Investing in farmland is probably one of the best things to do if you want to earn passively. This AcreTrader review will help you not just know more about this crowdfunding real estate site, but also your options especially if you are looking at making money through investing in properties.
A lot of people are looking for ways to make passive income. There are so many options out there, and one of them is by investing in farmlands.
Before we talk more about investing in farmlands, here are some vital facts about farmlands in the United States. We thought you have to at least be knowledgeable especially if you are really serious about investing in farmlands.
In a report conducted and published by the United States Department of Agriculture together with the National Agricultural Statistics Service, it was found that in 2018, there are an estimated 2,029,200 farms in the country. The average farm size during that same year is 443 acres. These farms were classified into six economic sales classes. Farmlands differ from one to another. Some are able to make produces, while others are not as fruitful.
Meanwhile, in an August 2019 report of the same offices regarding land values, it says:
“The United States farm real estate value, a measurement of the value of all land and buildings on farms, averaged $3,160 per acre for 2019, up $60 per acre (1.9 percent) from 2018. The United States cropland value averaged $4,100 per acre, an increase of $50 per acre (1.2 percent) from the previous year. The United States pasture value averaged $1,400 per acre, up $30 (2.2 percent) from 2018.”
As you can see, based on numbers, the value of farmlands is quite impressive. Thus, it makes sense to invest and eventually make money through farmlands.
Now, when it comes to investing in farmlands, there are so many crowdfunding real estate sites out there. Crowdfunding real estate refers to a method wherein it utilizes crowdfunding to raise capital for real estate investments. This type of real estate investing allows investors to invest their money in various properties without the need to deal with mortgage brokers, contractors, or real estate agents.
One of the popularly known crowdfunding real estate sites today is AcreTrader. Thus, we are doing this AcreTrader review so you get to know more about the company and how it actually works.
In particular, we are going to focus on the following aspects:
- Why consider investing in farmland?
- What Acretrader is all about?
- How does AcreTrader work?
- What are the features/benefits of AcreTrader?
- How to sign up with AcreTrader?
- How does AcreTrader Rating Work?
- What are the pros and cons of AcreTrader?
INVESTING IN FARMLAND
Before we dig deeper into what AcreTrader is all about and how to go about it, we thought it’s nice to have a quick backgrounder first – this helps you appreciate more investing in farmland.
For some people, investing in farmland is radical. Well, that’s acceptable especially since we are used to the more conventional forms of real estate investment, particularly residential and commercial properties.
However, in research conducted by AcreTrader, they found out that farmland has, in fact, been one of the best performing investments since 1990. This basically means, if you have invested in farmland back in 1990, your money has grown so much by now. When we say so much, we are talking about from a five-digit investment to a six-digit earning. Impressive? Definitely.
To be honest, there are so many reasons why farmland is an ideal investment. Here are some:
- Farmlands produce the basic commodity – food – which will never run out of customers.
- It is a kind of investment that is not part of the financial system.
- Farmlands have low historical volatility. Price declines are limited even during bad years.
- Its price levels are not tied to movements in other assets.
- There is a huge possibility that farmland values will go high faster in the future.
As we have mentioned earlier, AcreTraded is one of the popular crowdfunded real-estate investing platforms. They, however, specialize in investing in farmlands.
AcreTrader opened its doors and allowed investors to purchase parcels of farmland in 2018. The company was founded by Carter Malloy and is based in Fayetteville, Arkansas.
Unfortunately, AcreTrader is limited to accredited investors only, which means, you have to have at least $1 million net worth and/or earn at least $200,000 per year. However, a lot of the deals on AcreTrader have had lower investment minimums as compared to other commercial real estate investing platforms.
Furthermore, what makes AcreTrader all the more appealing is the nature of the asset class that it focuses on. Needless to say, according to AcreTrader itself, farmland has outdone other major asset class ever since 1990 without having a single negative year.
This, however, does not mean to say that individual deals do not lose money. AcreTrader is known as one of the first platforms to bring it to retail investors.
