Is FarmTogether the best way to invest in US farmland?

By   |   Verified by Nikita Sheth   |   Updated 13th April 2021

Finty review FarmTogether
  • US farmland has a proven record as an asset class, having very little correlation with the stock market.
  • Buying a farm isn't an option for most investors, but FarmTogether's model makes it more accessible.
  • If you are an accredited investor, should you consider adding farmland to your portfolio with this service?

If you are looking for a top-performing investment, have you considered US farmland? Before you dismiss the idea, it's worth pointing out that Bill Gates recently became the largest holder of American farmland. If Bill thinks it's a good idea, there must be something to it, right?[1]

With the stock market's notoriously volatility, a stable asset such as farmland is one way to hedge your position for the future. So if you are interested in investing in farmland, how do you do it without buying a farm? The answer is with a service like FarmTogether.

Find out how it works in our comprehensive review.

Why is farmland an investment worth considering?

Why would successful investors like Bill Gates and Warren Buffett decide to include farmland in their portfolios?

The reality is the growth in US farmland historically outperforms almost every other form of real estate and most other asset classes. Can you think of a better-performing investment with an annual return averaging 10% over the last 20 years, with no years of negative returns and that also protects you from inflation? [2]

US farmland and the S&P 500 have a -0.03 correlation over the last three decades. What does that mean? Essentially, the performance of stocks has absolutely no effect on the rate of return on US farmland, so whether the stock market is up or down, farmland continues to hold its value.

And the future outlook for this particular asset is one of growth. Food production will need to double in the next thirty years, with the population projected to hit 10 billion by 2050. Increased demand for food means farmland is going to increase in value in the coming decades.

What does FarmTogether do?

To purchase US farmland, you must have a significant amount of wealth to qualify. The bank isn't going to issue you a mortgage for a farm. In most cases, they'll give you a maximum loan term of 5 years, and you'll have to make a significant down payment on the property.

As a result, investing in farmland isn't feasible for the majority of US investors. However, FarmTogether, with its innovative crowdfunding model, makes your dream of owning farmland a reality.

FarmTogether is the first real estate crowdfund specifically focusing on acquiring ownership of farms. Led by founder and CEO Artem Milinchuk, FarmTogether has headquarters in San Francisco, CA.

How does it work?

FarmTogether’s unique crowdfunding model offers accredited investors a means of investing in US farmland without the responsibility for physical ownership or management. As a result, you get all the growth benefits in your portfolio without the risk and hassle of actually owning or managing a farm.

Farmland generates income from crop production and land value appreciation. FarmTogether partners with operators who lease and sustainably farm the land.

The FarmTogether investment team research and perform due diligence on farms available for sale throughout the US. They identify high-yielding deals and use a pool of investor money (that's you) to purchase the farm or a controlling interest in the operation.

After funding the deal, FarmTogether investors earn cash yields paid through the farm's cash flow. Typically, the average investment horizon is 5 years, with the farm selling for a profit after the 5 year term expires.

Who is FarmTogether designed for?

FarmTogether is a serious crowdfunding platform for serious investors. Unfortunately, if you want to get involved with this model, you'll need to have "accredited investor" status. To gain accredited investor status, you'll need a net worth of at least $1 million.

The strategy suits investors with a long-term investment horizon of five to ten years so you'll have to be comfortable with locking up your capital in a relatively illiquid investment. The minimum investment with FarmTogether ranges from $15,000 to $50,000, depending on the deal specifics.

How to get started

To open an account with FarmTogether, you'll need to pass the company's investment criteria. We’ve already discussed that you’ll need to have accredited investor status.

Accredited investor status means you need a net worth of at least a million dollars. You'll also need a minimum annual income of $200,000 to qualify as an accredited investor (married couples are required to earn $300,000 annually).

You'll also need a track record of producing this level of income for at least two years prior to your investment application with FarmTogether.

FarmTogether doesn't offer its investment opportunities to non-accredited investors. However, the company is looking at ways to open up its offering to other individuals. We expect a non-accredited option to arrive as FarmTogether strengthens its cash position, holdings, and reputation over the coming years.

How much investment is required?

If you qualify and want to start investing with FarmTogether, the minimum investment ranges from $15,000 to $50,000, depending on the deal.

FarmTogether also charges a 1% acquisition fee and a 1% annual management fee, subject to the size of the deal.

Historical returns

Adding US farmland into your investment portfolio can net you outstanding returns. You get a safe and stable investment, away from the volatility of the stock and bond markets.

If we look at historical returns, a traditional portfolio containing 60% stocks and 40% bonds produces returns of 8.15% over the last three decades. The standard deviation in this portfolio, as a measurement of volatility, is 10.68%.

Adding US farmland to the portfolio increases total returns to 8.61% while reducing standard deviation to 9.04%. Adding US farmland to portfolios along with other real estate yields a historical return of 8.46% with a standard deviation of 8.62%.

Average returns with FarmTogether

FarmTogether closed its first deal in 2019. Therefore, none of its assets have reached maturity yet. As a result, there's no way to provide a solid track record of performance with the company.

However, as a portfolio asset, US farmland has a fantastic track record of providing investors with decent returns. It's also a stable, low-risk “hard” asset since land always has a tangible market value.

The FarmTogether management team has plenty of experience locating profitable deals, with experts poring over due diligence documents to vet the deal before committing capital to the project. FarmTogether only invests in going concerns they feel deliver positive cash flow, ensuring positive returns for its investors.

The FarmTogether asset management fees come out of the farm's positive cash flow, and the FarmTogether management team has a vested interest in every deal, right alongside its investors.

As of late 2020, FarmTogether had investments in 16 deals across farmlands in the United States. All of the deals have prospective Internal Rates of Return (IRR), from 7.1% to 15%, with net equity multiples of 1.4X to 7.4X.

Pros and cons

Pros

  • US farmland historically outperforms many other asset classes.
  • Benefits of investment in farmland without taking ownership in or managing the operations of a farm.
  • Crowdfunding models increase buying power.
  • Easy investment platform suitable for inexperienced investors.

Cons

  • Only caters to accredited investors.
  • High minimum investment between $15,000 to $50,000.
  • No physical ownership of farms.
  • Assets subject to weather, infestation, water, crop price, and market price risks.

Alternatives

FarmFundr is an alternative, offering the same crowdfunding business model as FarmTogether. Other alternatives include farm REITS, such as Farmland Partners Inc. and Gladstone Land Corporation. (More about how REITs work here.)

Verdict

If you’re an accredited investor, FarmTogether is a good option to further diversify your investments. In addition to providing annual cash flow through leases and crop sales and opportunity for long-term appreciation, farmland investments provide a hedge against inflation. Their limited correlation to the stock market means this will also be a stable asset in your portfolio no matter how volatile the stock market is.

Article sources

1 Marketwatch. "Bill Gates is now the largest farmland owner in America, https://www.marketwatch.com/story/bill-gates-is-now-the-largest-farmland-owner-in-america-11610818582". January 16, 2021.

2 Financial Times. "Why farmland now? A durable and consistent investment with upside growth potential, https://www.ft.com/brandsuite/nuveen/why-farmland-now-a-durable-and-consistent-investment-with-upside-growth-potential.html".