- US farmland has a proven record as an asset class, having historically low volatility compared to competing assets and low correlation with the stock market over the last several decades.
- Buying a farm wasn’t previously an option for most investors, butFarmTogether's model makes it more accessible.
- If you are an accredited investor, should you consider adding farmland to your portfolio with this platform?
If you are looking for a historically stable, uncorrelated investment that has posted positive returns each year since 1992, have you considered US farmland? While you may not be familiar with 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 high volatility today, a historically stable asset such as farmland might be one way to help hedge your position for the future. So if you are interested in investing in farmland, how do you get started? The answer is with an investment manager, like FarmTogether.
Find out how it works in our comprehensive review.
Inside this 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 that returns from US farmland have historically outperformed almost every other form of real estate and most other major asset classes on a risk-return basis. Can you think of a historically uncorrelated investment with an annual return averaging 10.71% over the last 30 years, no years of negative returns, and a historically high correlation with rising inflation? [2]
Additionally, US farmland and the S&P 500 have had a -0.05 correlation over the last three decades. What does that mean? Essentially, the performance of stocks should have little to no effect on the rate of return on US farmland, so whether the stock market is up or down, farmland should 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. At the same time, the supply of arable, workable land is steadily declining. Increased demand for food, amid a shrinking supply of land, means high-quality farmland should only increase in value in the coming decades.
What does FarmTogether do?
Previously, in order to purchase US farmland, you needed a significant amount of wealth and agriculture experience 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. Today, only around 2% of the dollar value of all U.S. farmland is financially backed by investors, in a US market nearing $3 trillion.
As a result, investing in farmland was not feasible for the majority of US investors. However, FarmTogether, a farmland investment manager, is making your dream of owning farmland a reality.
FarmTogether provides accredited and institutional investors with unparalleled access to high-quality, farmland opportunities in prime growing regions across the US. Their all-in-one platform facilitates access through a variety of channels, including crowdfunded farmland offerings, 1031 exchange, sole ownership bespoke offerings, and their Sustainable Farmland Fund. They specialize in both row crops and permanent crops to fit a broad spectrum of risk/reward appetites. Led by Founder Artem Milinchuk and CEO Jared Hine, FarmTogether has more than $170M in assets under management across more than 40 farms, 8 states, and 14 crop varieties.
In this review, we will focus on FarmTogether’s flagship crowdfunding product. If you are interested in the firm’s Bespoke offerings or the Sustainable Farmland Fund, you can learn more about FarmTogether’s different investment products here.
How does it work?
FarmTogether’s crowdfunded product offers accredited investors a means of investing in shares of US farmland without the responsibility for sole ownership or management. As a result, you can expect to reap the growth benefits in your portfolio, without the hassle of actually owning or managing a farm.
The FarmTogether investment team researches and performs extensive due diligence on farms throughout the US to bring top-tier opportunities directly to investors. The team maintains strict criteria for which opportunities are made available through its platform. Their team first analyzes macro factors, such as water availability and long-term trends in agricultural yields. Next, they explore the end markets for the farm products they’re targeting, analyzing supply, demand, consumer preferences, and new product development to arrive at a long-term view of price and valuation trends. Their team will then conduct a property analysis incorporating over 150 data sets from public, private, and proprietary data sources to zero in on the best investment opportunities in their target geographies and crops. Only 1% of opportunities that are screened are ultimately shown to potential investors.
Through their all-in-one platform, investors can browse these carefully vetted farmland investments, review due diligence materials, and sign legal documents, seamlessly online. After funding the deal, FarmTogether investors can begin earning income on a quarterly or annual basis, depending on the deal structure.
Farmland can generate returns from both income and appreciation. Income is generated through rental payments via lease agreements or direct management contracts, as well as the revenue generated by farming operations. Appreciation will be realized upon the sale of the property, assuming the land rises in value over the hold period. Typically, the average investment horizon is 8-12 years.
Who is FarmTogether designed for?
The strategy suits investors with a long-term investment horizon of 8-12 years so you'll have to be comfortable with locking up your capital in a relatively illiquid investment. The minimum investment for FarmTogether’s crowdfunded deals is $15,000.
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 to earn an annual salary of $200,000 or more (or $300,000 jointly with a spouse) or have a net worth of at least $1 million.
How to get started
To make your first investment through FarmTogether, first you'll need to set up your free FarmTogether account. To do so, click the "Sign Up" button on the homepage. After completing your investor profile, you'll be able to participate in an investment offering.
When you are ready to make your first investment, log in to your FarmTogether account, visit the offering page, and then click the "Invest" button. Following that, choose your desired allocation amount via the slider and then click "Invest". Next, select or add an account to invest with, or choose to wire transfer your funds. You will then be asked for proof of accreditation before signing an electronic agreement. Once you've signed and confirmed your investment, you will receive final payment instructions
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.
How much investment is required?
If you qualify and want to start investing with FarmTogether, the minimum investment is $15,000 for the crowdfunded product.
FarmTogether also charges fees, which vary per deal.
In general, for permanent crop deals, investors pay a one-time fee of 2% of the deal’s project basis. FarmTogether is also paid an annual fixed management fee of 1.5%, calculated as a percentage of the project basis, and a 5% net operating income fee. FarmTogether does not charge carried interest or other fees.
For row crop deals, FarmTogether charges a one-time fee equal to 1% of the property’s purchase price at closing, and an annual management fee equal to 20% of gross lease revenue.
Historical returns
Adding US farmland into your investment portfolio has the potential to net you historically stable, uncorrelated returns that do not tend to react to the volatility of the stock and bond markets.
If we look at historical returns, a traditional portfolio containing 60% stocks and 40% bonds produced returns of 7.60% over the last three decades, according to research from FarmTogether using data from the S&P 500 Index and Bloomberg Barclays US Aggregate Bond Index. The standard deviation in this portfolio, as a measurement of volatility, was 11.16%.
Adding a 15% allocation of US farmland to the portfolio, however, increased total returns to 8.07% while reducing the standard deviation to 9.45%. Moreover, adding a 10% allocation to US farmland and 10% to real estate saw a historical return of 7.99% with a standard deviation of 8.98%.
Average returns with FarmTogether
FarmTogether closed its first deal in 2019. Therefore, none of its assets have reached maturity yet. As a result, investors can not currently track the performance of past deals.
However, as a portfolio asset, US farmland has a strong track record of providing investors with positive growth over the last several decades even during market downturns. It's also a historically stable, low-risk “hard” asset since land always has a tangible market value – and the demand for food is generally inelastic.
The FarmTogether management team has plenty of experience locating institutional-quality deals, with experts pouring over extensive due diligence documents to vet the deal before committing capital to the project. 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 2023, FarmTogether had investments in more than 40 deals across 8 states within the United States. All of the deals have targeted Internal Rates of Return (IRR), from 6-13%, with target net cash yields of 2-9%.
Pros and cons
Pros
- US farmland has historically outperformed most major asset classes in terms of both annual average returns and stability.
- You can receive the benefits of investments in farmland, without purchasing a farm outright or managing the operations of a farm.
- Hassle-free, all-in-one investment platform suitable for any accredited investor
Cons
- Only caters to accredited investors.
- Minimum investment of $15,000
- Much like other investments, farmland doesn’t come without risks. These include 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".
