Buying farmland shares through AcreTrader

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Topic Author
Cantrip
Posts: 51
Joined: Fri Oct 16, 2015 7:21 am

Buying farmland shares through AcreTrader

Post by Cantrip » Tue Jun 04, 2019 10:59 am

I was listening to a "Stacking Benjamins" podcast and they had a fellow on who was from Acretrader.com. This company buys private farms and puts them in a LLC. The firm acts as the buying real estate agent and so collects a 2.5% fee by doing this. The farm is rented to tenant farmers with a rent of about 3-4%/year. Investors purchase shares of the farm in 0.1 acre increments, and are paid the allotment of rent minus an overall 0.75% fee. After a 5, 10, or 15 year holding period the farm is then sold and investors receive the proceeds of the sale. Thus total return would be 2-3% + appreciation of the farmland.

I really like the idea of it, as it would give me access to a different asset class. However its currently only available in taxable accounts, income is paid by K1 forms, and I'm not sure if a section 1031 exchange would be permitted at the end of the holding period.

Has anyone had experience with something of this nature? How much of a bother are the K1 tax forms. What would happen if the company went out of business? Thanks.

megabad
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Joined: Fri Jun 01, 2018 4:00 pm

Re: Buying farmland shares through AcreTrader

Post by megabad » Tue Jun 04, 2019 11:14 am

Cantrip wrote:
Tue Jun 04, 2019 10:59 am
I was listening to a "Stacking Benjamins" podcast and they had a fellow on who was from Acretrader.com. This company buys private farms and puts them in a LLC. The firm acts as the buying real estate agent and so collects a 2.5% fee by doing this. The farm is rented to tenant farmers with a rent of about 3-4%/year. Investors purchase shares of the farm in 0.1 acre increments, and are paid the allotment of rent minus an overall 0.75% fee. After a 5, 10, or 15 year holding period the farm is then sold and investors receive the proceeds of the sale. Thus total return would be 2-3% + appreciation of the farmland.

I really like the idea of it, as it would give me access to a different asset class. However its currently only available in taxable accounts, income is paid by K1 forms, and I'm not sure if a section 1031 exchange would be permitted at the end of the holding period.

Has anyone had experience with something of this nature? How much of a bother are the K1 tax forms. What would happen if the company went out of business? Thanks.
No experience with this specifically and it sounds like a terrible investment compared to just about anything. Not sure why you want to take risk when the risk free return is basically the same. I deal with K-1 forms all the time but it is just pass through from an partnership that shows up as income on Schedule E. Not sure how this investment income would be classified so it might show up on Schedule B instead and I assume eventually on Schedule D. I guess whether that is complicated depends on your opinion. If you are already filing Schedule B, E, and D anyway, maybe not such a big deal. I would assume if the company went out of business, it is likely they would try to liquidate the holdings quickly but this would be up to the operating company I suppose.

Van Down By Da River
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Re: Buying farmland shares through AcreTrader

Post by Van Down By Da River » Tue Jun 04, 2019 11:26 am

I don't know about this particular investment, but my family has owned farmland since my great great great great great great grandpa bought a huge chunk of farmland from the government after he got back from killing redcoats during the revolutionary war, and it has turned out as a nice investment over the last 200 + years (true story, and its still in the family)

I am actually looking into growing the family business and purchasing some land soon (the government will back loans for 95% loan to value with very loose credit requirements)

Here is a good comparison of expected farmland (nominal) returns since 1950:

Annual Cash Rent: 5.72%
Annual Appreciation: 6.35%
Annual Total Return: 11.99%

Not too bad of a diversifier in my opinion, much better than bonds!

Bacchus01
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Re: Buying farmland shares through AcreTrader

Post by Bacchus01 » Tue Jun 04, 2019 11:28 am

Looks like a terrible investment with high fees.

Want to buy farmland? Then buy farmland.

desiderium
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Re: Buying farmland shares through AcreTrader

Post by desiderium » Tue Jun 04, 2019 11:28 am

The concept is perhaps attractive, locking in long term to a scarce asset. Among several problems:

First of all the fees are high compared with the return, so investors much less likely to benefit compared with the platform.

Second, the quality and productivity of farmland is highly variable, and its sustainability and future values may depend quite a bit on farming practices. Since the investment return is tied to long-term appreciation, land stewardship would seem to me and important variable and potentially difficult to capture by this type of financialization.

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Time2Quit
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Location: Fridgid State

Re: Buying farmland shares through AcreTrader

Post by Time2Quit » Tue Jun 04, 2019 12:19 pm

Bacchus01 wrote:
Tue Jun 04, 2019 11:28 am
Looks like a terrible investment with high fees.

