Because land historically increases in value (in particular because there is a finite amount of it while desire to own it only increases over the years), it’s often found in investor portfolios. People prize agricultural investments because of their long-term stability. It also helps to invest in something that yields products that everyone needs to buy.
As you start to think of agricultural investments yourself, it will be useful to see what kind of options landowners have for income.
Individuals (or investor groups) seek farmland to own because they want a relatively safe place for their investment. However, you should partner with experts if you lack experience in the agriculture sector. You might leave money on the table without their experience.
For example, Successful Farming reports that landowners are losing approximately $8 billion in fees each year because they are renting the land at rates far below market value.
For better results, you’ll want to make sure you understand how to calculate the value of farmland and how to estimate its condition (so you will know how valuable it is in crop yield potential). And when you decide to rent, you’ll want to speak with many farmers for comparison, and check their references.
This isn’t about farming niche, custom agriculture products. Custom farming involves a landowner making fixed payments to a custom farming operator, as noted by Iowa State University. The hired farmer does specific, custom tasks, such as handling all growing or harvesting of a crop.
In cases where the owner wants to motivate the farmer to produce more, an arrangement can be made to give the farmer a share of the crop instead of just paying fixed fees. The more the farmer grows, the more he or she will earn.
Custom farming is an excellent option for generating income from your farmland, without bearing any of the work yourself. The most important thing is to seek an experienced custom farming company who has success in farming the commodity you are looking to grow. This will help ensure a higher yield and more profits from your farm.
Another approach to agricultural investment is owner financing. You own the farmland and then transfer the title to a farmer who is buying from you. In this situation, you are acting as a bank, as noted by On Pasture. A benefit to farmers/buyers is that they can start farming land even if they lack collateral or do not have good credit. Owners can earn money over the years in the form of interest they add to the normal payments on principal.
Sometimes it will make the most sense to sell farmland. NPR gave an example of Ray Williams, a lawyer who became a farmer who grew organic grain to feed cows on a 3,000-acre spread in Oregon. But Williams and his brother recently came to realize they were getting too old to work on the farm.
They wound up selling their farm for $23 million, to a company that’s registered in Delaware and has a mailing address in Manhattan. The new owner prefers to remain anonymous. Meanwhile, the Williams brothers made a $3 million profit selling farmland when it was the right time to get out of the business.
If you’re relatively new to the idea of agricultural investment, you may be looking for more information about how landowners are making profits. Farmland ownership is the dream of many Americans who want to invest in a crucial industry we all depend on. Now, more than ever, it is easy to take partial ownership in an American farm. Learn more about available farmland ownership opportunities here.