It is no secret that real estate is the preferred investment for most people nowadays. It emerges as a lucrative option and enables investors to increase their net worth more quickly than with other types of investments.
There are, however, a lot of alternatives to real estate. It could be apartments, property, or even farmland investment, and it shouldn’t be disregarded in any way.
Previously, to invest in farmland you would need to go to a farm to make the purchase. Nowadays, buying farms has become much simpler, and you may even do it from your home. In light of this, this post will provide you with a step-by-step guide on ways to invest in farmland in 2024.
Let’s get started…
Table of Contents
1. Choose the Investment Type
Before you go ahead to invest in farm land practically, there are a few things you must be well prepared with. To start the hunt for the perfect farmland. You must decide which type of farmland investment you are planning to venture for. This should be a well-informed decision, keeping in mind your finances, and investment goals.
These are some of the popular types of investments; you can choose from to invest in farmland:
- Farmland Asset Management: The farmland investment method involves outsourcing investment administration to a third party. Farmland asset management includes the administration of farms. It provides farmland investors with the best benefits of owning land. The asset managers in this case take care of various issues like taxes, returns, and communication.Consequently, you can invest in this type of asset management without worrying about volatile market conditions and losses. All you need to do to use prudence when making decisions about entry and exit points, market information, and land access while researching to invest in farmland.
- Private Equity Farmland: This is another method you must be mindful of while planning to invest in farmland. These equity funds consist of pools of capital where you can make land investments as per your objectives. They offer alternative asset investments like pensions to high-net-worth individuals. Some pros of private equity funds are high returns and less stock market volatility. They also help in the diversification of funds.
- Agriculture Stocks: Another method to invest in farmland is investing in shares of agricultural companies. These companies have a pool of funds, and you can choose to invest in any of their stocks. Thus, you can earn significant returns as farmland investors from the land’s appreciating value over time along with stock market fluctuation. Investing in agricultural stocks gives you exposure to high-level trends in Ag-Tech. It also provides you with broad exposure to agricultural sectors of interest.
- Farmland REITs: Real estate investment trusts buy, own, and manage properties. This pools the capital of investors and functions like a mutual fund. Some advantages of investing in agricultural land through REITs include liquidity and diversification. You will also have a strong return profile.
- Farmland Investment Platforms: This is a broadly accepted method of investment in farmland by new-gen investors of today. These marketplaces buy shares of a property and a farming company. It is also known as crowd funding. An advantage is participation in diverse farmlands. You can also invest with simplicity in the administration of the deal.
2. Understand How Farmland Fits in Your Investment Objectives
This is a very vital point for you to keep in mind after choosing your investment type to research how to invest in farmland.
Here, you must determine whether the shortlisted farmland fits with your investing objectives. It will enable you to evaluate the advantages and determine whether they are appropriate for you. It is one of the important questions to ask when buying land.
Farmland is a land investment that pays off well over the long term and yields a sizable return. Therefore, it is imperative to decide if you want to engage in such a long-term investment model. Furthermore, to prepare an effective land-buying guide for this investment you must instead decide before looking for farmland options. As farmland investors, your decision to invest will however depend on the liquidation. Apart from this, the sector’s risk insulation is another factor to take into account.
3. Find Farmland Investment Options
Next, to learn how to invest in farmland, you must know how to spot a good farmland. It denotes you must have sufficient market-specific knowledge to research land for sale. Also, private transactions are most likely to result in the transfer of high-quality land while considering farmland investment.
The regional networks provide the energy to these transactions for a successful land investment. Farmers, organizations, and auctions are a few of the well-known networks of farmland you can rely on. Additionally, you must have access to money, brokers, and different listing platforms to choose the right farmland for your investment.
4. Analyze the Farmland
This is another important chapter of the land-buying guide that you must consider before planning to invest in farmland. Understanding the valuation is essential before learning how to invest in land.
A significant factor to consider here is the valuation of the land. It is the primary determinant of whether you make money on your investment or suffer loss. The following are some of the points you should consider when deciding on buying farmland for investment.
- Farm Income: To invest in farmland, your comprehensive research must examine this point. The income of your farmland depends upon the yield of your crops. Thus, ask questions like how many crops can grow and how reliable market access is. The value of the farm will depend upon the farm’s expected rental rate. Also, analyze the farmers’ charges and how it compares to the crop sale income.
- Localized Land Markets: Before you invest in farmland, consider checking whether there is a good local land market in the vicinity. Such large land markets have a lot of buyers as well as sellers to sustain a healthy trade. It is because you want to be sure in the future if you want to sell the farm, there is a good market for it.
- Extra Assets: This is one of the essential steps you must consider when planning to invest in farmland. For this, you must know whether the property comes with amenities like buildings and an irrigation system. They will improve your farm’s efficiency and improve chances of better ROI in the long run. Furthermore, there might be specific unwanted challenges during farmland investment, so check those.
- Passive Farm Income: Apart from crop production, there are various ways through which you can make money from the land you own. The leases are for recreation, water rights, and mineral rights. They provide you with space for turbines and solar panels. So by investing in farmland, you can also garner a passive farm income from these resources. This increases the potential to utilize the land as farmland investors and earn significant returns during the period of your ownership.
5. Determine the Farmland Investment Holding Period
To buy farmland as an investment, you must decide on the holding period. It is one of the significant steps in how to invest in farmland. The holding period depends on the following factors.
- Row Crop Investment: As a crucial step to invest in farmland, this type of investment includes a steady income and a holding period for at least 5 to 10 years.
- Permanent Crops: These generate a higher annual return when you invest in farmland. Hence, the reasonable holding period for permanent crops in such farmlands is 10-15 years.
- Investment in Timber: Timber harvests have a long lifecycle; you should at least hold the assets for a 10-15-year range to invest in farmland for timber.
- Energy Investments: Most energy investments consist of solar and wind farms. They depend on various factors and average income, so the holding period can vary. This makes energy resources one of the most sought-after options while considering plans to invest in farmland.
6. Diversify the Farmland Holdings
Now that you are knowledgeable about farmland investment, you must focus on diversifying your holdings. You can diversify the land by geography, production, investment goal, climate, or potential earning. Moreover, to successfully invest in farmland, you must analyze the average rainfall, temperature, crop type, and crop price. You might also think about analyzing returns from single people and farming families to invest in farmland.
Summing Up
Hopefully, with this article, you have learned how to invest in farmland. You can analyze the above points to figure out your investment strategy. Start looking into your farmland investment choices today, and don’t forget to look into other lucrative options as well. For more knowledge and options for farmland investment, connect with our experts.
