AcreTrader
Strengths
- Invest in farmland
- Equity appreciation & cashflow from rents
- Can invest in a self-directed IRA
Weaknesses
- Young company (founded 2019)
- Accredited investors only
- Illiquid investment (5-20 years)
Do you know how much an acre of farmland is worth?
$3,160.
It varies from region to region but nationally, according to the United States Department of Agriculture, it is $3,160 per acre in 2018 (up from $3,100 in 2017). The National Agricultural Statistics Service reported that statistic and more in their Land Values 2019 Summary published in August 2019.
As you'd expect, the land value increases based on where it is and what is able to grow there. California is so valuable because of what they produce – almonds, grapes (wine!), and other high dollar crops.
The dollar amounts are unimportant but redder is better.
But owning a farm is not feasible.
And thanks to crowdfunding real estate sites, you can invest in an acre of farmland and not farm it yourself.
That's where AcreTrader comes in.
What is AcreTrader?
In 2018, AcreTrader opened its doors and allowed investors to buy parcels of farmland. Based out of Fayetteville, Arkansas, the company was founded by Carter Malloy, who was working in financial services but grew up in a farm family.
When you invest with AcreTrader you're not taking direct ownership of the farmland. Instead, you're buying shares of various farm properties. Income is generated in the form of either rent from the land or from gains on the sale of the property.
AcreTrader has a Better Business Bureau rating of “A-” on scale of A+ to F.
Before we get any deeper into this review, let's first attempt to answer the most basic question:
Why Invest in Farmland?
The idea of investing in farmland may seem like a radical concept, especially when more conventional forms of real estate investment involve commercial and residential properties. But according to research from AcreTrader, farmland has been one of the best performing investments since 1990. In fact, it's only been outperformed by general real estate investment trusts.
Had you invested in farmland in 1990, a $10,000 investment would grow to $199,700 by 2018.
The screenshot below provides a visual of the performance of farmland compared to other types of popular investments. It has even outperformed the S&P 500 index.
This is from the USDA NASS (data goes back to 2005):
This is the national average, so regional growth will differ.
There are abundant reasons to believe the future holds more of the same. The world's population, already fast closing in on 8 billion, is expected to reach 10 billion in the next 30 years. And as Will Rogers once famously said, Buy land, they ain't making any more of the stuff. Technology has played a role in increasing crop yields, but it takes land to grow food in the first place.
There are several other reasons why farmland is a desirable investment:
- It's an investment that's outside the financial system.
- Farmland produces a real, necessary commodity – food. That will never go out of style.
- It has low historical volatility, which limits price declines even in bad years.
- Farmland is a true alternative investment, because its price levels are not tied to movements in other assets.
- The high level of national debt and the potential for money printing offer the likelihood farmland values will increase even faster in the future.
This doesn't imply you should sell your other investments and move all your money into farmland. But it does show that farmland may have a place in a well-balanced portfolio. Land, after all, and farmland, in particular, is the most basic of all commodities. Nothing is produced without it.
To help you gain greater insight, AcreTrader is offering their free Farmland Investing White Paper. You can obtain a copy by providing your name, email address, and phone number.
With that information in mind, let's get back to AcreTrader, and how it will enable you to successfully invest in farmland.
How AcreTrader Works
Since AcreTrader is a real estate crowdfunding platform, investors can come to make investments in farmland, while farmers can sell their land to those investors.
In the case of each investment, the property is owned by an LLC created by AcreTrader. The company will lease the farmland to reputable local farmers who pay a predetermined cash rent, which is common in the farming industry. To decrease the risk of nonpayment, rents are collected in advance of the planting season. If a farmer doesn't pay, a new farmer will be located to rent the property.
To be eligible to invest with AcreTrader you must be an accredited investor. This is the case with any real estate investment platform that lets you invest in a specific property rather than a fund.
Requirements to be an accredited investor include at least one of the following:
- You must have an individual income in excess of $200,000 in each of the two most recent years or joint income with that person's spouse in excess of $300,000 in each of those years, with a reasonable expectation of reaching the same income level in the current year, OR
- An individual net worth, or joint net worth with that person's spouse, in excess of $1 million not including your primary residence.
