AcreTrader Review: Invest in Sustainable Farmland
AcreTrader is an online platform that lets you invest in farmland, an asset class with historically high returns and low volatility.
SustainFi Updated January 14th, 2022
Rating: Excellent (4.2 / 5)
- Investment Type: farmland
- Target return: 7-9%, including farmland value appreciation and 3-5% cash yield each year
- Minimum Investment: varies, generally starting at $15,000
- Hold period: generally 5, 10 or 20 years
- Fees: 0.75% management fee + closing and seller fees
- Accredited investors only
- Invest in farmland with a relatively low minimum investment
- Earn passive income each year
- AcreTrader accepts < 1% of land parcels they review
- Farmland has had great historical returns and low volatility
- Farmland has a low correlation with other assets, like stocks
- Farmland could protect your portfolio against inflation
- Leading Harvest certified
- Accredited investors only
- No secondary market for your investment
- Long hold periods
- Past farmland performance doesn’t guarantee future performance
- Few offerings on the platform
- Concentrated investments in single farms only
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What is AcreTrader?
AcreTrader is an online platform that lets you invest in farmland. We need more food to feed the world’s growing population, and giving more capital to farmers makes sense economically and socially.
Not only that, but farmland has been a great investment, with an average 10-11% annual return and low volatility. However, until crowdfunding platforms like AcreTrader emerged, investing in farmland was too labor-intensive and complicated for non-professional investors.
AcreTrader makes it easy to buy farmland by doing all the legwork for you. They find attractive parcels of land, do due diligence, take care of legal paperwork, and handle insurance. And you can invest without buying the entire farm. Once investors buy the land, AcreTrader leases it to individual farmers, who pay cash rent.
As an investor in farmland, you make money from:
- Annual cash rent paid by farmers, typically 3-5% of the value of the land
- Farmland value appreciation
AcreTrader targets an annual return of 7-9%, which is more conservative than the 10-11% return farmland generated over the past three decades.
AcreTrader is committed to sustainable farming, working with farmers to promote sustainability practices. The platform has joined Leading Harvest, a nonprofit making sure that land is sustainably managed and sustainability efforts are measurable. AcreTrader has offered investments such as a wind energy-producing farm and several farms in transition from conventional to USDA Certified Organic crops.
Founded in 2018 and based in Fayetteville, Arkansas, AcreTrader has raised $58 million from investors. Before starting AcreTrader, the CEO, Stephen Malloy, was an investment professional at an investment fund.
Should you invest in farmland?
Since 1992, farmland has performed very 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. )
Going forward, farmland prices in the U.S. should benefit from limited supply and growing demand. The supply of farmland in the U.S. is shrinking due to development, and demand for food is increasing as the global population grows.
Besides, farmland prices have been negatively correlated with the stock market, meaning that they move in the opposite direction to stocks. A negative correlation is valuable because it could protect your total assets if stocks drop.
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 profit from rising food prices. Another popular way of hedging against inflation – buying gold – is less attractive because gold doesn’t generate income.
How does AcreTrader select the investments on its platform?
AcreTrader has a three-stage due diligence process, which eliminates over 99% of the land parcels they evaluate. They source deals from a network of farmers, real estate brokers, and industry contacts. Someone visits the farm as part of the diligence process.
Although AcreTrader tries to list new farmland weekly, as a result of their vetting process, they don’t have as many offerings as other platforms. On January 14, 2022, AcreTrader had one listed investment, the Spoon River Farm in Knox County, Illinois.
Farmland offered on the platform is generally located in the Midwest; many farms produce corn and soybeans. We’ve also seen alfalfa, onions, sugar beets, almonds, pistachios, hops, mixed vegetables, avocados, rice, olives, citrus, walnuts, and pecan farms. Crop yields, i.e., how much farmers pay in rent, vary by property.
How AcreTrader works
- Each farm and its legal title are placed into a legal entity, usually an LLC
- You review the offerings and find what you want to invest in
- You buy shares in the entity that owns the farm; this takes a few minutes online
- Until the fundraising target is met, your money is held in escrow at North Capital Investment Technology
- After the deal closes, AcreTrader takes over property management, insurance, accounting, and working with farmers
- AcreTrader leases the land to local farmers who plant, harvest, and sell crops. Farmers pay cash rent before crops are planted, which reduces your risk in case the harvest is bad. Rent is kept in a bank account that belongs to the entity
- Each December, you get cash dividends from the farm; AcreTrader expects a yield of 3-5% for lower-risk farms (for a target annual return of 7-9%, including farmland value appreciation)
- You get tax documentation by February the following year
- You should expect to hold the land for 5-20 years. When the land is sold, you get your money back plus any appreciation in value
AcreTrader investment terms
Is AcreTrader only for accredited investors?
