Investing in Farmland

[WhenIsItTime]

Anybody investing in farm land? Seems interesting alternative to stocks and bonds. Besides owning direct, I know there are a couple ETF's (FPI, LAND) as well as firms that broker this activity.

 

[luckydude]

Anybody investing in farm land? Seems interesting alternative to stocks and bonds. Besides owning direct, I know there are a couple ETF's (FPI, LAND) as well as firms that broker this activity.

DW and I own a large number of farms and ranches in a really big state in the South. Our play isn't farming or commodities per se. Rather, we're looking at long-term development potential as the ultimate payoff as these properties are in the "path of growth" of a nearby big metro area, and we're willing and able to wait for this to happen (or not). So the farming aspect is really incidental. In the meantime, we've been able to monetize our holdings through a healthy and steady rental income from cattle grazing and crop growing. We've also looked into other forms of land exploitation such wind farming, mineral exploration, CRP, etc., with mixed success.

I think it depends on what your goal is with buying farmland. If your goal is simply one of diversification, REITs and ETFs are the way to go. Your investment $ will stretch a lot further and allow you to diversify your risk.

Direct ownership won't really make any sense for most people. It requires large capital commitment (mortgages for land investment are more expensive and harder to obtain); it requires a lot of research and local knowledge to pick the right propert(ies) (e.g. you don't want to buy a property next to a "non-operating" municipal landfill site); it can be a lot of work and expenses dealing with tenant leases, broken fences, leaking "ponds" (i.e. man-made lakes for irrigation) that need to be repaired, (re)filing ag exemptions, stock intrusions, illegal dumping, right of way/easement for utilities (e.g. negotiating for fair compensation if they want to run power poles over your land or laying utility pipes underground). All this stuff has happened to us.

If you're an absentee owner, to make everything run smoothly, you will need to build an extensive on-the-ground support network of local contractors, neighboring farmers/ranchers, contacts in local government agencies (especially those handling exemptions, property valuation, title research, etc. etc.), title companies/real estate agents. The cliché "everyone knows everyone" is absolutely true in small farming towns/communities. Once you're plugged into the network, you have intimate knowledge of the local land market, who sold what for how much, what properties are for sale, what properties to avoid, who to call to fix the broken fences/leaking ponds, who is looking to lease land for his cattle, etc. It took us a good dozen years to build up this network. It's a lot of work but it's been worth it, and we've actually made some great friends along the way.

IMO, unless you have a lot of capital at your disposal and are willing to put in the hard work to do the research and build up a network of local support, your best bet is going with an investment vehicle where you can pool your money with other investors.

Lucky Dude

 

[target2019]

Anybody investing in farm land? Seems interesting alternative to stocks and bonds. Besides owning direct, I know there are a couple ETF's (FPI, LAND) as well as firms that broker this activity.

At one time I was interested in real property investments. Here are two older threads that had a lot of good input.

from 2014
https://www.early-retirement.org/forums/f28/farmland-investment-72946.html

from 2012
https://www.early-retirement.org/forums/f28/buying-farmland-63471.html

Some investing approaches have a dedicated allocation to real property. Using a REIT seems like a good approach.

 

[street]

Yes, about 25 years ago I bought farm land and worked some of the land myself and rented the bulk of it. It was an irrigated farm and I raised alfalfa hay and vegetables. It was a great investment for me with really no improvement or building on the property. I sold it in 2010 and made 14 times more then what I paid for that land. I had a mortgage for about 4 years when I paid it off. I made money in rent and had a great tax deduction benefit as well with the portion I farmed.

I also have a ranch that is valued about 9 times more then what I bought it for.

Farm land or any land still needs to be bought for the best price possible and if you were going to sell at some time, what makes this land appealing for the next owner.

 

[racy]

Anybody investing in farm land? Seems interesting alternative to stocks and bonds. Besides owning direct, I know there are a couple ETF's (FPI, LAND) as well as firms that broker this activity.

We invest in farm land debt via Deed of Trust Certificates offered by a local realty company (available to accredited investors). The most recent investment, purchased 2 weeks ago, is paying 3.9% and matures June 2023.
Both DW and I will inherit farmland with siblings. Our current plan is to sell the farms.

 

[Bamaman]

I worked in the agricultural field, and have many friends that are very large row crop farmers in the Mississippi River Delta.

One family's father died a few years ago, and the lands passed on to his wife. When something happens to her, it'll be time to pay the tax man.

That means some of their 46,000 acres will have to be sold. The IRS wants their share in cash within 9 months of owners' deaths.

Time has its way of coming up fast as we age. Sometimes it's time to liquidate assets while there's time--and while you're there to call the shots.

