FarmTogether Review 2020: Invest in Agricultural Real EstateReal Estate
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- Basic: FarmTogether is an online real estate crowdfunding platform that lets accredited investors buy shares in farmland properties.
- Pros: Farmland is traditionally a lucrative and safe investment, and it could be an interesting way to diversify your portfolio.
- Cons: You must be an accredited investor to participate, and the investment minimum is high, at $25,000.
Investing in farmland has an undeniable allure. For centuries, investors have made fortunes by owning — and profiting from — acres of crops.
But now there’s a new company that wants to take investing in agriculture to a new futuristic level.
FarmTogether is a crowdfunding platform that lets you invest in shares of farmland. That means you can potentially enjoy a steady stream of passive income from agricultural land without having to wake up at 5 o’clock in the morning to plow a field.
Although you don’t need to be a farmer, you do need to be an accredited investor to participate in FarmTogether’s offerings. And be forewarned that the minimum investments are larger than what many other real estate platforms require.
However, if you’re looking to make a sizeable investment in agriculture or are interested in the idea, keep reading to find out more. In this FarmTogether review, we’ll explore this interesting, modern approach to an age-old moneymaker.
What Is FarmTogether?
FarmTogether is an agtech business that combines agriculture with technology. It’s one of a few crowdfunding platforms that lets investors buy shares of farmland. (We’ve reviewed another agtech investing platform, Acretrader, here.)
If you’re familiar with real estate crowdfunding sites such as Fundrise or RealtyMogul, FarmTogether’s business model will be familiar — except, instead of investing in commercial and residential real estate — you can invest in working farmland.
FarmTogether is a newcomer to the crowdfunding space. The company’s founder, Artem Milinchuk, first had the idea in 2017 when two friends approached him for ideas for long-term, stable investments. Milinchuk, who has a background in finance and agriculture, knew that farmland was the best solution. However, he couldn’t find a good way to affordably invest directly in agricultural land.
Today, Milinchuk is FarmTogether’s CEO. And those two friends are among the company’s biggest startup investors (they also happen to be the co-founders of Grammarly).
Now, keep in mind that there’s also a mobile phone game called “Farm Together.” This makes it a bit confusing if you’re trying to track down info about the investing platform. However, it’s worth pointing out that FarmTogether’s offerings are purely passive investment, so you’ll have the potential for greater rewards for just the fraction of time spent playing a silly phone game.
How Does FarmTogether Work?
When you invest in farmland with FarmTogether, you’re investing in the “land” more so than the “farm.” This means your profits won’t be dependent on the crop yield of the farm. So there’s no need to worry about droughts or overly wet rainy seasons.
Any returns that you make from FarmTogether will be based on two things:
- Land appreciation
- Farm rent
You can think of the farm rent as a regular dividend payout. Depending on the type of farm, you might receive income on an annual or even quarterly basis.
Of course, investors will receive their share of the profits when FarmTogether sells a property. However, according to the company, that’s really not the goal. The company intends to hold each property for the long term, generating cash payouts year after year.
That said, each deal has an expected hold period of about seven to 10 years.
When you invest in a FarmTogether deal, you’re investing in a separate LLC that holds a title to a specific agricultural property. That means investors are the beneficiaries of the land itself. FarmTogether Inc. has 100% ownership of a company called FarmTogether Management LLC, which oversees the management (including oversight and reporting) of the properties.
Typically, a FarmTogether property will be rented and operated by a large agricultural operator, rather than a small-time local farmer. This adds a layer of stability to each offering. It’s the equivalent of owning a restaurant space and renting it out to Starbucks, rather than some random coffee enthusiast.
When compared to other private-placement investments such as mutual funds, FarmTogether’s fees are quite small.
FarmTogether charges an intake fee that covers expenses incurred by the offering. This fee will vary but will usually range from 0.5% to 1%.
There’s also a 1% annual management fee.
FarmTogether charges no capital gains fee on any of the platform’s offerings.
What Are the Properties?
FarmTogether properties will generally fall into one or two of three categories:
- Rote Crops: These include corn and soybeans and are staples of the American agricultural industry. FarmTogether will focus on long-term opportunities here, selecting farms in regions such as the northern Midwest, which should be the least affected by any future climate change (in fact, growing conditions might actually improve there).
- Specialty Permanent Crops: Includes pecans, almonds, and grapes. These are food items that the growing global middle class desires. These plays can be riskier than rote crops.
- Regenerative Agriculture: These are farms that use environmentally friendly and sustainable practices. For instance, a farm might use a cover crop that captures carbon and creates fertilizer for a new planting of cash crops.
Currently, FarmTogether has one open offering on its website.
Now, we previously discussed the typical way a FarmTogether deal works. This particular opportunity happens to have a unique structure. It’s for a purchase vehicle account that will secure an investment in an upcoming but yet-to-be-determined row-crop offering through investment firm Farmland Opportunity.
The eventual deal will have a target unlevered internal rate of return (IRR) of 8%-10%. But in the meantime, investors will accrue 4.0% APR interest with monthly distributions until the close of the deal or April 15, 2020 (whichever comes first).
The minimum investment on this project is $40,000, which is higher than the typical FarmTogether deal minimum of $25,000.
Other recently closed deals have included an almond farm in California, a corn and soybeans farm in Wisconsin, and a wheat and legumes farm in Washington state.
Are FarmTogether Investments Safe?
It bears repeating that no investment is ever 100% safe. However, FarmTogether claims to take risk management seriously.
The company is conservative in vetting and underwriting deals. It also partners with experienced farmer operators and farmland investment managers.
The typical structure of FarmTogether opportunities — in which each offering is held in an LLC — is intended to protect investors from insolvency in the company or one of its subsidiaries.
However, if you’re very concerned about mitigating investment risk, remember that AcreTrader, another farmland crowdfunding firm, keeps investment money in an escrow account with a registered broker-dealer, thus providing a bit more security.
- A traditionally stable investment. To paraphrase Mark Twain, they’re not making any more land. Farmland has minted fortunes for generations. And money managers have been seeing consistently positive returns on farmland investments.
- A conscious investment. FarmTogether takes socially responsible investing (SRI) seriously. That’s why the company emphasizes sustainable agricultural practices among properties whenever possible.
- Portfolio diversification. Farmland (and other forms of real estate) provides investors with portfolio diversification. Traditionally, the performance of investments in land have not been tied to the markets.
- Profits don’t depend on crop performance. Investors in FarmTogether earn returns through rental payments and land appreciation, not through how well a field performs.
- SDIRA investing available. Through AltoIRA, investors can use a self-directed IRA to invest on FarmTogether.
- Secondary market. FarmTogether is building a secondary market where investors can trade shares they no longer wish to own.
- A 100% passive investment. Once you’ve clicked “Invest,” you really don’t need to do a thing but wait for potential income payouts.
- No capital gains fee. Fees on this platform are relatively low.
- You must be an accredited investor. To participate in a FarmTogether deal, you must be an accredited investor.
- High minimums. The typical minimum to invest is $25,000, which is higher than AcreTrader’s minimum ($5,000). However, some offerings may require even more principal.
The Bottom Line
For accredited investors, crowdfunded investments in farmland (and real estate in general) can provide their portfolios with extra diversification and profits that aren’t tied to the stock markets.
I think that investing in agricultural land is a great idea and am interested in doing so myself. After all, these passive investments could help you join the generations that became extremely wealthy through farmland.
However, FarmTogether’s typical minimum investment is around $25,000. That could prove to be a barrier to entry to many investors, even if accredited.