential for double-digit % returns
- Low correlation to the stock market, adding diversity to your portfolio
- Offerings that have been vetted by the team at FarmTogether
- Opportunity to invest in farmland for as little as $15,000
- Cash distributions from rental income plus capital gains when the property is eventually sold
- Excellent online platform for investors
- Open only to accredited investors
- Minimum investment of $15,000 is low for investing in farmland but high compared to some other types of investments
- Low level of liquidity*
In terms of liquidity, investments in farmland, like other types of real estate investments, are generally illiquid. FarmTogether will attempt to find an investor for you if you need to get out of an investment early, but you may take a loss. In general, you should only invest money that won’t be needed for the next 5-10 years.
*FarmTogether has tested a pilot secondary market that was successful and has plans to roll out liquidity offerings for all deals moving forward.
There is a lot to like about farmland investing and FarmTogether is making these types of investments more accessible than ever. If you’re an accredited investor and you’re looking for a strong alternative investment to add to your portfolio, be sure to check out FarmTogether’s website and learn more.
The opinions expressed in this article are for general information purposes only and are not intended to provide specific advice or recommendations about any investment product or security. This information is provided strictly as a means of education regarding the financial industry.