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invest in farmland

Why Farmland Is A Good Investment

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While many current media stories relate the plight of the American farmer, savvy investors with long-term goals know that investing in farmland can actually be quite a lucrative endeavor. A sizable tract of open farmland can become something very profitable so long as you do your due diligence and enlist the aid of a qualified real estate agent who is experienced in doing farmland transactions.

What to Know Before Investing in Farmland

Purchasing land is not as easy as securing a mortgage for a home. A land loan typically needs to be paid within 3-5 years, and both the down payment and interest rates are higher than that of a mortgage as well. Experts recommend paying cash for a land purchase if you are able.

It’s also important to note that a farmland investment is different than a regular land purchase. You’ve got to have the knowledge and experience to be able to properly maintain the site for maximum profitability (or at least the ability to hire someone who possesses both).

If you plan on living on the land yourself, you’ve also got to be prepared for a significant lifestyle change and any environmental factors that could affect your crops. That being said, if you’ve got the fortitude and resources for farmland investing, there are a number of ways in which you could benefit from this type of real estate purchase.

invest in farmland

Benefits of Investing in Farmland

When you own farmland, you have several options for making a profit. The most common is, of course, growing and selling your own crops. An alternative to this would be leasing the farmland, saving you a lot of the work while still allowing you to reap some of the reward.

You aren’t necessarily limited to keeping the land for strictly farm purposes, either. Assuming zoning laws will allow it, there isn’t much you can’t do with your own private property. Just make sure to work with a qualified land agent so you know the property’s highest and best use so you can make informed decisions about it.

Farmland Is Exempt From Certain Taxes

If the land is utilized as a farm, the income you generate is exempt from the wealth tax. Additionally, mortgage interest on farmland can be deducted from your taxes.

Government Assistance

There may also be government grants available to you for growing crops and purchasing livestock, which could be another source of lucrative income.

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Why It’s a Good Time to Invest in Farmland

The rising food demand due to a growing global population is proving good for farmers. Subsequently, many nations are seeking to purchase large tracts of farmland to better supply their own countries with food at a reasonable cost.

As a result, farmland is a red-hot investment right now, and, according to Marketwire, has appreciated at a rate 2% higher than inflation since the 1950s.

Historically, farmland also offers higher total returns than many other types of real estate investments, and also exhibits a much lower level of risk. That’s because farmland continues to produce product that are in high demand and likely always will be: meats, grains, fruits, and vegetables. Additionally, even when the market is fluctuating farmland typically escapes such volatility and continues to appreciate.

While there is, of course, no solid guarantee that your farmland investment will yield amazing results through crops or property leasing, you still have the chance to build equity. Over the last decade farmland prices have nearly doubled in most areas of the country, giving you the opportunity to at least make a sizable profit simply by owning the agricultural land and selling it at a later date to another investor.

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In Conclusion

Globally, farmland today is a $9 trillion market. Farmland has remained a solid investment option for over 50 years, with high returns and mitigated little risk. Additionally, because the market is often confusing and at times daunting for those without sufficient knowledge of how to navigate it, there is a lot of untapped potential for investors who take the time to properly research the market and retain the aid of a realtor with experience in farmland purchases.

Farmland also makes a great addition to any investment portfolio, as it has proven resistant to inflation and is a sizable asset that will retain its worth. Farmland investing can be quite costly from the initial outset, but if you aren’t intimidated by the costs or any other potential barriers, it can be truly worthwhile investment.

Farmland

The Basics of Farmland Investing

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Despite concerns in other areas of the economy surrounding the COVID-19 outbreak, now is still a good time to invest in farmland because the market is neither too saturated or thin. In fact, many investors are moving to investing in farmland as a safe haven. Plus, farmland has consistently yielded returns greater than 10% over the last five decades – so it is a proven good long-term investment.

If you’re interested in investing in farmland, you will need to learn the basics first though so you can make smart choices.

Top Reasons to Invest in Farmland

Investors point to a lot of different reasons when they explain why they choose to put money in farmland real estate. Some of the most popular reasons include:

  • The option to hold onto land until it becomes profitable to sell.
  • Transitioning the land to suit an emerging, high-profit market like organic produce or hemp.
  • Making money by leasing it to farmers.
  • Adding diversity to investment portfolios.
  • Scarcity. They aren’t making any more of it.

With the right approaches, farmland investing can give you an exceptional, one-time profit or provide a long-term source of income. Either way, it’s a relatively stable option that fits well into most portfolios.

What to Consider Before Investing Farmland Real Estate

Like any investment, buying farmland real estate comes with some risk. That means you should do some research and hire an expert land agent in your area before you invest in farmland. Learn about the following factors to make sure you choose land that’s likely to increase in value.

The Land’s Previous Uses

A piece of land’s previous uses can play a crucial role in your investment. If a former owner used chemical fertilizers, you might find it challenging to qualify for organic farming. If the land has sat unused for a decade, you may need to add a lot of nutrients to the farmland soil before you can grow crops.

The Soil’s Acidity and Nutrients

Crops only thrive when they’re grown in the soil with the right acidity and nutrients. Before you invest in farmland, get a soil test that measures the acidity and amounts of nutrients like:

  • Aluminum
  • Calcium
  • Lead
  • Magnesium
  • Phosphorus
  • Potassium
  • Sulfur

Without the right levels, you will either need to grow different crops or amend the soil before planting.

farmland soil

The Farmland’s Soil Drainage

Most crops grow best in soil that drains quickly. For most plants, you don’t want standing water that contributes to rot, blight, and mold.

