Iroquois Valley Farmland REIT: Invest in Sustainable Farmland (2021 Review)

The Iroquois Valley Farmland REIT lets you invest in organic farmland with as little as $10,506.

SustainFi August 16, 2021

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Rating: Good (4.0 / 5)

Summary

  • Investment Type: equity or debt
  • Minimum Investment: $10,506 – $50,000
  • Maturity: 5 years
  • Open to accredited and non-accredited investors

Pros

  • Open to non-accredited investors (REIT equity)
  • Support organic, regenerative agriculture
  • Strong historical returns
  • Investing in farmland helps protect your portfolio against inflation
  • Diversification benefits (farmland has historically had a low correlation with other asset classes)
  • You get to invest in multiple pieces of farmland at a time

Cons

  • Limited liquidity (you need to wait five years to get your money back)
  • Soil Restoration Notes only open to accredited investors
  • No secondary market for your investment
  • Climate change could impact farmland values in the future

Over 50% of U.S. farmland is planted with genetically modified crops (GMOs) like corn and soy. Fortunately, interest in organic farmland is growing. Individual investors now have the opportunity to support regenerative, organic farming practices.

What is the Iroquois Valley Farmland REIT?

Iroquois Valley Farmland REIT (Iroquois) is a restorative farmland finance company that provides farmer-friendly financing to the next generation of organic farmers. Founded in 2007 and based in Evanston, Illinois, Iroquois is a Public Benefit Corporation and a certified B Corporation. It is one of the first private companies in North America that lets you own a portfolio of certified organic farmland.

Founded by a former banker, David Miller, Iroquois Valley set out to transform conventionally farmed land into organic agriculture. By garnering investments from sustainability-driven investors, the company seeks to make organic agriculture the norm, not the exception. Since 2007, Iroquois has directed $60 million to that end, working with over 600 investors, many of whom are repeat investors.

Iroquois lets you invest through the REIT or promissory notes and then uses the proceeds to buy organic farmland or farmland that’s transitioning to organic, frequently at the farmers’ request. The land is then leased to farmers. Alternatively, Iroquois offers farmers mortgages to buy the land (like a bank would).

Farmland is located primarily in the Midwest and the Northeast of the U.S. Roughly 70% of farmers are millennials.

Initially, the farmers lease the land with five-year terms, but renewals are evergreen. Farmers get land security and, in return, share a portion of their revenues with Iroquois. Farmers pay the REIT a yearly lease payment based on the purchase price of the land plus a percentage of upside.

Initial (2007) investors have achieved a valuation at 2.7x their money and an 11% rate of return.

What is a REIT?

A real estate investment trust (REIT) is a company that owns, operates, or finances real estate by pooling the capital of numerous investors. This allows individual investors to make real estate-related investments without needing to buy or manage any properties themselves.

The primary requirement a company must meet to qualify as a REIT is to pay a minimum of 90% of taxable income to shareholders each year as dividends. REIT investors typically expect price appreciation and healthy cash flow from operations.

How does Iroquois select its farmland investments?

Iroquois works with many farmers, and land is typically bought at the farmers’ request rather than speculatively. So it’s really the farmers who are selecting the land that fits their needs. Iroquois works mostly with experienced organic farmers expanding operations. Most of the land they buy is dead soil monoculture farmland that the farmers are bringing back to life.

The transition from conventional to organic farming can be very expensive. Farmers choose to work with the REIT because of their farmer-friendly financing terms and deep understanding of organic farming. The farmers can then focus on what matters most: the long-term health of the land and the eventual consumers of its crop.

The REIT has invested in over 70 farms in 15 states, covering over 17,000 acres.

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What are the Iroquois investment terms? 

Iroquois offers two types of investments, REIT Equity Shares and Soil Restoration Notes, either of which can be held in tax-deferred retirement accounts. REIT Equity shares are available to non-accredited and accredited investors. Soil Restoration Notes are for accredited investors only.

