5 reasons why farmland might be investors' best bet
Investors looking for a financially sound long-term investment that is highly likely to generate returns should look no further than farmland. Plus, what’s better about farmland than many other types of assets, farmland can generate income for landowners in the meantime until they are at the point where they wish to sell.
Farmland isn’t always an easy asset to get your hands on, though. For those who are not familiar with farming, it is not always easy to manage, either. However, it is fairly well known that owning farmland can be lucrative for the savvy investor who knows their way around agriculture or is able to partner with a farm management firm or a similar professional.
So, if you are exploring investment options, then here are five reasons why farmland makes a good addition to any investment portfolio.
1. Farmland may be an opportunity you have never considered
Maybe you have never thought of investing in farmland. If that is the case for you, then perhaps that is all the reason you need to look into it as an option.
According to Forbes, the global farmland market is worth nearly $9 trillion. It also has a history of providing investors with high returns and low volatility. That market in the U.S. alone is about $2.5 trillion.
The value of land likely will continue to increase, too, as the world population is set to only increase. This will drive the demand for the food produced from land higher, taking land values up with it in most cases.
2. Farmland fits in any investment portfolio
Take any investor’s portfolio and we can assure you that there is room for farmland. It goes well with just about any portfolio and plan.
A couple of the reasons why is that it is not as susceptible to inflation and its ups and downs run opposite to other types of conventional equity investments, according to Forbes.
3. Tax exemptions and government assistance
There are some financial benefits to owning and investing in farmland that you may not know about. Did you know that income from land that is used for farming is exempt from the wealth tax? That’s a clear benefit of owning farmland for investors who either farm the land themselves or have entered into an agreement with a tenant farmer to farm the land and charge rent or share revenue in one way or another.
On top of that, mortgage interest can be deducted from your taxes, too.
Plus, if that wasn’t enough, there are also plenty of government grants that are available if you are looking to do the farming or livestock raising yourself. These opportunities are certainly worth looking into if you are familiar with farming.
4. More stable, better returns than the stock market
Most investors are familiar with the stock market. It is, after all, where most people invest their money. But investing in agriculture and land may be a better deal, as farmland is often more stable than the stock market. With land, value only appreciates over time. The same cannot be said for stocks.
Returns from land also outpace returns from stock. According to Harvest Returns, the annual return on farmland has averaged 11.5% over the last 25 years. Stocks, on the other hand, may get a 6-7% return, but even that’s if you sit tight with those for the long-term.
Again, that comparison is on average and the return may not be totally consistent from year to year. And, as with all types of investment, there are various risks to weigh, so it’s best to speak with a financial advisor.
5. More social impact from investing in land
There is a lot to be said of the very real social and economic benefits of investing in farmland. It’s about more than the finances for many in farming.
For one, an investment in farming can keep farmers farming. The surrounding community also benefits from jobs both directly and indirectly related to agriculture. Putting that land to good use can also help provide food and energy for customers around the world.
Put another way, investing in farming can be seen as investing in communities both local and global. It provides tangible benefits for both.
How to get started investing in land
Getting your foot in the door of the farmland investment market can be tricky for the experienced investor and perhaps a little daunting for those that are not familiar with agriculture or do not have a farming background.
Still, with the right advisors behind you, land can be acquired and added to your investment portfolio in a number of ways.
There are many new platforms and programs out there that make investing in farmland easier than it has ever been, but one of the ways to benefit from farmland as an investment and as a source of income is to buy the land directly.
That’s when you locate good land that can be used to produce crops or raise livestock. From there, if you are not going to farm the land yourself, you find a tenant farmer or rancher.
Buying land directly does have a significant cost at the onset, but the income from either rent or revenue sharing, depending on your lease agreement with that tenant, can prove very fruitful for all parties involved.
Midwest Land Management can help investors
Getting started in land investment or growing an existing investment portfolio is not easy and should not be rushed. So, no matter your situation, it’s critical that you find a trusted consultant or farm management services provider who can provide you with the proper information and guide you along the way toward achieving your goals.
That’s where Midwest Land Management can help. Our team will represent you in a professional manner in all areas concerning your farmland investment, including planning, accounting of farm income and expenses, contract and lease negotiations, soil stewardship, crop insurance and so much more.
Let’s work together on achieving your goals. Contact Midwest Land Management today.