FarmTogether Review: Is Farmland a Good Sustainable Investment?
Climate change luminary and Microsoft founder Bill Gates has recently been on a farmland investing spree, buying up enough land to become the largest private farmland owner in the U.S. Driven by environmental pressures, arable land has become one of the hottest asset classes. Thanks to several farmland crowdfunding startups, more investors can participate. FarmTogether is one such startup, letting accredited investors buy farmland with only $15,000.
SustainFi Updated February 20th, 2022
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Rating: Good (4.0 / 5)
- Investment Type: equity investment
- Minimum Investment: $15,000
- Targeted Return: 7-13% (net of fees)
- Maturity: 5-12 years
- Liquidity: best efforts only
- Open to accredited investors
- Fees and expenses: vary, including a one-time fee, annual management fee, and profit-sharing
- Farmland has been a phenomenal asset class over the past 30 years, generating ~10% returns with limited volatility
- FarmTogether makes investing in farmland accessible to investors who don’t want to negotiate their own deals and deal with farmland management
- Farmland has historically had a low correlation with other asset classes
- Sustainable farming certification from the Leading Harvest Sustainability Standard
- Farmland can protect your portfolio against inflation
- The minimum investment is relatively low for this type of asset
- Open to international investors
- Only open to accredited investors
- New platform with a limited track record
- You invest in one piece of farmland at a time, so you are not diversified
- No secondary market for your investment (though there are plans to introduce a secondary market)
- Climate change could impact farmland values in the future
- Long holding periods (5+ years)
What is FarmTogether?
FarmTogether is a farmland crowdfunding platform that was started by Artem Milichuk in 2017. The San Francisco-based platform lets you invest in U.S. farmland without having to negotiate deals or manage the land. Historically, buying farmland has been very difficult for individuals. More recently, farmland crowdfunding platforms like FarmTogether and AcreTrader are making farmland investing accessible.
By investing in farmland, you earn money through:
- Income from the rent paid (if the land is leased) or revenue from the farm
- Land value appreciation (realized when the farmland is sold)
The founder, Artem Milichuk, was previously CFO at Full Harvest Technologies, a platform for buying and selling produce. He holds an MBA from Wharton.
Is farmland a good sustainable investment?
Farmland is seeing more interest from sustainable investors. Of course, not all farmland is sustainable (clearing the Amazon rainforest to raise crops certainly is not). But FarmTogether has committed its farmland to the Leading Harvest Sustainability Standard, which addresses 13 sustainability principles, including soil health and conservation and protection of water resources.
Sustainable investing opportunities include farmland that is transitioning from conventional to the organic model, which includes removing fertilizers and genetically modified seeds. For example, FarmTogether featured an investment in the Monarch Organic Citrus Grove in California and the Galaxy Organic Apple Orchard in Washington. The goal was to transition the latter property from a conventional apple orchard into a 100% organic orchard over two years.
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, particularly in states such as California. FarmTogether featured investments in almond trees in California, which need a lot of water. Reduced water supply could also affect crop yields.
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How does FarmTogether select the farmland on its platform?
FarmTogether has an investment committee, which includes the CEO. According to their marketing materials, the team only selects 3% of the opportunities they review. Their diligence includes soil, water rights, equipment, and the potential for capital improvements.
The team typically looks for permanent crops like tree nuts and citrus in California and the Pacific Northwest, though they also feature farmland from across the U.S. They always look for good soil and water availability and visit the properties for an inspection.
The platform works with experienced operators such as Farmland Opportunities. (FarmTogether doesn’t operate the farms day-to-day.)
FarmTogether tries to buy farmland at a discount, though it may be harder to do now, with the growing interest in farmland from other investors.
What are the investment terms on the FarmTogether platform?
When you invest with FarmTogether, you buy shares in a limited liability corporation (LLC) that buys the farmland. Along with other investors, you are a fractional owner of the land. Cash payouts are proportional to your ownership of the LLC. If you invest $15,000 in a $1 million offering, you own 1.5% of the LLC.
How do you earn returns on your farmland investment?
After you invest, you get:
- Rent on the farmland. Farmers who rent the land will make lease payments to FarmTogether. Investors receive these cash distributions (after property taxes, insurance, and other landowner expenses are deducted.) Distributions are made on a quarterly or annual basis, depending on the lease agreement.
- Land value appreciation. At the end of the target hold period, the land will be sold, and you will receive your share of the land value appreciation (the difference between the price at which the land is bought and sold.) Although nothing is guaranteed, land appreciates over time driven by inflation, growing population and food demand, and property improvements, such as the transition from conventional to organic farming.
FarmTogether will provide all the relevant tax documents.
Can you exit your farmland investment early?