REIT Equity Shares

  • Own stock in a diversified portfolio of organic farmland
  • Returns reflect the value of farmland (stock price) and annual profitability (dividend)
  • You can redeem your shares after five years
  • Invest with as little as $10,506
  • Available to non-accredited and accredited investors

By buying shares in the Iroquois REIT, you own a portfolio of organic farmland; your returns are tied to the value of the land and its profitability. Investments are open to non-accredited investors with a minimum investment of $10,506.

Because this REIT doesn’t trade on an exchange like a stock, you can’t sell your shares whenever you want. You are locked in for five years. REIT assets are evaluated annually by a third party. Iroquois is also required to pay out 90% of annual net income as a dividend.

How you can invest. Investments can be made via Iroquois Valley’s Online Portal or through certain brokerages with some restrictions (Fidelity, Pershing, TD Ameritrade, and Charles Schwab).

Account types: You can hold REIT shares in a taxable investment account or a tax-deferred account like an IRA or a 401k. 

Soil Restoration Notes

  • Loan capital to Iroquois, receive a fixed-rate of return
  • Five-year investment term
  • 2.25% annual return, paid semi-annually in January and July
  • $50,000 minimum investment
  • Accredited investors only

Iroquois offers promissory notes, the Soil Restoration Notes, a debt investment similar to a bond. Investors get a 2.25% annual return, paid semi-annually, over five years.

There is a $50,000 minimum investment, and the Notes are only available to accredited investors. (To qualify as an accredited investor, you must have either 1) an annual income exceeding $200,000 ($300,000 for joint income) for the last two years and expect the same or higher in the current year, or 2) a net worth exceeding $1 million, excluding your primary residence.)

How you can invest. You can invest via Iroquois Valley’s Online Portal.

Account types. You can hold the notes in a taxable investment account or a tax-deferred account like an IRA or a 401k. 

Has farmland generated strong returns?

Since 1992, farmland has performed remarkably well despite low volatility. (There isn’t much good data from before the early 1990s).

According to the National Council of Real Estate Investment Fiduciaries (NCREIF), the main source for farmland data, farmland prices haven’t had a down year over the past two decades, generating a roughly 10% return between 1992 and 2018. (As always, past performance data should be taken with a grain of salt. Farmland assets are closely held, and the number of farmland transactions has been limited. )

In addition, farmland prices were negatively correlated with the stock market, meaning that they moved in the opposite direction to stocks. A negative correlation is valuable because it could protect your total assets if stocks drop.

Going forward, farmland prices in the U.S. should benefit from:

  • Limited supply. The supply of farmland in the U.S. continues to shrink due to development
  • Growing demand. As the global population continues to expand, demand for farmland to grow food is increasing

Investing in farmland can also protect your portfolio against inflation. Rising food prices are one of the major components of inflation. By buying in farmland, which is used to grow crops, you are benefiting from rising food prices. Another popular way of hedging against inflation – buying gold – is less attractive because gold doesn’t generate income.

On the other hand, the impact of climate change on farmland prices is a big unknown, even if you are investing in sustainable farming. Changing weather patterns, reduced water availability, and droughts could affect farmland values ten years from now.

Is the Iroquois Valley Farmland REIT a safe investment?

Like any alternative investment, investing in farmland carries risk, and you should only invest a small percentage of your assets. Although farmland has historically had high returns, past performance does not guarantee future performance.

💰 Takeaway

  • Iroquois Valley Farmland lets you help organic farmers achieve land security
  • Farmland also lets you diversify your investments in a world full of assets that move together
  • Owning farmland can also protect your portfolio against inflation

Iroquois Valley Farmland REIT Alternatives

  • FarmTogether lets you invest in individual plots of farmland through its online platform
  • Harvest Returns offers unique agriculture investment opportunities, including orchards, hemp farms, hydroponic farms, and even cocoa farms in Africa

🔔 Looking for other ways to invest with impact? Check our guide to investing in communities and small businesses.

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