According to the LANDTHINK Pulse results, 33.2% of our audience indicated that they viewed farmland as a good investment because it offers strong financial returns over the long term. Land investment is purchasing land where the desired goal is to earn income from the purchase of the property. Owners create value through revenue, land appreciation, or tax advantages. For investors that don’t enjoy riding the ups and downs of the stock market roller coaster, buying farmland for sale is an alternative, low risk investment.
November Pulse Sponsored by
Last month, the November Pulse asked: What is the primary reason you view farmland as a good investment?
Farmland has proven to be one of the most stable asset classes and its low volatility can be particularly valuable in periods of financial uncertainty. Farmland has historically outperformed the S&P 500 and Nasdaq with uniformly positive returns over the past four decades. When an asset like farmland exhibits a negative correlation with stocks, bonds, and financial securities; it’s called “hedging.” This is one reason that farmland is an excellent addition to any diversified investment portfolio.
The U.S. Department of Agriculture reported that nationwide cropland prices rose 1.2% to $4,100 per acre in 2019. Although farmland values have leveled off since 2014, they have been surprisingly resilient after a long period of appreciation. Farmland values have been holding steady, despite downward pressures like trade uncertainties, reduced farm income, declining commodity prices and higher interest rates. Most farms don’t come up for sale for several generations, which keeps high-quality farmland in high demand. Because global demand for food is increasing and prime farmland is in tight supply, many farming families and outside investors want to put their money into an asset with long-term value. Even if the land market takes a downturn, any losses experienced by farmland owners is limited due to the annual income generated through agricultural production on their farmland.
Farmland investing should be reserved for those who can afford to be patient and have a penchant for long-term strategies. To get any return, investors should hold on for at least 5 years. Large investors often hold farmland for for 30 or more years, as a way of managing wealth across generations.
Coming in a close second, 20.9% of our LANDTHINK audience said that they believed farmland to be a good investment because of the growing global demand for food. Strong population growth has led to an increased demand for food, and its one of the fundamentals driving the market.
America is losing prime arable farmland to urbanization at an alarming rate, which is increasing the value of farmland, while population and per capita income are expected to continue to propel global demand for protein. It requires a considerable amount of grain to produce one pound of meat, another factor favoring the long term outlook for investing in the land on which these commodities are produced. By 2050, we will need to increase global crop production by 70% to feed a larger population with increasing food demands.
Technology is rapidly transforming our agricultural system. Precision agriculture tools like GPS, data analytics, and apps allow farmers to increase yields and profits. Access to financing is another evolving factor in agriculture. Since bank loans are hard to come by, many farmers are looking for alternative ways to obtain capital.
Farmland is a largely untapped investment opportunity in U.S., due in part to investors not having the amount of capital, time, and experience necessary to purchase and manage an entire farm. Investing in farmland online is a way for investors to own shares of farmland and earn passive income. In the past, there were limited opportunities for investors to own farmland. Today, there are many new models and ways to add farmland to your portfolio without buying and managing a whole farm. Online investment platforms have made investing in farmland more approachable for the vast majority of investors.
The LANDTHINK audience certainly expressed mixed opinions on the reasoning behind why they view farmland as a good investment. The results of our informal online survey were all over the board, but the largest percentage (33.2%) indicated that their interest in farmland was due to its attractive long-term returns, followed by 20.9% of our audience, who indicated that they believed farmland to be a good investment because of the growing global demand for food. This was followed closely by 20.8% who said that investing in farmland was a good way to get away from the mainstream financial system. Only 17.4% said they would invest in farmland for portfolio diversification and just 7.6% said they would choose farmland because it serves as a hedge against inflation.
LANDTHINK would like to thank AcreTrader for sponsoring the November Pulse and for coming up with a very interesting question to pose to our audience. AcreTrader is an investment platform that makes it easy to own shares of farmland and earn passive income, starting in just minutes with an online account. Founded in 2018, AcreTrader aims to provide transparency, security, and liquidity to the farm investing market, while eliminating the friction and headaches traditionally associated with owning land – handling all aspects of administration and property management, from insurance and accounting to working with local farmers and improving soil sustainability. For more information on how to become a farm investor or to sell your farm through AcreTrader, please visit acretrader.com.
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