You can test soil’s drainage by digging a shallow hole, filling it with water, and returning the next day. If the hole still has water in it, then you probably don’t want to invest in the land.

Surface and Mineral Rights

Buying farmland always gives you rights to the land’s surface. You may not, however, have mineral rights. If a previous owner sold the land’s mineral rights, then the mineral rights are not included in your investment.

Owning mineral rights doesn’t matter for some land. If the company that owns the mineral rights decides to extract oil, natural gas, coal, or other commodities from the property, though, the excavation process will disrupt farming and can even limit the amount of land available to farm.

Determine How Your Investment Will Affect Your Taxes

Investing in farmland could increase your tax burden. In most cases, you will need to pay property taxes. You may also need to pay state and federal taxes on income that you earn from the land.

farmland investing

Ways to Get Started in Farmland Investing

If you have a large amount of money, then you can start investing in farmland almost immediately. You just need a qualified land agent to help you find farmland real estate that will earn money.

Most people, however, don’t have thousands of dollars to buy acres of land. That doesn’t mean you cannot benefit from investing in farmland real estate, but you may need to take some additional steps.

Know How Much You Can Spend

You need to determine how much money you can afford to spend on farmland. Even if you need to borrow money, a sizable down payment should increase your profit potential.

Find a Funding Source

Traditional lenders often charge high interest rates that make it difficult for farmland to earn profits. If you get a low interest rate, then a conventional loan might work well for you. Keep in mind that you have alternatives, though.

Crowdfunding gives you a low-cost way to access the funds you need to purchase farmland real estate.

You could also co-invest in land with friends, family members, or business partners.

Use a Qualified Land Agent Before You Invest in Farmland

Make sure you use a qualified land agent when investing in farmland. Land transactions require specialized expertise. One mistake could make it difficult or impossible for you to get a healthy return on your investment.

Find a land consultant in your area and make sure the agent has experience in farmland transactions. Accredited Land Consultants, agents who have earned the ALC Designation, are know in the industry as the most experienced and educated agent in the industry for assisting with land transactions.

There are plenty of good reasons to invest in farmland, but you may need help from a land agent, lawyer, and CPA to make sure you choose a piece of land that will give you a strong return for your money.

Five Things You Need to Know Before Investing In Agriculture

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Many people are hesitant to invest in agriculture, especially those that don’t have much experience in the land industry. A common assumption is that only farmers know enough about agriculture to confidently invest in it. However, agriculture can be a great investment for people of all walks of life. Before you take out your checkbook, here are five things you need to know about investing in agriculture.

1: More Than One Way to Invest

There are many ways to profit off agricultural land and you can do many of them simultaneously. Investors can make money off of the returns of the annual crops. Additionally, good quality land historically increases in value over time, so just holding the land can provide returns as it increases in value. If you want to see your investment grow faster, you can:

2: Agriculture Is A Hedge Against Inflation

Food historically increases in price over time, which allows agriculture to be a hedge against inflation. A hedge against inflation is an investment that is protected against the detrimental cost of inflation to an investment.

Future population growth is also a benefit to investing in agriculture. As the world’s population is expected to grow to 9.8 billion by 2050, there will be an ever-increasing demand for food. Global food production will need to increase dramatically to feed the growing population. This increase in demand could cause an increase in the value of crops and the land they grow on as supply decreases, providing insurance that there will be room for your investment to grow.

3: Long Term Investment

When the economy is good, like it is now at the time of this publication, people often put all their money in high-risk, high-reward stocks that offer quick and large returns. Crops need time to grow and flourish. Some crops, such as pecan trees, take three to four years to produce and often don’t reach full production potential until the tenth year. However, there will always be a steady demand for food, so this investment can add slow, steady growth to your savings. It can be easy to gravitate towards the get-rich-quick stocks, but investing in safe, slow-return stocks is important for the overall health of your investment portfolio.

4: Crop Insurance Protects Investors

With talks of trade wars and bad weather impacting the 2019 planting season, you might be hesitant to invest in agriculture. However, crop insurance was created to protect investors as well as farmers. If crops are destroyed due to natural causes or the price of the crops decline, the farmer still receives funds from the insurance so that investors can still collect their annual returns.

 

5: Diversify your portfolio

Investing in agriculture is a great way to diversify your portfolio. Much like timberland, agriculture doesn’t mimic the patterns of the stock market, giving your portfolio some much-needed protection against recessions. If you invested all your money in stocks and a recession hit, you could lose most of your investment. Agriculture is typically considered a safe, low-risk stock that can provide reliable returns and can be an excellent safety net for your financial future.

Agriculture shouldn’t be viewed as an investment only for industry insiders. Agriculture has been one of the biggest industries in America for millennia and has so much to offer investors. Investing in agriculture can be a great investment for your future.

Looking to buy agricultural land to invest in? Be sure to work with an experienced and qualified land expert in your area to find the perfect plot to invest in. If you click on the Advanced Search button, you can check the Agricultural/Farm Land option under Property Specialties to find an agent with experience in agricultural land.

About the Author: Laura Barker is a freelance writer based out of California for the REALTORS® Land Institute. She has been with RLI since October 2017.