Although FarmTogether will try to find a buyer for you if you need to exit sooner than expected, they don’t guarantee that you will be able to exit. Further, exiting early may be subject to extra fees or a lower valuation than the one you invested at.
FarmTogether investment terms
Each opportunity has its own terms, including:
- Target hold or for how many years you are expected to own the farmland until it is sold. As an example, Drummer Farm (shown below) has a 9-year hold
- Target IRR or your expected annual return on the farmland, including the rent you get each year and target price appreciation. For Drummer Farm, the target IRR is 7.9% on a tax-adjusted basis. Of course, this return is not guaranteed
- Net cash yield or the expected cash payment you should get each year from rent. It is expressed as a percentage of your initial investment. For Drummer Farm, the net cash yield is 2.8%, so, if you invest $100,000, you get an annual payout of $2,800 until the farmland is sold
- Net equity multiple is the money you are expected to receive divided by the money you invested. For Drummer Farm, it is 1.8x. If you invested $100,000, you are expected to receive $180,000 over nine years
- LTV or loan-to-value ratio is how much debt is put on the farmland divided but the value of the farmland. Leverage can boost returns, but it also makes the investment riskier. Drummer Farm has no debt, and its LTV ratio is 0%, but FarmTogether may use leverage to improve returns on other offerings
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How do I invest?
FarmTogether is for accredited investors only. You can only invest if you are an accredited investor. To be accredited, you must:
- Earn an annual income of over $200,000 for the last two years ($300,000 per household) and expect to maintain this income in the current year OR
- Have a net worth of greater than $1 million, excluding the value of your primary residence
There are several alternative qualifications. You will need to supply proof of income or net worth directly to FarmTogether or be accredited through services like ParallelMarkets, Verifyinvestor, or InvestReady.
Minimum investment. Minimum investments are between $15,000 and $50,000, depending on the deal. FarmTogether can also source farmland for investors who want to be sole owners and are willing to invest over $1 million in a transaction.
Fees. FarmTogether charges several fees, including:
- A one-time fee when you invest
- An annual management fee for managing the farmland
- A percentage of profits
Fees vary by deal. For example, the Monarch Organic Citrus Grove offering carried a 2.06% one-time fee (based on the amount raised), a 1.5% annual management fee (based on the amount raised), and a 5% profit-sharing fee (based on the profit earned by the land.)
Types of accounts offered. FarmTogether supports several account types:
- Individual taxable accounts
- Self-directed IRAs (through Alto IRA)
- Investments made via corporations and LLCs
The investment process. Signing up on the platform is very easy. You need to fill out a profile and confirm that you are an accredited investor. To make your first investment, you need to pick the deal (the platform is offering one deal at a time), confirm the amount you want to invest, and sign an electronic agreement.
Is FarmTogether safe?
FarmTogether has an impressive management team, advisory board, and expert board.
You are also investing in a Delaware LLC that owns the farmland, not in FarmTogether the platform. Should FarmTogether fail, you will still own the farmland, though finding an external manager to administer the land may be a hassle.
However, FarmTogether is a new platform with an unproven track record of selecting farmland. Also, you will be investing in only one piece of farmland at a time.
Like any alternative investment, investing in farmland carries risk, and you should only invest a small percentage of your assets. The impact of climate change on any individual piece of land is uncertain, and your farmland could experience floods, droughts, fires, and other issues.
AcreTrader vs. FarmTogether
Although AcreTrader and FarmTogether are both farmland crowdfunding platforms with similar investment terms, there are some differences in how they make money.
Where FarmTogether wins:
- No fee when the farmland is eventually sold
Where AcreTrader wins:
- No carried interest or profit-sharing
- Lower annual management fee
🔔 Read our review of AcreTrader.
Iroquois Valley Farmland REIT vs. FarmTogether
Iroquois Valley also lets you invest in farmland, albeit in a pool of farmland, not in individual plots.
Where FarmTogether wins:
- You get to pick individual investments
Where Iroquois wins:
- You get to invest in a diversified pool of assets
- All assets are certified organic or are transitioning to organic
- Lower minimum investment ($10,506)
- Open to non-accredited investors
🔔 Read the review of Iroquois.
Farmland has generated great returns, despite low volatility and a negative correlation with stocks. It can also serve as a hedge against inflation. Until now, most individual investors couldn’t participate because of the difficulty of investing. Thanks to platforms like FarmTogether, more individual investors can buy farmland.
If you are an accredited investor, you should consider adding sustainable farmland to your portfolio. However, we do not recommend allocating a material percentage of your assets to farmland. Like any alternative asset, it is risky, especially if you invest in one piece of land at a time.
🔔 Looking for other ways to invest in farmland? Check out the guide to farmland ETFs.
NOT INVESTMENT ADVICE. The content is for informational purposes only; you should not construe any such information as investment advice..