5 Profitable Ways to Invest in Farmland

When people think of diversifying their portfolio, they typically tend to invest in rental real estate, commodities, derivatives, private equity, and other such assets.

Not many people choose to invest in farmland, as they believe it is not a good investment.

The truth, however, is that investing in farmland can be extremely profitable in the long term.

Data shows that between 2000 and 2018, farmland investments outperformed 10-year bonds and were considerably less volatile than equities.

The fact that the value of farmland is not tied to the stock market makes it an attractive inflation hedged investment as well.

Being a finite resource, farmland can increase in value over time and help you build long-term wealth.

Also, it can serve as a hedge against inflation and help you get consistent returns even when market conditions are not favorable. On the whole, it can be an excellent addition to your portfolio.

Let us take a look at five profitable ways to invest in farmland.

Buying farmland directly

If you can afford to do so, you can buy farmland directly and lease it out to a farmer. The farmer will pay you a set amount of money on a monthly or semiannual basis — depending on the terms of your agreement with them.

This option, however, requires you to invest thousands of dollars upfront or take out a loan to buy the required amount of land.

Investing in REITs

If you cannot afford to buy farmland directly, you can choose to invest in farmland based real estate investment trusts (REITs), such as Gladstone Land Corporation and Farmland Partners Inc.

These REITs buy farmland using their investors’ money, lease it out to farmers, and share the income equally among the investors.

Investing in crowdfunding platforms

Crowdfunding platforms such as AcreTrader, FarmTogether, Harvest Returns, and FarmFundr allow you to invest in farmlands across the country and get a share of the profits on a regular basis.

The investment period can be anywhere from five to 20 years, at the end of which you can sell your fractional shares for a  profit if the land value has gone up during the time period.

The only downside is that many of these platforms only allow accredited investors — annual income of $200,000 or more or a net worth of $1 million or more — to invest.

Farmland stocks and funds

You can invest in publicly traded companies that are involved in farming. From crop producers to companies that manufacture seeds and fertilizers, there are many companies whose stocks are available at affordable prices.

If you find it difficult to pick and choose farmland focused stocks or if you think they are too risky, you can invest in mutual funds that focus on the farmland sector.

These are considerably less risky than individual stocks and can help you obtain solid returns in the long term.

Investing in farm commodities

Investing in farm commodities – either directly or through commodity funds – can help you make a profit whenever the price of the commodity goes up.

For instance, if you invest in corn and the price of corn increases sharply, you can sell your shares and make a handsome profit.