What Should Wealth Managers and Other Financial Advisors Keep in Mind About American Farmland

July 26, 2021

Financial advisors as well as wealth managers who are currently looking to expand their services and provide a more comprehensive set of options to those they serve are coming to see farmland an attractive place to make investments.

A Desire to Invest in the Future of America

Agriculture is the backbone of the United States economy, making it suitable for all types of people who want to invest more in the future of the country in a direct, tangible way. 

There is only so much soil in the world. When a prepared advisor learns of an opportunity to invest in farmland and those who participate in developing the land, he or she will be taking into account many aspects of running an agricultural business. 

When not in profit-making mode, the farmland will at the very least be used for investors for tax deduction purposes.

Patience When Investing in Farmland

A degree of patience is always going to be called for when wealth managers consider farmland investment, as there is a great deal of preparatory work, that goes into growing crops and then harvesting these products for the nation as well as for export.

In some cases, farmers have a family business where they actually live on the premises. They are there day in and day out and are deeply engaged with their enterprise. 

But there are also situations where the land being worked is an agricultural business created to make a profit. As Investopedia puts it, “Investment farms are owned by investors who typically do not live on the farm or take part in any day-to-day operations.” So rather than farming the land they control, they hire employees to manage the facility as well as hired farmhands.

Know that the Market is Large and Strong

Investor advisors should definitely know that it’s a huge market. More than 1 million farmland owners exist in the United States today, per Wealth Management. But it’s becoming more common these days, for less of them to own the land they operate. About 55% of owners of farmland currently do not farm the land themselves.

The amount of land now rented for farming comprises 355 million acres, which experts value at $32 billion.

Approaches for Analysis 

Investors typically will need to do significant research before committing their assets. Iowa State University emphasizes that farmers are concerned with an economic analysis, to demonstrate just how much the land is worth now, based on its “net income earning potential.” 

And they simultaneously rely on accurate financial analysis, to determine whether the land will “generate a positive cash flow after paying all operating and ownership expenses as well as debt payments.”

Investors should be aware that future income from farms they invest in will either derive from cash crops, such as soybeans or wheat, or from sales made on feed for livestock. 

In some instances, farmland investment will include valuations that involve things you might not anticipate farmers would have anything to do with, including:

* Mineral royalties

* Recreational use fees

* Hunting rights rentals

Farmland that’s not yielding as much profit as investors had initial anticipated may still be used in a different way to restore profitability.

For example, they may find it’s best to sell the land outright after it has appreciated significantly. Or, there is a decision to sell part of the land so it can be used by developers involved in recreational businesses, or urban developers.

Preparing for a Farming Investment

At FarmFundr, we offer fractional ownership to high profit potential farms. We also can create a custom farmland investment for those interested in owning their own farmland asset. We work with family offices and wealth managers to find a farmland investment that is ideal for it's clients. Connect with the farmland investment professionals at FarmFundr today.