For someone new to this, it might sound too complicated. So, to put it simply, investing with AcreTrader does not mean you take direct ownership of the farmland. What happens instead is you are buying shared of different farm properties. Basically, income is generated through rent from the land or from gains on the sale of the property.
Based on the Better Business Bureau, AcreTrader is rated “A-” on a scale of A+ to F.
Before moving on, here’s a very quick yet very insightful AcreTrader review from Ryan Scribner. Check the below video by hitting the play button.
HOW ACRETRADE WORKS
As part of our AceTrader review (just like any other AceTrader reviews), we are going to look into how it actually works.
Since AcreTrader is a crowdfunded real-estate platform, investors may come anytime to make investments in farmland. Meanwhile, farmers can sell their lands to those investors.
Now, with each investment, the property is owned by an LLC that is build up by AcreTrader. Now, the company will rent the farmland to a trusted local farmer who will pay a predetermined cash rent, which is a very usual thing in the farming industry.
To ensure that there is no such thing as non-payment, rents are collected in advance — meaning, before the planting season. Basically, if a farmer does not pay, then the land will be rented out to another farmer.
To be able to invest through AcreTrader, as mentioned earlier, you must be an accredited investor. This is not unique to AcreTrader as this really is a common practice among crowdfunded real estate platforms.
So, how do you become an accredited investor? Well, you just have to meet any of the following requirements:
- An individual income of at least $200,000 annually in two recent years, or a joint income with your spouse amounting to at least $300,000 per year for two years plus a reasonable expectation of getting the same income level in the current year.
- Individual net worth or joint net worth with your spouse amounting to $1 million and above excluding your primary residence.
The requirement is quite tough but that’s the way it is. Now, as an AcreTrade investor, you have the option to choose among investments that are fully vetted by the company. What’s nice about AcreTrader is that they do conduct thorough due diligence on every parcel. Also, it excludes any properties that do not meet their requirements. The company’s qualifications are rigid that only 5% of farm properties reviewed are accepted for investment reasons.
When it comes to their listings, each of them displays the minimum investment required plus crops produced, location, as well as AcreTrader rating, gross cash yield, and net annual return. Further information such as an overview of the property, financial information regarding the farm, as well as location maps, ownership documents, and investment rating, are also provided.
Basically, all the essential information are well-provided for. For information tracking as well as developments regarding your investments, you can find them at the AcreTrader Dashboard. The company also notifies you through email when distributions are mane, which usually happens annually, and usually in December.
FEATURES AND BENEFITS OF ACRETRADER
Also part of our AcreTrader review is the features and benefits of this platform. Here are some of the notable features we found:
|Minimum Investment||The minimum investment is 10 shares. This is equivalent to 1 acre of farmland, which will cost a minimum initial investment that ranges from $3,000 to $10,000. The cost depends on the specific parcel of farmland. |
Please take note than making an investment is not tantamount to buying a piece of the farm. What happens is you get an ownership stake in the LLC that owns the land legally.
|Investment Term||The moment you make an investment, the expected term will be around five to 20 years. Within that timeframe, the company will “explore a secondary marketplace”. However, this is not guaranteed at this time. You may opt to sell your shares to another investor through a private transaction.|
|Tax Considerations||Income distribution is disclosed using IRS Form K-1 every end of the year. This form is the very same document you get in almost any real estate crowdfunding platform. Taxable during year-end are rent distributions as well as net of expenses. |
Meanwhile, capital gains are taxed only during the year the property was sold. This is also subject to lower capital gains tax rates.
|AcreTrader Fees||Signing up is free of charge. Closing fees are usually at 2% of your investment amount. An annual servicing fee of 0.75% of the total value of the investment is charged. A 5% fee is charged when the underlying property is sold, however, it is paid by the selling farm owner.|
|Customer Support||Customer support is available by toll-free phone as well as via email. However, there is not indicated for days or hours.|
SIGNING UP WITH ACRETRADER
Apart from the fact that you need to be an accredited investor to be able to start investing through AcreTrade, you must also be a U.S. citizen or a legal resident of the country.