AcreTrader is only for accredited investors. Generally, to be an accredited investor
- You must earn at least $200,000 a year for two years and expect the same this year, or
- Your net worth, excluding your primary residence, must exceed $1 million
The Securities and Exchange Commission (SEC) website lists several alternative criteria you may use to qualify.
Investing with an IRA
Besides wiring money from your bank account, you can also invest using a self-directed IRA. Self-directed IRAs let you make tax-advantaged investments in alternative asset classes, like farmland. You can open a self-directed IRA with a service like Rocket Dollar. AcreTrader is one of their partners.
AcreTrader minimum investment
Each listing has its own minimum investment, and most offerings require a $15,000-$40,000 investment. In practice, this means you need to buy at least 1-4 acres of land. However, several recent offerings had minimums under $15,000, so you might get lucky if you want to invest less.
AcreTrader charges a flat annual fee of 0.75% of the value of land, which is deducted from the income of the farm. The admin fee pays for AcreTrader to manage the land, the farmers, and deal with accounting, legal, and reporting. This is in addition to pass-through closing fees, which are typically around 2% of the total value of the offering.
AcreTrader expects to make most of its money from seller fees: when the farmland is sold, they will charge around 5% of the value of the farm.
Unlike many crowdfunding platforms, AcreTrader doesn’t charge carried interest, i.e., the share of the profits from your investment.
The specific fee structure varies by deal, so you should review the offering document before you invest.
When will I get my money back?
You should expect to hold the farmland for a hold period of 5, 10, or 20 years, depending on the offering. But the hold period is not definitive; it will depend on market conditions and opportunities. If AcreTrader can sell the land at an attractive price sooner than expected, they will. On the other hand, if market conditions are bad, they will wait.
Is there a secondary market for my farmland investment?
At the moment, there is no secondary market for your investment. So only invest what you don’t need in the short term. However, AcreTrader is thinking about creating a secondary marketplace that will let you resell your land after a 1-year lockup period.
You may still be able to resell your investment in a private transaction subject to resale restrictions, but no one can guarantee that there will be buyers or that you will be able to sell your land for the same price (or better) than what you’ve paid.
All in, be prepared to own your investment for the entire hold period.
Is AcreTrader safe?
First of all, no alternative investment is safe. Although farmland has a great track record, past performance doesn’t guarantee future performance. The value of your land could decline due to market conditions or adverse weather events.
For example, the impact of climate change on farmland prices is a big unknown, even if you are investing in sustainable farmland. Changing weather patterns, reduced water availability, and droughts could affect farmland values ten or twenty years from now. Reduced water supply could also affect crop yields. And, because you are betting on a single farm, your investment is very concentrated.
Further, there is no established secondary market for your investment, so you may not be able to resell it and get the money back easily.
Your money is not FDIC-insured or SIPC-insured. AcreTrader is not a licensed broker-dealer or registered investment advisor. However, your investment is not an investment in AcreTrader. You own part of the LLC that owns the legal title to the land. That entity holds the physical farmland. Because the LLC or another legal entity is bankruptcy remote, you will still own the land even if AcreTrader is no longer around. In the worst-case scenario, another company can manage the property.
Although AcreTrader has only been in business since 2018, the startup has raised $58 million from venture capital firms, an impressive amount. The company is accredited by the Better Business Bureau, where it has an A+ rating. However, in the absence of a performance track record, we just don’t know how good AcreTrader is at picking farms and hitting the target returns.
💰 Should you invest with AcreTrader?
- If you are an accredited investor, investing in farmland is a great way of diversifying your investment portfolio, especially when inflation is high
- Historical and target returns are very attractive, and you are helping farmers feed the growing population
- However, AcreTrader is a platform with a limited track record, and you won’t be able to exit your investment for many years. So don’t invest all your money or any money you may need soon
NOT INVESTMENT ADVICE. The content is for informational purposes only; you should not construe any such information as investment advice.