This article is sponsored by AcreTrader
Real estate crowdfunding is exploding!
We’re seeing new platforms emerge each year aimed at giving investors unprecedented access to real estate assets.
Now, a new platform has emerged that allows you to invest in farmland. You can actually own shares of farmland and earn passive income.
This website is called AcreTrader and was founded by Carter Malloy in 2018. The site has opened up an entire new asset class that has its own set of benefits and drawbacks.
In this article, I want to get into how you can use this platform, who it’s for, and also some of the pros and cons you should consider before getting started.
By the end of this article, I hope that you have a crystal clear idea of whether or not this is a good investment opportunity for you. Enjoy!
How Does AcreTrader Work?
First of all, AcreTrader is tasked with using their experienced internal team to identify and research profitable farmland. You don’t have to do anything.
Once the team has located suitable land (less than 5% approval), the legal titles are then placed into a special purpose vehicle like an LLC. This allows the formation of a contract between the land owner and the unique entity.
From this point on, the investment opportunity passes through a due diligence process aimed at assessing the viability of the deal.
You’ll then be able to invest in these farmland deals on AcreTrader for as little as $1,000. Effectively, you will be purchasing shares in the entity that owns the farmland.
Summed up, this is a simple 5 step process:
- Farm Selection & Entity Creation: The team at AcreTrader forms contracts with land owners and places the assets into a unique entity.
- Investment: You can browse different opportunities on the platform and invest as little as $1,000
- Farm Management: The platform team handles the administration of the property. You don’t have to deal with accounting or local farmers.
- Income: You can earn income through dividends and appreciation of the underlying asset
- Exit: You can exit your investment and sell your shares on the AcreTrader marketplace.
Who Can Invest on AcreTrader?
Though AcreTrader plans to open up to all investors later this year, at the time of writing, only Accredited Investors can invest on AcreTrader. These are high net worth individuals that meet this criteria.
Basically, if you earned $200k last year or have a $1 million net worth (excluding your house), then you may qualify.
If you qualify, then you can invest at the typical minimum of 10 shares, which works out to be about 1 acre of land. This initial investment will vary, but you can expect it to be between $3k – $10k.
Once you make your first investment, you then have two options as to how to cash out. Depending on what type of investor your are, you might elect to hold your shares for the maximum hold period (3, 5, 10, or 20 years). Others might prefer more liquidity and in that case can sell their shares on the AcreTrader marketplace.
This is a type of “hands off” investment where you will have no obligation regarding the administration, management, insurance, or accounting of the local farmland.
Dividends are generated through cash rent (40% of U.S. Farmland is leased). Each December, excess annual income is dispersed accordingly.
Pros of AcreTrader
There are many benefits to diversifying your portfolio with farmland. I want to outline a few of the positive elements of AcreTrader before we get into some of the drawbacks.
First of all, farmland has a very high cumulative return when compared to other major asset classes. The graph below is indexed to 1990.
According to this graph, $10,000.00 invested in farmland in 1990 would be worth over $187,100.00 today.
These returns have been very positive each year, indicating longterm preservation of capital. This could be due to a number of factors, including the narrowing supply of US farmland, the increasing demand, or the government sponsored actions to cultivate farming in the United States.
I think that the main benefit of AcreTrader is that you can invest in an asset class that previously is very difficult to reach. This new platform gives you the ability to participate.
With AcreTrader, you get:
- Hands-off investment (no farmland management)
- Unlevered gross yield of 3% – 5% for lower risk properties
- Typical target unlevered IRR goals of 7%-9% (this was historically 12%, so there may be upside)
- Liquidity through AcreTrader marketplace
- Low investment minimums ($1k)
As always, this is an opportunity cost that must be compared against other potential investments.
While there are clear benefits to this platform, there are also some drawbacks. I want to cover those in the next section. You’ll get a clearer picture of whether or not this should be a part of your portfolio.
Cons of AcreTrader
There are some clear drawbacks to this platform that I want to cover. Farmland is a great tool for portfolio diversification, but I would not recommend putting all your money into a farmland investment. Let’s discuss why.
First of all, each investment on the platform has a “hold period.” This is the anticipated length of time before the farmland is re-sold or traded hand. That length of time could be 3, 5, 10, or 20 years.
Throughout this “hold period” you will ONLY be receiving dividends from your investment. Basically, there is less liquidity, as your money is tied up in the farmland investment.
AcreTrader counteracts this through their creation of the AcreTrader Marketplace, which is still in development and expected to arrive late 2019. Assuming this is set up in time, you will also be subject to a 90-day lock up period after the initial investment, where you can’t trade the shares.
Another drawback is that since you are investing in farmland, you will also be at the mercy of variables outside of your control. These could include commodity prices, global/local demand, and government intervention.
These factors have not hurt longterm historical returns, however the future is unpredictable. This is something to keep in mind.
Lastly, I think that one of the major cons of AcreTrader is that the website takes a flat annual administration fee of 0.75% (of overall farm value) that is typically deducted from the income of the farm.
If you wanted, you could set up your own arrangement with a farmer and bypass this entire step to avoid the fee. It really depends on how “hands on” or “hands off” you want your investment.
0.75% is a much smaller management fee than what farmland private equity funds or REITs charge, but it is a fee you can avoid if you know how to buy and manage farms on your own.
Should You Invest on AcreTrader?
It comes down to your goals as an investor.
I like the website due to the low volatility with farmland, security of capital, and that you can now participate in a new alternative asset class.
If you need a fast investment ROI, this might not be the right one for you. This investment is more geared to passive income through dividends and potential asset appreciation.
I’m excited about the potential of a new industry in the crowdfunding industry and looking forward to seeing some of the properties listed on the site.