As an investor on the platform, you can select among investments that have been fully vetted by AcreTrader. You don't even need to have any knowledge of farming. AcreTrader conducts thorough due diligence on each parcel and will exclude any properties that don't meet their standards. Only 5% of farm properties reviewed are accepted for investment purposes.
You can review the offers online and choose the ones you want.
Each listing will display the minimum required investment, location, crops produced, AcreTrader Rating, gross cash yield and net annual return. You can click on each listing to get more information. There you'll find a general overview of the property, location maps, financial information on the farm, ownership documents, and the investment rating.
You'll be able to track information and developments about your investments on the AcreTrader Dashboard, though you may also be notified by email particularly when distributions will be made.
Income distributions on investments take place on an annual basis, usually in December.
AcreTrader Features and Benefits
Minimum investment. When you make an investment, you're not technically buying a piece of the farm. You get an ownership stake in the LLC that legally owns the property. A minor distinction that makes the transaction easier. The minimum initial investment is 10 shares, which is the equivalent of 1 acre of farmland. That would make the minimum initial investment between $3,000 and $10,000, depending on the particular parcel of farmland.
Investment term. Once you make an investment in a parcel of farmland, the expected term will range anywhere from five years to 20 years. The company is “exploring a secondary marketplace” allowing the sale of shares within that timeframe, but this is not guaranteed at this time. It may be possible to sell your shares to another investor in the same property through a private transaction though.
Tax considerations. At year-end, income distribution information will be disclosed using IRS Form K-1. This is the same form you'd get in almost any real estate crowdfunding platform that allowed you to invest in specific properties. Rent distributions, net of expenses, will be taxable in the year earned. Capital gains will be taxed in the year the property is sold, subject to lower capital gains tax rates.
AcreTrader Fees. AcreTrader is free to sign up. When you make an investment, there are closing fees, typically 2% of your investment amount. There is then an annual servicing fee of 0.75% of the value of the investment. AcreTrader also charges a 5% fee when the underlying property is sold, but that's paid by the selling farm owner.
Customer support. Available by toll-free phone and by email, though no specific days or hours of customer support availability are provided.
How to Sign Up with AcreTrader
To reiterate, you must be an accredited investor to invest with AcreTrader. You must also be a US citizen or a legal resident of the US. To sign up, you'll need to provide your full name, email address, and create a password. You can also sign up using your Facebook, LinkedIn, or Google credentials.
Next up is personal information, including bank account numbers for funding purposes and accreditation documents. Your bank information is not retained by AcreTrader, they use a third-party provider, Plaid. Plaid provides similar services for other investment platforms too. The situation is similar with your accreditation documents, which are held by another third-party service, North Capital Investment Technology.
All necessary documentation is both signed and sent electronically through the website. Your investment account will be funded by ACH transfers from a linked bank account.
Similar to other crowdfunding platforms, your investment doesn't become final until the fundraising target is met for a particular investment. A property will be offered for between 30 and 90 days. If it isn't fully subscribed, it'll be removed and any funds you've invested will be refunded. (Funds are held in escrow by North Capital, pending closing.)
AcreTrader Sign Up Walkthrough
Signing up is pretty quick – first, you register with your name, email, and setting up a password.
Then you have to declare your accreditation status:
Pick the status that best applies to you.
After that, your account is set up and you just need to fill in your profile, which at a minimum just means your identity (including last four digits of your Social Security Number and home address). It's to satisfy the Know Your Customer requirements of FinCEN.
You can skip these for now if you just want to look at the properties.
At the time I signed up (early October 2019), there were three Live properties:
The first one in Will, Illinois was fully subscribed. The second, a farm in IL that includes a wind turbine, was at 29% and the third, an almond ranch in California, was still being raised.
$34,267 an acre! No wonder almonds are so expensive! 🙂
For what it's worth, the two other farms were listed at a far lower price per acre. The Cottage Grove Row Crop Farm in Will, IL had a $4,461 price per acre.
How the AcreTrader Rating Works
Each property is given a rating from A1 to D3, based on the number of points it has. A1 properties have fewer points than D3.
