How to Invest in Farmland - Profitable Farmland Investment

Investing in farmland provides investors with an opportunity to preserve their capital in volatile market conditions, as well as replace the income that has been lost from holding cash deposits bank. A well-placed investment into a whole or part of a profitable working and productive farm could be the ideal alternative to simply holding cash in the current economic climate.

So just why does farmland investment promise so much, and why does investing in farmland offer savvy investors such an ideal environment to preserve capital and keep up returns?

Well firstly, farmland exhibits a positive correlation with inflation, ensuring that in time such as these, where inflation is likely to increase, investors do have an option to preserve the value of their capital.

Secondly, investing in farmland that is being rented out to a tenant farmer replaces the income that we would normally enjoy from cash deposits, so this particular asset class shows us all of the characteristics that we genuinely require unless we wish to simply revert to cash and watch our wealth disappear over the next five to seven years as inflation takes hold and our economy recovers from recession.

The question remains, how to invest in farmland, safely, securely, and profitably?

Well, when assessing a client's requirement, my favored position is to acquire part of a farm that is already productive and producing an income through commercial farming activity. Adopting this approach ensures that my investing clients will always acquire the right kind of income-producing asset that will rise in value as demand for food increases.

At present, accessing this type of asset is relatively easy as the revenues from farming activities are increasingly insufficient to afford the cost of purchasing farmland, this means that the business of farming and farmland investment is being separated into two different activities; investors have the capital to own the land and charge farmers rent, farmers can then afford to work the land and produce revenue and profit, pay the rent, and enjoy a successful commercial enterprise. If a farmer were left to pay for increasingly expensive mortgage costs, it would no longer be commercially viable to pay for the land from the profits of farming activity and also turn a working profit, an ideal opportunity for investors to acquire the land which will rise in value above the rate of inflation and produce a steady, stable income.

So our chosen methodology for a farmland investment is to work with such farmers where their mortgage repayments are increasing and banks are asking for more capital due to tightening credit conditions, and purchase their already productive and profitable land and simultaneously renting the land back to the selling farmer, creating the ideal scenario for both parties.

The investor gets to acquire land providing a stable income of 6% to 7%, whilst the farmer can pay off expansive mortgages, pay a lower rental payment to improve cash flow, and add extra capital to their business with the excess.

This agriculture farmland investment model allows investors to access the best, good quality assets, whilst at the same time benefitting the farmer and improving his cash flow, and allowing him to continue the business of farming the land. There are of course many risks involved in farmland investment in general, all of which need to be considered, measured, and factored into any acquisition, which is why working with an experienced professional will always benefit the investors in the short, mid and long term, allowing them to access assets and holding structures that would not otherwise be available.

There are of course many options available to those considering a farmland investment, from large investment funds through to small private land purchases and care should be taken to ensure that each individual undertakes the investment strategy that is most relevant to their situation.