If you look up at the elites of society, the richest people in the world will not shy away from telling you that buying farmland is a great investment. Before their divorce, Bill and Melinda Gates had already accumulated roughly 270,000 acres of farmland. Jeff Bezos, the founder and chairman of Amazon, has amassed 420,000 acres in recent years. Other noteworthy farmland investors include the likes of Ted Turner and Thomas Peterffy.
You might think that farmland investments may be out of reach, but today there are viable solutions everywhere. Thanks to technology improvements and advanced services, accredited and non-accredited investors can easily participate. Here are some prominent reasons you should deeply contemplate investing in farmlands.
Variety of Ways to Earn Passive Income
One of the biggest advantages to investing in farmland businesses is that you don’t even have to step on a farm and can simply pool funds to start earning passive income. To further elaborate on this, here are some possible means through which you can achieve this:
Acquire Land Ownership Titles–Online platforms like Farmfolio offer you the ability to purchase subdivided pieces of larger farms openly. A turnkey system managed by FOA (Farm Owners Association) manages all operations related to the farms. Earnings are directly linked to the agricultural produce and harvest of the farms. You continue to receive payments directly until you decide to sell your title to someone else.
Buy Agricultural Equities and Stocks–Fundagricultural companies by buying shares on the stock market with the expectation that their value will rise, resulting in capital gains and generating capital dividends over time. Your equity represents the stake you have within the company as a shareholder. ROE (return on equity) measures the profitability of a business where it can be calculated utilizing returns on assets minus all liabilities.
Fund Farmland Debts–Farmowners are always looking for additional funds to obtain the necessary machinery and equipment to run and operate on their farms. Furthermore, capital is also a prerequisite to procuring fertilizers and various other resources necessary to carry out their activities. You can act as a lender and benefit from long-term cash inflows as they try to pay you back interest payments along with the principal amount.
Invest in Agricultural ETFs–These exchange-traded funds can be bought on stock exchanges and hold various agricultural assets, commodities, and future contracts. Agricultural ETFs are attractive due to their low costs as well as the benefit of traceability and tax efficiency. Shareholders of ETFs are entitled to a portion of profits that can include dividends and interests along with the residual value of the fund if it undergoes liquidation.
Join Agricultural Mutual Funds–The types of financial vehicles are made up of a pool of funds from a range of investors granting access to an assortment of assets, instruments, and securities. Mutual funds often comprise a broad swath of companies involved in agriculture and farming-related commercial activities. You can earn through dividends, interests, an increase in the price of securities (capital gains), and a rise in fund share prices.
Participate in Agricultural REITs–Agricultural-based real estate investment trusts are formed by companies that handle income-producing farmlands. They can also be found on major exchanges and publicly traded. Earnings are similar to holding stocks. You not only receive dividends from profits, but you can also sell shares when their marketplace value increases. In order to avoid corporate taxes, 90% of net earnings are distributed each year to shareholders resulting in higher income for investors.
An Array of Undeniable Benefits
When it comes to farmland investments, they are accompanied by a collection of advantages such as:
- A natural hedge against inflation since fertile land’s appreciation is unstoppable. Not only do these income-producing properties increase in value, but they are also scarce, making them even more prized.
- Growing yields thanks to advancements in research & development and technology along with industrialization mechanizations that massively boost crop output.
- Substantially low-risk investments outperform other secure investments such as real estate, securities, and bonds.
- There are many business types out there for investing, including crop harvesters, equipment manufacturers, fertilizer companies, food distributors, logistics & transport, and seed producers.
- The world’s global population is highly dependent on the agriculture sector, which produces essential raw materials, fibers, food products, and fuels.
Final Word
Without question, cultivating livestock and crops has played a key role in the development and rise of human civilization dating back thousands of years. There is no doubt that farmland and the agriculture sector offer tremendous support to any nation’s economic output and are a crucial part of commerce around the world. With the population increasing, there is a growing demand for food products and other agricultural produce. Investing in farmlands now is a lucrative option that can potentially help you reap the rewards for countless years into the future.