This post originally appeared on globalinvestoralliance.com as is published here with the full consent of the original authors.
By Peter Badger and Karen Williams
Karen and I have spent most of the last decade following a focused plan to properly globally diversify our wealth rather than turning a blind eye to the unrest both within the US as much as, if not more so than, beyond our borders.
So, we’ve steadily taken some healthy stock market gains off the table and transferred most of that capital from the very sentiment-driven volatility of the stock market into what we believe is safer harbor in hard assets – primarily real estate-backed assets. For us, this means a portfolio that has included: single family homes, multifamily apartments, mobile home parks, and other syndicated real estate-based investments.
Our bet on real estate has given us many advantages over investing in stocks, bonds, or mutual funds; it offers predictable cash-flow, appreciates in value thus keeping up with inflation, provides higher returns due to leverage, and offers equity growth through debt reduction.
Then about 5 years ago, we opened our eyes to investing in land – specifically, investing in agribusiness and investing in farmland (which includes the land + operating assets of an active business in the agriculture industry). We were at a REIA (Real Estate Investors Association) network meetup one evening and met an investor who put farmland investing into context for us. What he said blew our minds…we started studying, learning, investing in agriculture and are so glad we did!
5 Facts That Prompted Us to Invest 20+% of our Net Worth in Agriculture
Agriculture Provides True Diversification Beyond Stocks and Bonds
Farmland is negatively correlated with most traditional asset classes, including stocks and bonds, and is only somewhat correlated with commercial real estate. This provides us with wealth stability during volatile markets and enhances our overall returns. We sleep well at night knowing that a combination of our traditional asset-backed real estate AND agricultural investments will mostly continue producing cash and growing our wealth during major economic or stock market downturns.
Investing in Farmland Generates Predictable Passive Annual Income for Decades
Now, if we’re talking row crops – wheat, sugarcane, cotton, corn, soybeans, pineapple etc. – they’re cultivated on a seasonal or yearly basis. These crops yield product and thus cashflow relatively quickly (within 1-1.5 yrs) and predictably throughout the year if you’re in tropical growing locations like Latin America. Plus, if one row crop goes out of fashion, a farm can pivot to growing another crop with minimal disruption.
If we are talking permanent crops – coffee, coconuts, almonds, pistachios, apples, avocados, and citrus fruits amongst others – plants or trees last for many seasons rather than being replanted after each harvest. So, while most permanent crops take a few years to mature and bear fruit at commercial sale volume, once they begin producing, with good farm business management in place these investments provide predictable cashflow for decades.
To manage your short and long-term income streams, you probably want to aim for a balance between row and permanent crops within your portfolio. Row crops are safer in the short-term because they yield seasonal results and can be revised or displaced from one year to the next. On the other hand, permanent crops produce higher long-term yields and do not deplete soils as quickly.
Agribusiness Gives Us Major Appreciation in Asset Value
A component of farmland or agribusiness total return is capital appreciation. As demand for agricultural products increases – driven by an ever-growing world population – and the supply of arable land with healthy soils for agriculture declines, our farmland increases in value. It’s the basics of supply and demand.
Plus the projects we invest in involve an element of forced appreciation through value-add. We especially like full-development investment projects which involve adding value to raw land by adding irrigation, water sources, and permanent crops which significantly increases the value of that land (and our wealth).
Investing in Farmland Is A Hedge Against Inflation
Farmland has a positive correlation with inflation and is considered a classic inflation hedge. In fact, the 1% view it as more favorable than other hard assets like gold or silver because it produces positive cashflow while shielding from the wealth-deteriorating effects of inflation. As we know, the United States is the world’s largest debtor and western governments in general have a tendency towards creating inflation whether through deliberate conduct or an unintended consequence of monetary policy. We think it’s smart to hedge against it.
Agriculture Is A Basic Human Need Which Translates to Inelastic Demand
We all need to eat. No matter the economy, politics, or the general state of peace or unrest in the world, everyone needs food to survive. We love to invest in areas like this that we refer to as the Maslow’s Hierarchy investing strategy. When you invest in real estate-based assets that provide for true human needs, you will always have high demand for your products and thus a good, steady passive income stream as investors.
Clearly, you see we can talk for days about investing in farmland…we love it! That’s why we wanted to explain to you something probably no one else has bothered to (because financial advisors don’t make a commission from it) – average investors like you and me, can grow significant wealth and improve our world by choosing to invest in agribusiness.
We are always looking for investors looking to diversify their stock market holdings with real estate or farmland investments. If you think you’d like to join our Global Investor Alliance to obtain the education, confidence and investor network to achieve investing success, please APPLY FOR YOUR FREE STRATEGY SESSION WITH PETER & KAREN HERE
To your investing success!
Peter & Karen
Peter Badger and Karen Williams have been investing in agriculture for years, and their well-diversified portfolio includes multiple Farmfolio opportunities. The duo is now serving as brokers for our LOTs farmland ownership opportunities, which you can learn more about here.