The U.S. Department of Agriculture (USDA) predicts that there are 911 million acres of agricultural land in America. About 61% of the property used by farmers and ranchers is their own, with the remaining 39% being rented from other landowners. The remaining 31% of America’s farmland is held by investor groups (including retired farmers), with 21% owned by non-operating individuals or partnerships and 10% controlled by companies, trusts, or other owners. Other operators own 8% of this land.
With this distribution, just a tiny portion of the farmland in the nation is owned by non-farming investors. However, a renowned farm real estate company Union County, IA, confirms that this portion has expanded as more investors add profitable farmland to their investment portfolios. This article will examine the factors influencing investors’ decisions to purchase farmland and the expanding range of strategies for including this asset class in a portfolio.
Why should I buy farmland?
Farmland has a long history of providing reliable returns for investors, which is why more of them are turning to it as an investment possibility. There are two types of returns:
- Increases in the value of farms.
- Crop yields or rent payments in cash.
Farmland values in the United States have increased by 6.1% annually over the past fifty years, with only five years experiencing declines. The return to investors has been remarkable even before, including the cash rent yields. Except for the Dow Jones REIT Index, it has outperformed all other asset classes throughout that period to put that return into context.
Aside from the potential for above-average overall returns, owning farmland offers investors several additional advantages:
Low volatility
Historically, the volatility of farmland returns has been lower than that of most other asset classes.
Minimal correlation
Generally speaking, farmland returns don’t follow the same trend as the stock market. In numerous years when the S&P 500 has experienced a decline in value, farmland has generated a profit.
Hedge against inflation
Farmland is a valuable resource that yields goods like corn and grain. As a result, it gains from inflation because it would raise crop income and acreage values. Because of this, some people refer to farmland as an investment that yields like gold.
Options for investing in a farm in Union County, IA
Buy land directly
You can acquire uncultivated land and convert it to cropland, pastureland, or an urban farm. You can buy the land for less money, which allows you to earn a larger cash yield and profit from a higher increase in the value of the land.
Renting a farm
You can acquire a farm or other agricultural property and rent it to a fresh tenant. According to experts from LandProz real estate LLC an investor might receive a larger return if they choose this option.
A sale-leaseback agreement for a farm
Last but not least, you can acquire an existing farm through a sale-leaseback arrangement, where the present farmer keeps working the land and pays you the rent. This is the least dangerous and passive option to invest directly in farms.
