AcreTrader Review: My Investment in Cash-Flowing Farmland

I was never cut out to be a farmer, though. I wasn’t much of a wrestler, either. I do, however, know the benefits that we all reap every day from the hard work that farmers do and the fertile soils that they tend to.

I’ve known that agriculture can be a profitable and reliable business, but until recently, I didn’t know of a good way to participate as an investor in the field. AcreTrader has changed that, making it simple for accredited investors to own a piece of a crop-producing, cash-flowing farm without getting their hands dirty.

Why Invest in Farmland?

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If it weren’t for farmers and farmland, I wouldn’t be able throw down on some Triscuits and cheese, Cobb salad, or a sirloin steak. I could probably cobble some sort of salad together with a garden and a green thumb, and I’ve managed to grow some hops at home, but modern agriculture makes it infinitely easier to enjoy an incredible variety of foods ’til the cows come home.

Besides the obvious fact that farms produce food and you eat food, there is some historical data that farmland has been a strong investment with relatively low volatility and strong returns. Since 1990, farmland has produced, on average, a total return of 11.5%, and has done so with lower volatility than other asset classes offering double digit returns.

AcreTrader would rather underpromise and overdeliver, and most investments offered suggest a total average annual return in the 7% to 10% range. While you’re not likely to see the 20% and higher IRR that some crowdfunded real estate investment opportunities have returned, I personally see a lower risk with farmland.

In most deals, no leverage is used in the purchases of the farms on the AcreTrader platform. The investor’s gains come from rent paid and price appreciation of the property. This model is very similar to that used by Republic Real Estate (formerly Compound) when they invest in condominium properties.

Compare this model to a typical real estate investment that uses leverage (i.e. debt) to purchase a property. If an equity investment uses 60% to 70% leverage (which is typical) and the value of the property drops 30% to 40% (atypical but possible — see 2008), a $10,000 investment in that property would now be worth $0.

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