When signing up, you will need to provide the following information:
- Full Name
- Email Address
- Preferred Password
Another option is signing up using any of the following platforms:
- Google Account
In addition, you will also need to provide personal information such as:
- Bank Account Number/s (for funding purposes)
- Accreditation Documents
If you are worried about your bank details being compromised, you should not. AcreTrader does not retain your bank details. They use a third-party provider, Plaid to do the work. Plaid provides the same kind of services you will find in other investment platforms. The same goes with your accreditation documents. These, meanwhile, are handled by another third-party service called, North Capital Investment Technology.
Please note that all-important and required documents are signed and sent electronically through the website. Meanwhile, your investment account will be funded by ACH transfers from a linked bank account.
Just like any other crowdfunding platform, your investment is not final until the fundraising target is reached. Generally, a property will be offered between 30 and 90 days. Should the target is not met, your investment will be refunded.
In this part of our AcreTrader review, we are going to look into how the AcreTrader rating works.
Basically, every property is given a rating from A1 to D3 depending on the number of points every property has. Properties with A1 ratings have fewer points as compared to those with D3 ratings.
For your reference, here are where properties can earn points:
- Historical Flooding Problems – The farm lost 20% or more of its crops in the last 10 years because of standing water or flooding.
- Water Access Problems – The farmland lacks access to water for irrigation purposes.
- Direct Operations Planned – Any investment funds applied must be looked into.
- No Existing Tenant – There has to be no current tenant.
- Debt Involved in Transaction – Amount of debt placed on the subject offering has to be considered.
- High Loan-To-Value of Debt – The amount of debt placed on the property exceeds 55% loan-to-value ratio.
- Non-Farming Leases or Income in Place – There should not be hunting, energy, or other non-farming-related leases in place.
- Non-Farming Assets Valued as Part of the Transaction – Non-core assets like grain storage, house, shop, etc. taken into account in the farm’s valuation.
- Low Activity Land Sale Market –There are fewer 10 land sales over $100,000 in value in a 100-mile radius within the previous year.
- Direct Access to Maintained Roadway – It has to have direct access to a local or national government-maintained roadway.
- Nearest Crop Delivery Point > 50 Miles Away – The nearest drop-off point for commodity delivery greater than 50 miles away.
- Improvements Planned During Holding Period – More than 10% of the total offering value has to be contributed to asset improvement.
PROS AND CONS OF ACRETRADER
Before our final verdict, to complete our AcreTrader review, here are what we found as the company’s share of highs and lows.
- It has a one-of-a-kind asset class with an impressive return profile. Historically speaking, farmland has an excellent track record of robust returns and minimal losses.
- It has deep due diligence. AcreTrader is composed of an experienced management team that knows what to look for in farmland. Also, it knows where to invest substantial resources to evaluate each deal.
- It has a very low investing requirement. As earlier mentioned, AcreTrader only required at least 10 share, which is equivalent to 1 acre of farmland that costs an initial investment of around $3,000 to $10,000. Definitely lower compared to other companies.
- It charges low fees. AcreTrade has some of the lowest fees in real estate investing.
- AcreTrader annual average investment returns range from 9% to 11%.
- It is only open for accredited investors. As mentioned, at this point, AcreTrader is only available for investors with at least 1 million net worth or those who are earning $200,000 annually.
- It is a relatively new company having only founded in 2018.
- Your investment is not liquid, which means, you cannot easily get the money. Note that the holding period on a farm parcel range from five to 20 years.
- There is no guarantee when it comes to income distribution as well as their timing.
- Income distribution is done once a year only and usually in December.
FINAL THOUGHTS ON ACRETRADER REVIEW
AcreTrader may be relatively new to the scene, but it’s quite impressive.
The only thing that really concerns us is the fact that it is only open for accredited investors, which means it is not available for all. Although it’s totally understandable because investing in farmland is not a typical investment. It is ideal for people who have the financial strength to withstand potential losses. Investment is not always glory days anyway. Losing money is always possible.
We got to say that, after everything that we found about the company, AcreTrader is indeed ideal for those people who are interested in investing in “hard assets”. More so, it is also applicable to people who want long-term investments.
So, how do you find AcreTrader? Do you think you have what it takes to start investing with them?