 

[Mr._Graybeard]

Owning farmland as an investment (i.e., not farming it yourself, but renting it out) has been profitable for us over the last 30+ years. Our investment is small scale in an exurban area within an hour's drive of a couple good-sized cities. Rental income is about $105 an acre, and I could probably bump that up to $120-$130 if I changed renters.

I did not, however, pay the current prevailing purchase price, which runs about $5K/acre in my area. At that price the rental cash flow doesn't look too great, especially when taxes are factored in (there is a special reduced property tax rate for agricultural land). There is the potential for capital gain, but ...

Like any real estate, I'm sure the key is location, location, location. I recall a news story from several years ago quoting the price of some high-output ag land in the Janesville-Beloit area at $11K/acre. Who knows what the price is now. I do think that agriculture generally is in a depressed state right now, and especially here in Wisconsin. Like the stock market, though, the real estate market is not the economy.

Edit: I meant to add that we sold an old farm last year that my late father bought as a weekend getaway in 1962, for many, many times what he paid for it. The buyer was the manager of a bond mutual fund who has snapped up several old farms in the area. Maybe he knows something we don't know...

 

[Chuckanut]

Anybody investing in farm land? Seems interesting alternative to stocks and bonds. Besides owning direct, I know there are a couple ETF's (FPI, LAND) as well as firms that broker this activity.

What do you know about farmland and farming?

As a general rule investing in something one know little about, is usually not a good idea. Especially something that requires ongoing expenses just to pay the costs of owning the asset.

All the best, whatever you decide.

 

[ivinsfan]

What do you know about farmland and farming?

As a general rule investing in something one know little about, is usually not a good idea. Especially something that requires ongoing expenses just to pay the costs of owning the asset.

All the best, whatever you decide.

+1000 as some who has owned farmland for over 30 years I'm just reading here. If the OP actually does enough research to have a specific question, I'll chime in. I'm not writing up a 30 minute post for someone who is just "wondering".

 

[WhenIsItTime]

DW and I own a large number of farms and ranches in a really big state in the South. Our play isn't farming or commodities per se. Rather, we're looking at long-term development potential as the ultimate payoff as these properties are in the "path of growth" of a nearby big metro area, and we're willing and able to wait for this to happen (or not). So the farming aspect is really incidental. In the meantime, we've been able to monetize our holdings through a healthy and steady rental income from cattle grazing and crop growing. We've also looked into other forms of land exploitation such wind farming, mineral exploration, CRP, etc., with mixed success.

I think it depends on what your goal is with buying farmland. If your goal is simply one of diversification, REITs and ETFs are the way to go. Your investment $ will stretch a lot further and allow you to diversify your risk.

Direct ownership won't really make any sense for most people. It requires large capital commitment (mortgages for land investment are more expensive and harder to obtain); it requires a lot of research and local knowledge to pick the right propert(ies) (e.g. you don't want to buy a property next to a "non-operating" municipal landfill site); it can be a lot of work and expenses dealing with tenant leases, broken fences, leaking "ponds" (i.e. man-made lakes for irrigation) that need to be repaired, (re)filing ag exemptions, stock intrusions, illegal dumping, right of way/easement for utilities (e.g. negotiating for fair compensation if they want to run power poles over your land or laying utility pipes underground). All this stuff has happened to us.

If you're an absentee owner, to make everything run smoothly, you will need to build an extensive on-the-ground support network of local contractors, neighboring farmers/ranchers, contacts in local government agencies (especially those handling exemptions, property valuation, title research, etc. etc.), title companies/real estate agents. The cliché "everyone knows everyone" is absolutely true in small farming towns/communities. Once you're plugged into the network, you have intimate knowledge of the local land market, who sold what for how much, what properties are for sale, what properties to avoid, who to call to fix the broken fences/leaking ponds, who is looking to lease land for his cattle, etc. It took us a good dozen years to build up this network. It's a lot of work but it's been worth it, and we've actually made some great friends along the way.

IMO, unless you have a lot of capital at your disposal and are willing to put in the hard work to do the research and build up a network of local support, your best bet is going with an investment vehicle where you can pool your money with other investors.

Lucky Dude

Thanks for the insightful post. Much appreciated!

 

[WhenIsItTime]

What do you know about farmland and farming?

As a general rule investing in something one know little about, is usually not a good idea. Especially something that requires ongoing expenses just to pay the costs of owning the asset.

All the best, whatever you decide.

+1000 as some who has owned farmland for over 30 years I'm just reading here. If the OP actually does enough research to have a specific question, I'll chime in. I'm not writing up a 30 minute post for someone who is just "wondering".

Continues to amaze me the depth of knowledge available in the membership of this forum. You read me correctly. I don't know much about farming, but am interested in the asset category. Thanks to those who posted above.

