Farmland Investment- The Old as A New Asset Class
Farmland Investment is the new Hot Trend
While farmland has been generating wealth for centuries, it is only very recently that the high barrier to individual investors looking at farmland investing was lowered. This age-old asset class was previously the realm of wealthy landowners who inherited down through generations and has been quite impenetrable until the emergence of a newly packaged asset class of managed farmlands. We have seen the news that big players such as George W. Bush and Bill Gates have invested heavily in farmland. As a result, the interest in farmland investing is growing among investors globally.
What type of Investment Opportunities are available?
Farmland REITs- Like conventional Real Estate REITs, farmland REITs allow investors the opportunity to buy shares in farmland without actually having to own the land outright. The farmland REIT acquires areas of farmland and rents the land to farmers so they can produce crops on the land. This investment model works well for investors looking to dip their toes into farmland as it has the lowest initial investment requirement compared to other investment options. Farmland REITs offer high liquidity as stock can be sold easily but this also lends them to volatility risks.
Farmland Equities- Large corporations that own farms or farming-related businesses are often traded publicly, and as such, shares in their stocks are available to purchase. Businesses that deal in the manufacture of farming-related products or operations, such as fertilizer or seed manufacturers or distribution operators are some examples. This option offers access to a variety of farmland related enterprises and both long-term and short-term investment opportunities are available.
Managed farmlands- These are arable plots owned outright by investors and actively producing edible commodities. They are run by a professional agency that deal with the day-to-day activities on the farm from planting to harvesting. Farmland real estate, like any other real estate class, is a tangible and immovable asset. Farmland assets can be very efficient in producing strong annual returns as well as long-term appreciation depending on the type of crop and level of efficient resources and practices. Investors can purchase a piece of arable farmland and reap the rewards of the yields produced without needing to concern themselves with the technicalities of farming operations.
Why is Farmland Real Estate preferable to other Real Estate?
Real estate as considered by the mainstream, has been split into two categories- commercial and residential. Commercial real estate denotes any property that is set up to support businesses and generate income. In contrast, residential properties are for the purpose of living but can also provide passive income streams. The ‘new’ real estate asset class of managed farmland offers a system where individuals can put their money in a farm plot and then watch their land and commodity assets grow without the need for any kind of agricultural knowledge. In conventional real estate, while the value of the land may appreciate, it is no more than that: land.
Where farmlands take the lead on mainstream real estate is with the secondary income produced by crops. Conventional real estate is usually a longer-term investment with a 5-year horizon. While this is true for the land aspect of farmland investing, crop returns can produce rewarding annual returns. Actively contributing to producing natural goods is appealing to investors who want to make a wider social impact.
What are the benefits of Farmland Investment?
Sound Investment- Farmland lays the foundation for a balanced investment portfolio. Beyond generating regular income, farmland acts as an inflationary hedge and has uncorrelated returns compared to traditional asset classes, such as stocks and bonds, making it a powerful diversification tool. Historically farmlands have outperformed other asset classes during periods of economic downturns (During the 2008-2009 Great Financial Crisis, the farmland index was up more than 20 percent). The housing market may bust and the stock market may crash so adding farmland to your portfolio can aid in decreasing volatility.
Impact Investment- In a time where ‘sustainability’ is on the tip of everyone’s tongue, farmland investment offers a great opportunity to have a positive influence with impact investing. As well as generating income your investment can have a positive, measurable and enduring effect both environmentally and socially.
Secondary Passive Income- Further to the rewards of the appreciation of the farmland, owners can benefit from a second income by selling the crops on the land. If your due diligence is sound and you have chosen farmland with high-quality soil and a strong water supply, you can anticipate a meaningful passive income annually. High demand and organic crops are ideal commodities to produce on the farmland.
As the demand for food commodities grows exponentially worldwide, farmland investment has become a desirable and profitable opportunity. Farmers are under pressure to do more with their limited resources as population growth booms and land availability diminishes. Therefore, regions, where farmland has quality soil and adequate water resources, will become more and more prominent as attractive investment opportunities. These factors combined will drive up the value of farmland and open exciting doors for investors with a global vision to invest in farmland.
How to Invest in Farmland
We can see that there are compelling reasons to invest in farmland with its unique placing as a real asset class that provides two income streams and attractive returns.
Agro Invest Spain has carefully crafted a unique investment model for farmland investing. Our managed farmlands in the Extremadura region of Spain are the perfect place for producing high-quality Organic (or Ecologic if we are using the Spanish term) Almonds which are a sought-after commodity which is sold at a high value. We provide detailed analysis for your investment plan and offer freehold land where the title deed belongs solely to you.
Are you ready to start your journey in farmland investing? Get in touch to learn more from our experienced advisors.
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