Due diligence refers to your active efforts to obtain all necessary information and verify all claims with regard to a specific purchase, investment, or other contract. Simply put, it’s your attempt to double-check everything and learn as much as you can before actually committing to a deal.
Because that deal involves investing your hard-earned money into farmland or agricultural business operations, you must conduct at least some basic due diligence. Whether your farmland investment will be the outright purchase of an existing agriculture operation, shares of a real estate investment trust (REIT), a crowdfunding opportunity, or some other arrangement, you should carefully evaluate the property and the contract provisions. It’s paramount that you make sure you and the seller are in complete agreement, and that all relevant details about the property and farming operation have been fully disclosed.
Due Diligence Basics
The information to be gathered and verified about an agriculture investment can be broken down into a few major categories. Among the most basic facts are:
- Full name(s) of the farmland’s current legal owner(s)
- Contact information for all owners
- Mailing and physical address(es) for all owners
- Physical address of the farmland
Farmland Property Specifics
After verifying the basic data about your potential farmland investment, continue by checking into the property’s more specific details such as:
- Total acreage of the farm
- Current property zoning divisions
- List of all buildings and structures on the property
- List of equipment, if any, that will be included with transfer of title to the property
- List of any recent improvements made to the property
- Soil quality and water availability
Current Usage Details
Following the verification of your farmland investment’s basic details and land-oriented specifics, the next category for your due diligence involves the current use of the property. For example:
- Is the farmland being utilized for its intended purpose?
- List, count, and description of all active uses, including crops (and current harvest cycle), livestock (and feed prices), and/or other notable engagements
- Are property owners actively engaged in the operation of the facility?
- Is the land currently leased out? If so, what are the provisions of the lease?
- How much revenue (gross & net) is received from the leases?
- How much revenue (gross & net) is received from all of the farmland’s different operations and activities?
Miscellaneous & Personal Information
Lastly, the final pieces of information you should seek to obtain are of a more personal nature and, therefore, may also be considered by some to be less vital than the previously mentioned data points. However, it’s also these personal details that often serve to solidify the entire deal, shedding light and providing clarification that could not otherwise be gleaned from financial documents or property reports. For example:
- What are similar properties/farms in the area selling for?
- For how long have the current owners held the property?
- From whom did the current owners obtain/acquire the farmland?
- Why is this property being sold?
- Are there other active farms in the nearby area, or is this property the only one?
Performing your due diligence is a necessary step involved in buying or investing money into farmland or any agriculture business. The process serves to validate the details and information given by the seller, broker, or investment company. It also helps to ensure your decisions are made with full knowledge of any and all issues, risks, or other potential outcomes.
Don’t be afraid to get personal here, either, most especially if you’re considering spending a large amount of money. Additionally, make an effort to visit the property or the site of the agribusiness operation so you can see it for yourself.
FarmFundr understands the value of proper and comprehensive due diligence, which is why the available crowdfunding opportunities have already been examined, and the details of those operations are clearly presented. To learn more, start by signing up for a free account and downloading the Ultimate Guide to Investing in Farmland.