Here are where properties can get points:
- Known Historical Flooding Problems – In the last 10 years, has the farm lost 10% or more of its crop due to standing water resulting from a non-resolved drainage issue?
- Known Water Access Problems – Does the farm lack access to water for necessary irrigation purposes?
- Direct Operations Planned – Are any investment funds being applied directly to working capital for day-to-day operations?
- No Current Tenant – Is there currently not a tenant farming the land?
- No Direct Access to Maintained Roadway – Is there no direct access to a local or national government-maintained roadway?
- Nearest Crop Delivery Point > 50 Miles Away – Is the nearest drop-off point for commodity delivery greater than 50 miles away, as measured using direct radius?
- Improvements Planned During Holding Period – Is more than 10% of the total offering value being contributed to asset improvement?
- Debt Involved in Transaction – Will there be any amount of debt placed on the subject offering?
- High Loan-To-Value of Debt – Will any amount of debt being placed on the subject property exceed a 55% loan-to-value ratio?
- Non-Farming Leases or Income in Place – Are there leases such as hunting, energy, or other non-farming-related leases in place?
- Non-Farming Assets Valued as Part of the Transaction – Are there non-core assets such as grain storage, house, shop, etc. taken into account in the farm's valuation?
- Low Activity Land Sale Market – Were there fewer than 10 land sales over $100,000 in value in a 100 mile radius within the last year?
The almond farm had 5 total points, putting it at a B2. The Cottage Grove Row Crop Farm in Will, IL had just one point and is an A1.
AcreTrader Pros & Cons
Pros:
- AcreTrader is an opportunity to invest farmland, which is one of the most basic kinds of “hard assets.”
- Annual average investment returns are between 9% and 11%.
- Farmland is an excellent alternative investment, since it tends to move independently of swings in the general financial markets.
- Investments provide a mix of ongoing annual rent income, as well as capital gains on the sale of the property.
- Given the long-term nature of AcreTrader investments, profits on the sale of the underlying property will be taxable at more favorable long-term capital gains tax rates.
- AcreTrader investments can be held in a self-directed individual retirement account (SDIRA).
- All investments are fully secured by the underlying farmland.
Cons:
- New company, having been founded only in 2018.
- You must be an accredited (high net worth) investor to be able to participate in investments on the platform.
- Your investment isn't liquid. The holding period on a farm parcel can be from five to 20 years.
- Income distributions take place once each year, typically in December.
- Neither income distributions or their timing are guaranteed.
AcreTrader Alternatives
Do you want to invest in farmland but don't see any opportunities on AcreTrader?
FarmTogether is another real estate investment platform that focuses on farmland. They are only for accredited investors at the moment with a minimum that varies from $10,000 to $50,000 based on the investment. Cash yields are paid out on a quarterly, semi-annual, or annual basis while the appreciation of the farmland is paid out at the end of the hold period.
It's set up very similarly to AcreTrader but, as you'd imagine, they offer different deals. If you're interested in this category, I suggest signing up for FarmTogether too because then you get to review all the deals that go through. It's free to sign up.
Should You Invest in Farmland?
AcreTrader investments are limited to accredited investors.
This is because investing in farmland is a non-typical investment, considered suitable for high net worth individuals who have the financial strength to withstand potential losses. It's important to understand that while each investment is expected to provide positive cash flow and sell at a higher price, the potential to lose money on any particular farm parcel is always possible.
However, if you're interested in investing in “hard assets,” adding farmland to your portfolio can be a welcome addition. It's not subject to the cycles and swings of the financial markets, and can be an excellent countercyclical investment.
And much like all real estate, it's a true long-term investment. Though you may be down on the investment at any point in the investment cycle, the long-term prospects are in your favor. As global population continues to rise, demand for food will increase with it. That will only increase the value of farmland over the long-term. And with inflation being virtually a matter of public policy in every major nation in the world, farmland is one of the very best hedges to protect your portfolio.
That said, what happens if things go south? What if they can't find a farmer to work the land or climate change impacts the profitability of the farm? These are all huge question marks that could impact your investments. I don't know enough to be able to provide any guidance on that front.
But if this does interest you, I suggest visiting the AcreTrader website and checking out what they have to offer. It's free to join and peruse the platform.
