Real estate is a popular way to diversify an investment portfolio and potentially earn passive income. While most people think of real estate as commercial buildings, apartments, or single-family homes, there are many other real estate assets that profit from the ground underneath our feet.
One of the most crucial of these real estate investments is U.S. farmland because it produces food for our communities. While most of us will never buy a whole farm, FarmTogether is an investment platform that makes it possible to own fractional shares of farms, orchards, and other farmland properties. Here’s how it all works.
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What is FarmTogether?
FarmTogether is a fintech investing platform that enables accredited investors to buy fractional shares of farms, orchards, and other farmland. For investors with a large enough portfolio, purchasing an entire farm is also a possibility.
The company was founded in 2017 by Artem Milinchuk. It is headquartered in San Francisco, California, and its team has a track record of over 100 cumulative years of experience across farmland investing, agriculture, and real estate.
One of the features that sets FarmTogether apart is its commitment to sustainable farming. In January 2021, it announced that it was committing 100% of its acres to meeting the Leading Harvest Farmland Management Standard. This standard is an industry-wide first and verifies that farmland is being managed sustainably and responsibly.
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How FarmTogether works
FarmTogether offers opportunities to invest in alternative assets such as farms, orchards, and other agricultural properties. The properties generally fall into two types – permanent crops and row crops.
Permanent crops are nut and fruit trees that do not have to be replanted each year. The farm operator must harvest the crop from the trees. Row crops, like corn and soybeans, must be replanted each year. These kinds of farmland also provide the opportunity to rotate into different crops based on market conditions.
FarmTogether investors pick and choose which opportunities that they invest in. This means you can choose the assets that best fit your portfolio, and you're not stuck with assets that don't fit your goals.
FarmTogether is not a REIT. A REIT is more like a mutual fund where it owns a diversified portfolio of properties and investors own a fractional interest in every property within the REIT. In contrast, FarmTogether investors actually own the individual properties. Each property is held in a dedicated entity (such as an LLC or corporation) that holds title to and operates that specific asset. Investors buy shares in these various entities representing each farm or orchard through its crowdfunding platform.
While any investor can sign up to open an account, FarmTogether requires that investors show proof that they are accredited before they are allowed to invest money in any property.
The typical FarmTogether minimum investment amount is $15,000 to $50,000 per transaction for a fractional interest in a property. To purchase an entire farm, the minimum investment is likely to be $1,000,000 or more. The actual amount will vary based on the farm size, type, and financial details.
Real estate is typically a buy-and-hold investment, which means you should expect to not have access to that money for some time once you invest. FarmTogether estimates that the average hold period for their investments is at least five years. When the farm is eventually sold, you will receive a portion of the proceeds based on what percentage of the shares that you own.
For investors who need to sell before the investment matures, FarmTogether offers an annual liquidity window. It also helps investors attempt to locate a buyer for their shares on a "best efforts" basis, which means that FarmTogether is not obligated to find a buyer for you. Additionally, if a buyer is found, the sale amount may be less than what you paid for the original investment.
Because these investments are illiquid and not publicly traded, it can be difficult to value the asset without an in-depth analysis of the land and business operations. Valuations may fluctuate, and you may not know your investment's true value until the asset is sold at some point in the future.
FarmTogether claims its fees are lower than the industry average. The fees for each deal will vary and should be part of your decision-making process when evaluating any given investment opportunity.
In general, FarmTogether fees may include:
- A one-time fee for managing the syndication
- Annual management fees
- A percentage of the annual profits
Based on a handful of deals that we reviewed, the typical structure is a 2% one-time fee, annual fees of 1.5%, and profit participation of 0% to 10%.
Investors in FarmTogether access their accounts through the company's online portal. At this time, the company does not have a mobile app. In the online portal, investors can research potential investments, request trades of existing investments during the annual window, and view their transaction history. The portal provides a history of previous disbursements and notices of upcoming disbursements.
When you invest with FarmTogether, you should expect that your investment will be tied up for five years or longer. This is typically the case with commercial real estate investments as well. When the farm is sold, you will receive a pro-rata share of the proceeds based upon your ownership percentage of the farm.
If you are having cash flow issues and need to sell your investment shares early, you should know that FarmTogether offers annual liquidity windows. During these windows, it will assist investors in finding a buyer for their investment on a "best efforts" basis. If they find a buyer, it is possible that your shares may be sold at a discount to what you paid for them.
FarmTogether offers a learning center where potential and current investors can educate themselves on farmland investing. It features white papers, podcasts, infographics, webinars, and more.
More about FarmTogether’s property selection process
FarmTogether uses data-driven decision-making to locate and evaluate potential investments. It will screen about 46% of the on- and off-market properties it locates. Approximately 19% will undergo financial modeling to understand the potential profits and returns for shareholders. Historically, 7% of the original properties are approved for consideration, and less than half of those will eventually be offered on the FarmTogether platform.
The selection process incorporates macro-level factors like climate change, regulations, and long-term agricultural yield trends. FarmTogether also analyzes supply, demand, consumer preferences, and other factors to develop long-term views on pricing and valuation trends.
Individual properties undergo a thorough 120-point due diligence checklist about the property, its crops, workers, financials, and more. Only once it passes each of these hurdles will a farmland investment opportunity be presented to investors for consideration.
FarmTogether has committed to funding sustainable and prosperous farming opportunities. This philosophy is just as much about saving the planet as it is about growing profits. FarmTogether believes that using high-tech and sustainable farmland management approaches can magnify and preserve yields.
