Is Farmland a Good Investment for 2023 (and Beyond)?

When it comes to investment strategy, it’s a good idea to follow the experts—especially in a market as volatile as this one. 

Since several prominent billionaires, including Bill Gates and Warren Buffett, invest in farmland, this raises the question: Is farmland a good investment for 2023? 

This article will help to answer that question and walk you through some steps you can take to make the most of that investment. 

Is farmland a good investment? 

When it comes to hard assets, farmland outperforms many asset classes, including gold, bonds, and commercial real estate. 

Over the last 20 years, American farmland value has risen, on average, 12.2% per year. In 2022 alone, farmland value has risen 14% from 2021. When you combine higher valuations with cash rental income, farmland consistently produces positive returns to owners. 

One of the primary reasons is because farmland is a limited and diminishing resource. According to data from American Farmland Trust, we’re projected to lose 24 million farm acres by the year 2040. 

Combined with near-constant pressure on supply—namely, a growing, hungry global population—results in relatively low volatility and consistent price support over time. 

What’s more, the number of farmers in the U.S.continues to decline, creating more opportunities for investors to purchase farmland and start generating additional income streams. 

Finally, farmland is a good investment because there are multiple ways to generate wealth from their land:

• Increasing land value over time

• Cash rental or crop share income

• Tax credits or subsidies

• Energy farming

• Agritourism

For more innovative and exciting ways to get more income from your farmland, check out this article. 

Risks of investing in farmland

No investment is risk-free. Farmland is no exception. 

As a result, it is important to do due diligence before making an investment. That way, you’ll make sure that you’re able to manage this new addition to your portfolio. 

Some common risks of farmland investing include: 

• Lack of liquidity

• Limited short-term returns and smaller profit margins

• Uncontrollable environmental factors (e.g. weather, pests, and diseases)

• Unpredictable government regulations

It’s important to understand these risks before purchasing farmland. That said, it is possible to mitigate against them, and this list is far milder than other, more volatile, assets.

How to invest in farmland for 2023

There are actually a number of different ways you can invest in farmland. The most common, of course, is a direct purchase, which we’ll spend most of our time talking about.

However, it’s important to note that if you’d rather dip your toes into the water with a less expensive investment, a real estate investment trust (REIT) is an excellent option. You can learn more about those here. 

The only problem with REIT is that you don’t have the flexibility and opportunity to generate multiple income streams. If you have the resources, and the time to manage it, there’s no substitute for direct farmland purchase. 

If you do decide to go this route, here are some tips investors recommend to make the most of it. 

Act sooner rather than later

Given that farmland is a hot commodity right now, and the supply is quickly dwindling, it’s a good idea to act sooner rather than later. Plus, investing in farmland now can help you shelter against historic inflation and rising interest rates. 

Choose an appropriate cropping niche

There are a number of cropping options for farmland investors, the most prominent of which are row crops and permanent crops. The primary difference is that permanent crops don’t need to be replanted every year, and they produce perennial crops, while annual or row crops need to be planted and harvested every year.

Examples of permanent crops are limes, avocados, almonds, and other fruits and vegetables that grow on vines or trees. These crops usually have a maturation period (sometimes of several years) before you can reap a harvest and profit from your investment.

Examples of row crops are soybeans, corn, wheat, and other commodities. They require less cash upfront, but result in lower annual profit yields. 

Decide whether to operate yourself or lease to a farmer

If you’ve already got some experience operating farmland, then you may be willing and able to run the operation yourself. If not, then you’ll need to lease your land to an experienced farmer who can operate the land on your behalf. 

If you lease to a tenant farmer, you’ll need to decide whether you’re going with a flat cash rental rate, or a crop share agreement. Plus, you need to make sure to get your agreement in writing! 

Determine the best method of purchase

There’s more than one way to purchase farmland. You’ll need to figure out which is best for you: 

• Purchasing an existing farm via a sale-leaseback transaction, where the current farmer continues to work the farm and pay rent to the new owner

• Buying an existing farm or agricultural land and leasing it to a new tenant

• Acquiring land that's not currently used for agriculture and converting it to cropland, pastureland, or an urban farm

Final thoughts on farmland investing in 2023

Overall, investing in farmland is an excellent choice for 2023, especially considering that market volatility isn’t going away anytime soon. The (relatively) safe bet of placing your funds into a hard asset which elicits continual demand can definitely pay off in the long run.

But deciding to invest in farmland is only the first step. The next is to figure out how much land you want to purchase, and then figure out how to find available farmland. Then you need a surefire way to attract farmers to operate it, and potentially open up additional revenue streams. 

That’s where the CommonGround marketplace and CashRentstimate comes in—your one-stop shop to find, evaluate, purchase, and operate your land. Learn more here.