I recently met someone who helps manage a farmland investment fund and am looking into their prospects.

 

[Sunset]

What do you know about farmland and farming?

As a general rule investing in something one know little about, is usually not a good idea. Especially something that requires ongoing expenses just to pay the costs of owning the asset.

All the best, whatever you decide.

I knew a fellow, whose Dad bought a tiny small farm of ~ 100 acres close to a City. The family lived on the farm for decades, then moved into the city.

The fellow decided he'd move back to the farm, and actually farm it. I went one day to help him plow...
I had always dreamed of buying a farm, as it seemed a good way to grow money.
What a learning experience the plowing was about how hard farming can be.

It turned out well for the Dad, after about 35+ years of owning the farm, he sold it for $1M to a house developer (I was told).

 

[Koolau]

My parents had this "thing" for always being in debt (not cc debt, but "investment debt"). SO, they bought a farm which they planned to rent out - they knew nothing of farming. Well, I think they got taken on the cash rent they received though they always kept it rented. Before the last one (mom) passed, I helped her get the farm sold. I was able to create a bidding war between two farmers who wanted to add it to their current, almost contiguous farm plots. Mom ended up making a tidy prophet (which went to the nursing home.) So, it can work out, but you had better know what you're doing - even if it's only how to get the best cash rent from a farm. I don't think it's nearly as straight forward as residential land and certainly way more complicated than stock or bond funds (just my opinion, of course, so YMMV.)

 

[Mr._Graybeard]

I knew a fellow, whose Dad bought a tiny small farm of ~ 100 acres close to a City. The family lived on the farm for decades, then moved into the city.

The fellow decided he'd move back to the farm, and actually farm it. I went one day to help him plow...
I had always dreamed of buying a farm, as it seemed a good way to grow money.
What a learning experience the plowing was about how hard farming can be.

It turned out well for the Dad, after about 35+ years of owning the farm, he sold it for $1M to a house developer (I was told).

My great-uncle Rudy was a German immigrant from Thuringia who farmed with a couple of his brothers in North Dakota shortly after they arrived in America at the turn of the 20th century. Eventually Rudy and family tired of the Great Plains and bought an 80-acre farm near the Cook County line in northern Illinois, where they lived for 60 or 70 years. I remember visiting as a kid, riding out to the farm down a gravel road (Cuba Road, to you Chicagoland natives).

By the late 1960s the developers were hovering around constantly, but Rudy (who spoke with a soft German accent until the day he died) wouldn't sell. After he and his wife passed the place went for about half a million, IIRC. The farm buildings were burned to the ground and subdivision streets were plotted.

Today, one of Rudy's granddaughters lives in the subdivision where the farm once stood. That always gives me a sense of continuity, even if the landscape is unrecognizable from my childhood memories.

 

[Ready-4-ER-at-14]

We have been investing in the REIT LAND for some time. I attended some Money Show Investment Seminars in Las Vegas off and on for guessing 15-20 years. One of the speakers was a Mr. Gladstone who impressed me greatly. I heard him present multiple times (3 or 4?) We have received both dividends and capital appreciation from the ownership of shares. Have even had some preferred although they tend to buy them back to lower operating costs.

Mr Gladstone has owned numerous companies and is fond of investors actually getting dividends back monthly. If you look back historically at the stock price it declined from 2013-jan 2016. As I recall to be a reit they had to give high dividends to get to the legally required minimum amount of a reit compared to a privately held company. Once they got there they cut dividends to the legally required amount and it appeared that they had slashed dividends to the casual investor.

Mr. Gladstone made a statement at one of the presentation that in my memory paraphrased goes like this... if you invested in one of his publicly held businesses you should probably invest in four as they worked with each other and at one time or other one would benefit a little more than the others.

We hold Good, Gain, Glad, and Land. Back in February of 2020 land was about 6% of our stock holdings although my rule is never more than 2%..It was the last stock I reduced allocation in and is now around 3% of stock holdings with lesser amounts in the other 3 which had got down to token amounts.

The man has a history of farming and buys mostly non row crop farms with water and relatively close to cities. From what I remember off hand. As with Warren Buffet no idea how successful any succession would be although he has at least one child in the business.

It's best not to love any stock, but i do like this holding.

 

[googily]

I own land that my great-great grandfather filed for a homestead on in 1906 in an unnamed western state. A neighboring ranch pays is a pittance to graze cattle on it, which serves mainly to keep us getting the agricultural tax exemption.

It's an amazing piece of land, and it has some astonishing views, but it also is incredibly remote. No developers will be knocking. Handy to have in case of the zombie apocalypse though!