Key Considerations To Note When Investing in Agriculture
September 21, 2020
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Diversifying your investment portfolio, especially during times of economic uncertainty, is important. One attractive option is agriculture. Agriculture is a rapidly growing industry that is always in demand. Therefore, for those who are looking for an alternative investment, it is a good idea to invest in agriculture. If an investment in this fast-growing industry is on your mind, there are a few important factors that investors should consider.
In general, farmland as an investment is going to be a long-term vehicle. Remember that crops need time in order to grow, flourish, and be harvested. For example, pecan trees take three or four years to grow and might not reach their peak production rate until their tenth year. On the other hand, there is always a demand for food. Therefore, investing in agriculture can add slow and steady growth to an investment portfolio. Something we think is a huge advantage for investors in this space is that an investment in farmland is a real estate investment. While income may be generated from the sale of crops, the value of farmland has the opportunity to appreciate substantially over time.
The weather is becoming more unpredictable with fires and hurricanes becoming ever-constant threats. Crop insurance was created to protect investors as well as farmers. Therefore, if crops are destroyed because of natural causes and the price of their goods plummets, farmers can still collect insurance money and investors can still receive their annual returns, acting as an extra security blanket. When seeking a viable farmland investment, crop insurance should certainly be a part of the equation.
There are multiple ways that people can invest in agriculture. While some people think about the value of the real estate, building improvements, and the crops themselves, farmland crowdfunding is also an option. Crowdfunding allows investors to purchase shares of farms instead of putting up large amounts of capital by buying an entire farm. In this manner, crowdfunding lowers the barrier of entry to this market, increasing investors’ access to the agricultural industry.
Finally, it is also important to take a look at the prior history of the farm. Look at their prior returns, their projected returns, and if there has been a lot of turnover in their crop production recently. This can help investors figure out what the future might hold for that investment option. In some cases, the investment could be a development project. Find out what the farmer who will be developing the property's expertise is. Have they successfully developed similar, thriving crops in the past?
Knowing who will be managing the farm is a critical element to consider when making an investment in a farming operation. It is wise to request information on the farmer's previous experience with that particular type of crop, how long have they been in operation, what their capabilities are vs. what will need to be outsourced, etc. We think that working with a farmer-owned investment company is an advantage. At FarmFundr, we know farming. Whether we contract an affiliated farm management company or seek another company best suited for the job, we have a long list of things we look for in a good farm management partner for our investment properties.
These are just a few of the most important factors that everyone should consider before investing in agriculture. We truly believe that farmland is a great way to diversify an investment portfolio while hedging against risks in other sectors. If you're interested in investing in agriculture by taking fractional ownership in a high profit potential operation, we suggest checking out our available crowdfunding opportunities here. If you're looking to deploy a larger amount of capital into a farmland operation, we can also help you with structuring a custom investment that meets your needs. You can find more information on our custom farmland investment program here.
