Investing in farmland can be a great way to diversify your portfolio and earn stable returns, especially in times of economic uncertainty. However, I also believe knowing what to look for in a farmland investment is essential in order to maximize your profits.
Farmland can be a profitable investment in many ways. As the world’s population continues to grow, the demand for food is increasing, and so is the value of the land.
Read on to explore the best ways to invest in farmland. I also wrote a whole article discussing why investing in farmland can be a smart decision for your portfolio.
1- Understand the Market
Before investing in farmland, it is crucial to get a deep understanding of the market trends. Factors such as location, soil quality, and commodity prices play a significant role in determining the value of farmland.
Researching the local real estate market can help you make an informed decision about where and when to invest. I also encourage you to talk to a professional. You can also check out Farm Journal and American Farmland Trust.
2- Consider All Expenses
Remember that investing in farmland is not just about buying the land itself; there are additional costs that you’ll need to consider such as fencing, wells, irrigation systems, and machinery.
You should also factor in taxes, insurance, and maintenance costs. Ensure that you have a clear picture of all the expenses involved before making a financial commitment.
3- Partner with Experienced Farmers
Partnering with experienced farmers can be beneficial for both parties. Not only can they help you understand the local market, but they can also take care of the day-to-day operations and management of the farm.
Moreover, partnering with experienced farmers can be especially helpful if you are not familiar with the agriculture industry. Partnering with farmers can also help you gain access to their established distribution channels and networks.
Another effective way to invest in farmland is by partnering with a farming operations company. In this partnership, you own the farmland, and the farming company operates the farm. The farming company is responsible for everything from soil tests to planting to harvesting. In exchange, you receive a percentage of the farm’s revenue.
4- Diversify Your Portfolio
Investing in multiple farmland properties can help you spread your risk and maximize your profits, as different crops have different cycles of supply and demand.
Furthermore, offsetting the risk of natural disasters such as drought or floods can be achieved by investing in farmland located in different locations.
5- Monitor Your Investment
Regularly monitoring your investment’s performance and the local market trends is necessary to stay on top of your investment, including keeping track of commodity prices and networking with other investors.
Making timely adjustments to your investment strategy will ensure that you’re making the most profitable choices.
6- Buy and Hold Strategy
The simplest way to invest in farmland is to buy farmland and hold it for an extended period. By doing so, you can benefit from both the appreciation in land value and the yearly rental income.
You can either buy farmland directly or invest in a farmland real estate investment trust (REIT) that owns farmland. From 1992 to 2020, farmland generated a positive yearly return, yielding an average annual return of 11.5%, according to Forbes.
If you want to learn more about Farming REITs, I encourage you to check out this article from reit.com.
7- Buy Shares in Agricultural Companies
Investing in shares of agricultural companies is an indirect way to invest in farmland.
By buying shares in companies that specialize in farming-related activities, you can benefit from the growth in profits and the opportunity to gain exposure to farmland without owning any.
8- Lease Farmland
Leasing farmland is another way to invest without buying it. When you lease farmland, you own the lease and rent the land to farmers who will farm on it.
You receive rent payments from the farmer every year. It’s a great way to gain exposure to farmland while maintaining flexibility. You can expect positive annual returns if you lease the farmland for an extended period of time.
9- Farmland Crowdfunding
Crowdfunding platforms allow investors to come together and buy farmland as a group. You can invest as little as $1,000 in farmland through crowdfunding, and they offer excellent returns.
As always, before jumping into any investment, ensure you conduct your due diligence or reach out to a professional in the farmland industry. If you want to learn more about REITs and crowdfunding platforms, you can check out this article.
What to read next:
- Starting Your Own Pack and Ship Business: 8 key steps.
- Is Print On Demand Profitable, including its pros and cons?
- 8 of The US Most Popular Cities For Self Storage.
Wrapping Up
Farmland investment can be an excellent opportunity to increase your wealth, specifically if you have a good understanding of the market and are willing to put in the effort and investment.
In addition, investing in farmland can provide you with strong long-term returns and a hedge against inflation. Farmland is a great asset that has produced solid and predictable returns for years.
Consider investing in farmland as part of your investment portfolio and take advantage of its benefits.