Real estate platforms like AcreTrader have made investing in farmland an accessible opportunity for surgeons, doctors, and other healthcare professionals wanting to participate in farmland ownership. This blog post explores the ins and outs of AcreTrader, how it works, its benefits and risks, and examples of potential investments.
What Is AcreTrader?
AcreTrader is an online platform that allows accredited investors to invest in U.S. farmland, a real estate asset class previously limited due to high upfront costs and management burden. Founded in 2018, it aims to provide a transparent and straightforward way for individuals to diversify their portfolios with agricultural real estate. The platform emphasizes rigorous due diligence, selecting less than 5% of reviewed farms for investment.
Qualified Opportunity Zones (QOZ) Investment Through AcreTrader
Investing in Qualified Opportunity Zones (QOZ) offers potential tax benefits, such as deferral of taxes on reinvested capital gains and tax-free appreciation on investments held for over ten years. By investing in farmland within QOZs, qualified doctors and healthcare professionals with capital gains can help stimulate economic growth in designated areas while potentially achieving tax advantages and building their financial portfolios.
Examples of Investments on AcreTrader
While AcreTrader manages the daily land considerations with the farmer, investors should still monitor and consider seasonal performances of the area, as well as research the crop and what it needs before purchasing. Here are a couple of investments on AcreTrader.
- Timberland in Alabama: Timber investments provide long-term growth potential as timber matures and markets for wood products evolve. Historical returns for timberland investments have been strong, with an annualized total return of 10.03% in 2023.
- Specialty Crops in California: Farms growing almonds or oranges and citrus fruits might offer higher returns but come with specific risks related to water availability and market demand.
How AcreTrader Works
Here’s everything medical professionals who are interested in investing with AcreTrader need to know about their selection, investment, and income requirements.
Selection Process
AcreTrader uses a three-phase vetting process to ensure the quality and profitability of the farms. This diligent valuation process includes:
- Sanity Check: Initial review to rule out obvious problems and ensure potential returns.
- Documentation and Verification: Collection and composition of necessary paperwork, maps, and data to build financial models.
- Ground Check: On-site inspections and assessments of local region, including market comparisons and visiting other local farm managers and tenants, as well as soil quality, current crop yields, drainage, and more.
Investment Process
Accredited investors can browse AcreTrader’s platform for listings, which include detailed information about each farm, such as total price, investment type, acreage, targeted holding period, fees, qualifying accounts, expected returns, and more. Once an investment is made, investors own shares of a special purpose vehicle (SPV) that owns the farmland.
Returns & Income
Investors earn income through annual cash distributions from farmers’ rent, on top of expected annual value appreciation. Lower-risk properties in this asset class historically yield 3%-5% unlevered, after AcreTrader deducts its 0.75% annual management fee from the farm’s overall income. AcreTrader distributes these earnings annually in December and provides all necessary tax documents by February of the following year.
Investment Categories on AcreTrader
AcreTrader offers three different types of farmland investments based off risk profile, categorized as such:
- Core Investments: Focus on owning land in well-established regions with minimal risk and no leverage. These investments provide stable annual returns primarily from land appreciation and rental income.
- Core Plus Investments: Include modestly higher risks and potential returns with some operational exposure and minimal financial leverage. These might require initial capital expenditures to improve the land’s productivity.
- Dynamic Investments: Aim for high returns through significant improvement plans and operational exposure. These investments often involve underperforming properties with high development potential and may use more substantial financial leverage.
While categorized by their estimated volatility, investors should still confer with a financial expert when purchasing farmland shares.
Benefits of Investing in Farmland with AcreTrader
A trusted partner for farmers and investors alike, here are pros to investing with AcreTrader.
Diversification
Farmland offers a unique asset class that can enhance portfolio diversification. It’s less dependent on the stock market, providing stability during market volatility as a recession-proof opportunity.
Passive Income
Farmland investments generate regular income through rental payments. This can be a steady income source, complementing other investments distributed throughout the year.
Rigorous Due Diligence
AcreTrader’s stringent selection process ensures that only high-quality farms are available for investment, reducing the risk of poor performance.
Risks & Considerations to Farm Investing
As with any financial investment, it’s a good idea to consult with a financial advisor. Here are the risks involved with investing in U.S. farmland.
Illiquidity
Due to their holding periods of 5+ years, Farmland investments are generally illiquid. Investors should be prepared to hold their investments for the target period, typically 5-7 years, as there is no guarantee of an early exit.
Accreditation Requirement
Only accredited investors can participate, which means one must meet specific income or net worth criteria to invest.
Market & Environmental Risks
Although AcreTrader manages many risks through its model, factors like market prices and environmental conditions (i.e., drought, floods, etc.) can still affect yearly returns.
The Bottom Line: Investing in Farmland Through AcreTrader
AcreTrader provides a compelling opportunity for accredited investors to diversify into farmland, an asset class traditionally hard to access. With its thorough due diligence process, potential for steady returns, and emphasis on sustainability, AcreTrader stands out as a robust platform for strategic investing. However, investors must consider the illiquidity and accreditation requirements before committing.
By understanding the benefits of farmland investing as well as the risk involved, healthcare professionals diversifying their financial portfolios can make informed decisions that align with their financial goals and risk tolerance. Visit AcreTrader’s official website for additional details on how it works and to explore current investment opportunities.
Additional Investment Fund Resources
Want to learn more about various investment options? Look at the other articles in this series for more information:
- VTSAX vs. VFIAX — Picking the Best Vanguard Index Fund
- VTI vs. VTSAX: Choosing the Best Vanguard Investment
- Choosing Between VOO & SPY for Your Portfolio
- VMRXX vs. VMFXX — Picking the Best Vanguard Money Market Fund
- Why You Should Consider VUSXX
- QQQ or QQQm—Choosing the Best Nasdaq-100 Fund
- What Are the Different Types of Index Funds?
- A Comprehensive Guide to Fidelity Mutual Funds
- VFIAX vs. VOO – Which Index Fund Is Right For You?
- FSKAX or VTSAX? Choosing the Right Index Fund
- Why You Should Consider VTSAX
- What You Need to Know About FZROX & Other Zero-Fee Funds
- Is FSKAX the Right Fidelity Fund For You?
- FSKAX or FZROX? Choosing the Right Fidelity Fund
- Assessing the Value of the Vanguard S&P 500 ETF (VOO)
- FXAIX or VOO? Choosing the Right Index Fund
- An Introduction to the Fidelity 500 Index Fund (FXAIX)
The information provided in this blog post is for general informational purposes only and should not be construed as financial advice. For specific financial counsel on investments, we strongly recommend seeking the guidance of a qualified expert.