Want to buy farmland? Then buy farmland.
+1

I have farmland and receive 3% rent, 1.5% taxes. Not a money maker by any stretch of the imagination, I look at it more as black swan insurance if I need to grow my own food.
"It is not the man who has too little, but the man who craves more, that is poor." --Seneca

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patrick013
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Re: Buying farmland shares through AcreTrader

Post by patrick013 » Tue Jun 04, 2019 1:10 pm

Rent should be about 70% of gross revenue ?
age in bonds, buy-and-hold, 10 year business cycle

miamivice
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Re: Buying farmland shares through AcreTrader

Post by miamivice » Tue Jun 04, 2019 1:28 pm

Cantrip wrote:
Tue Jun 04, 2019 10:59 am
I was listening to a "Stacking Benjamins" podcast and they had a fellow on who was from Acretrader.com. This company buys private farms and puts them in a LLC. The firm acts as the buying real estate agent and so collects a 2.5% fee by doing this. The farm is rented to tenant farmers with a rent of about 3-4%/year. Investors purchase shares of the farm in 0.1 acre increments, and are paid the allotment of rent minus an overall 0.75% fee. After a 5, 10, or 15 year holding period the farm is then sold and investors receive the proceeds of the sale. Thus total return would be 2-3% + appreciation of the farmland.

I really like the idea of it, as it would give me access to a different asset class. However its currently only available in taxable accounts, income is paid by K1 forms, and I'm not sure if a section 1031 exchange would be permitted at the end of the holding period.

Has anyone had experience with something of this nature? How much of a bother are the K1 tax forms. What would happen if the company went out of business? Thanks.
As others said, just buy farmland if you want to and have the assets to do so. You don't necessarily have to buy 1000 acres or anything like that. You can buy a 5 acre parcel that is adjacent to other 5 acre parcels and then all the parcels get farmed. Or you can buy in parts of the country where land is cheap (the south comes to mind) and buy acerage there...

softwaregeek
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Re: Buying farmland shares through AcreTrader

Post by softwaregeek » Tue Jun 04, 2019 2:55 pm

Looked into it a couple of years ago. Was a great investment way back but prices have increased fsster than rents over the past few decades so return has come down. Iowa ag extension publishes prices and rents so data on out there

not4me
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Re: Buying farmland shares through AcreTrader

Post by not4me » Tue Jun 04, 2019 3:04 pm

OP, I don't have any direct experience with this company, but did take a quick look at it. I didn't answer all my own questions as I found more than enough for me to pass it by.

1st, since this wasn't mentioned, it is currently only opened to accredited investors. That is usually a strong hint that it has many, many potential pitfalls.

The quickest comparison I would give to it is that this is another crowd sourced private reit. I think you are correct to consider taxes and possible bankruptcies -- & I could elaborate on why that may be a bigger problem than it seems. But to me, the biggest issue is liquidity. Once you buy this share of an LLC, you may not be able to get back out. There is no guaranteed pool of buyers waiting to take it off your hands if you need -- or just want -- to move on, regardless on price.

I don't share the sentiments of some of the other posters about farmland. This may be an idea that will develop into something in the future, but for me it isn't the best path. Depending upon the objective you are trying to achieve, there may likely be better options.

Beehave
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Re: Buying farmland shares through AcreTrader

Post by Beehave » Tue Jun 04, 2019 3:21 pm

I have looked into the following farmland REITS and have not bought. However, they may offer a better, more flexible, and more diversified deal than the one you're looking into:

GLAD Gladstone Capital Corporation (Farmland REIT)
FPI Farmland Partners REIT

They've been discussed in the Bogleheads threads before, some time back. GLAD seemed to be preferred over FPI.

Here's some info I looked at a while back: https://seekingalpha.com/article/408434 ... d-long-run

Hope this helps - - be interested to hear any opinions. Farmland seems like it might be a good hedge against inflation if it ever comes. The inflation of the 1970s made a big impression on me and I've expected another big one ever since. By Murphy's Law, it will finally show up when I dump my last TIPS and stock holdings, become a home renter, and go all in on an annuity.

Topic Author
Cantrip
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Joined: Fri Oct 16, 2015 7:21 am

Re: Buying farmland shares through AcreTrader

Post by Cantrip » Fri Jul 19, 2019 11:05 pm

Appreciate your insights. My father may be selling his tree farm next year, so will wait and see if he does.

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