As the global population and the need for food increase so too does the need for farmland. Thanks to the power of Supply and Demand, the price of farmland is only going up. AcreTrader in Fayetteville, AR, is now making it possible for people to own a piece of the farmland.
Why is farmland a good investment?
Farmland has historically been a high-returning investment with impressively low volatility. As an asset class, farmland has had very little correlation with other major asset classes, which has made it a great diversification tool to an investment portfolio. Since 1990, farmland has also outperformed most major asset classes, including major stock indexes, providing investors an average annual return of almost 12 percent. It is important to note that farmland has historically produced investor returns from two key sources: 1) increases in land values and 2) annual dividends from farmers paying rent. Each of these can fluctuate from year to year, but when combined, the total returns on farmland have been positive every year since 1991.
How accessible is getting into farmland?
Before AcreTrader, there were three main avenues to gain exposure to the asset class. Private equity funds, REITs (real estate investment trust) and outright ownership of the land. While each provide solutions for investing in farmland, each has potential drawbacks. Investing in farmland with AcreTrader provides investors the benefits of including farmland in an investment portfolio while providing much lower barriers to entry than have historically been available. We are democratizing the farmland investment process by providing users access that would otherwise be unavailable.
What’s the average investment level to get into owning farmland?
The average investment level depends on the avenue which an investor is utilizing to invest in the asset class. If an investor wants to purchase land outright, their individual preference would be the largest determining factor. A typical investment in purchasing a farm could be $250,000 or more.
With AcreTrader, investors can invest as little as $5,000-$10,000 in an individual offering. This can be done in minutes online with AcreTrader taking care of the hassles like administration, management, payments, etc.
Talk about what this means for farmers. What sort of feedback are you hearing from them?
AcreTrader provides farmers a new avenue for access to capital. We have been truly surprised at the amount of inbound interest that we have from individuals looking to list a farm through our platform.
In many cases, if someone is looking to sell farmland, it is purchased by a neighbor or someone in their local community. Those land sales are typically made without the involvement of a broker or an entity like AcreTrader. However, in the case that a farmer in the local community is not interested in purchasing the land, AcreTrader offers a platform with thousands of investors who could be interested in purchasing the farm – adding a liquidity opportunity not previously available. In addition, we work with existing farmers that want to expand their farmed acreage by helping to acquire nearby parcels.
If the seller is interested in farming the land, we can offer flexible lease-back arrangements and continued access to the land.
This is an interesting model for investing in land. Do you see this model continuing to grow?
Yes. Our team has bet their careers on exactly that. We have seen billions of dollars invested through crowdfunding into commercial real estate and we believe that farmland investing will also see significant growth online.
Obviously, with a growing population globally, we will need to continue to produce more food to feed that population. What does that mean for the farmland market?
There are three acres of U.S. farmland disappearing every minute, according to the American Farmland Trust, mostly due to development. As the world’s population continues to expand, so will the demand for food. This simple supply (fewer acres) and demand (more mouths to feed) would suggest that farmland can continue to increase in value over the long term.
What do you see the farmland marketplace looking like 20 years from now?
Currently, farmland is a $3 trillion asset class in the United States alone. That is widely inaccessible for most investors. Similarly, there are trillions of dollars invested in the market or sitting in cash, looking for alternative asset classes. We expect to play a significant role in the coming transformation of transparency, liquidity, security and access to farmland as an asset class.
$25 billion in global farm funds has been raised as private equity since 2007.
In order to feed the expected global population of 10 billion in 2050, farmers will need to produce more food than they have in the last 250 years combined. The amount of arable land in the U.S. is decreasing, which means the value of farmland will increase.