The company has enrolled 100% of its farm acreage in meeting the Leading Harvest sustainability standards. The Leading Harvest certification program verifies that farmland is being managed sustainably through third-party audits and tracking actual versus expected results. This is exemplified by strategies such as cover cropping to avoid erosion, transitioning to organic crops, and utilizing efficient irrigation to reduce water waste.
Pros and cons of FarmTogether
FarmTogether is best for accredited investors looking to diversify their portfolios away from stocks and bonds. Ideal FarmTogether investors are looking for passive investments that produce regular recurring income and are okay with keeping their money invested for five years or longer.
- Diversification into assets that move differently than the stock market
- Own fractional shares or entire parcels of land
- Passive investing in income-producing assets
- Potential for pass-through depreciation and other tax benefits
- Socially responsible investing
- Restricted to accredited investors
- Minimum investment of $15,000
- Limited liquidity of investments
- It is difficult to track the value of any real estate investment
Who can open an account with FarmTogether?
FarmTogether is limited to accredited investors. As an individual accredited investor, you must meet one of the following qualifications:
- Annual income of $200,000 or more for each of the last two years (or $300,000 per household) with an expectation that this level of income will continue for the foreseeable future
- Net worth of at least $1,000,000 (individual or jointly) excluding the value of your primary residence
- Hold a professional certification, such as a FINRA Series 7, Series 65, or Series 82 license
Investors must provide documented proof that they meet accreditation eligibility. FarmTogether accepts certificates of accreditation from ParallelMarkets, VerifyInvestor, and InvestReady. Otherwise, you can also submit your supporting documentation directly to FarmTogether to verify your eligibility.
Additionally, the following entities may invest with FarmTogether:
- A bank, insurance company, registered investment advisor (RIA), business development company (BDC), or small business investment company (SBIC)
- A business in which all equity owners qualify as an accredited investor
- An employee benefit plan, trust, charitable organization, partnership, or company with total assets of at least $5 million
FarmTogether is best suited for sophisticated investors who meet accredited investor eligibility requirements and are looking to diversify their portfolio with income-producing assets that have the potential to appreciate in value.
How much can you earn with FarmTogether?
Investors typically receive money in two ways with FarmTogether – a cash yield from operating income and gains on the sales of assets. The operating income is typically generated from lease payments.
The income payouts you receive will be proportional to your fractional interest in the property and are paid out quarterly, semi-annually, or annually, depending on the specifics of your investment. Upcoming payments and a history of distributions are available when you log into your online account. When an asset is sold, you'll receive your proportional investment plus or minus any gain or loss on the asset.
FarmTogether aims to provide attractive returns to investors by targeting investments that could offer returns of 7% to 13% after factoring in fees. Of these returns, investors can expect to receive 3% to 9% in cash payouts, with the rest being appreciation in the value of the farmland. Each available deal on the platform lays out projected returns, so you can choose to invest only in the deals that meet your personal criteria. Projected returns are not guaranteed.
Farmland investing is a unique asset class, and there are no guarantees you'll get your money back. Investing of all kinds is inherently risky. The fact that only accredited investors are permitted to invest with FarmTogether should serve as a warning that you must be vigilant with your research before committing your money to any properties.
FAQs about FarmTogether
Is FarmTogether legit?
While farmland might seem like a strange thing to invest in, FarmTogether is a legitimate company that offers real estate investing opportunities to accredited investors. Investors can buy a fractional or 100% interest in a farmland property to receive a share of the operating income and potential capital gains from a future sale.
FarmTogether partners with numerous well-known companies, such as Equity Trust Company, PENSCO, and Leading Harvest, which lends further credibility to this relatively new startup.
Is farmland a good investment?
If you’re wondering how to invest in real estate, then farmland can be a good strategy to complement your overall investment portfolio. It is highly uncorrelated to stocks, bonds, gold, and real estate, making it a useful hedge against portfolio volatility.
According to the NCREIF Farmland Index, interest in this niche has steadily increased since 1991. With over $13 billion in assets on the NCREIF Index, farmland has now become an increasingly important portfolio addition for institutional investors.
How does FarmTogether make money?
FarmTogether makes money by charging a one-time fee for putting each deal together plus annual management fees for all of the projects that it manages. They will also take a percentage of the property's profits on some deals. The fees vary on every deal, so it is important to read the disclosure documents before investing.
How to open a FarmTogether account
Investing with FarmTogether is limited to accredited investors. To open a FarmTogether account, you should have the following information available:
- Email address
- Phone number
- Investing goal
- Accredited investor qualification
When you are ready to invest, you'll need to provide additional personal information, such as date of birth and Social Security number, and link your bank account to fund your investment.
Non-accredited investors may also open an account, but they will not be eligible to invest with FarmTogether at this time. By creating your account, you'll be notified if the option to invest becomes available.
Other investing platforms to consider
If you're not ready to start investing in farmland after reading this FarmTogether review, but you still want to diversify by investing money beyond traditional stocks and bonds, you have other options.
Fundrise is a startup that makes our list of the best investment apps. It enables everyday investors to own fractional shares in low-cost, institutional-quality real estate. Investors can get started with as little as $10 and are not required to be accredited. As you add to your Fundrise portfolio, additional investment options become available to match your experience and diversification goals.
Fans of collectibles should check out Otis Wealth. This trading platform allows investors to buy and sell fractional shares of alternative investments such as collectibles, sneakers, art, and more. You can buy and sell shares 24/7, and trades are matched daily with other investors. There is no fee to open an account, and the minimum investment amount varies depending on the asset you choose to invest in.