Investing in farmland can be a lucrative business investment. After all, farms produce one of our most very basic needs; food. Farmland has the added benefit of not only producing goods, but also generating income. If you are looking for a return on your investment, there are two ways to make money on a piece of farmland. The first is capital appreciation and the second is income. The basic definition of capital appreciation is the money that can be made when the value of land increases and the investor sells it for a profit. Income from a farm can either be from rent or crop share. Rent is typically calculated by the amount of dollars paid per acre. Experienced investors often choose a method referred to as custom farming. The owner of the land or the investor hires a farmer to operate the farm on their behalf. The farmer is basically an employee who may perform some or all of the necessary tasks to operate the farm. The cost of seeds, livestock and machinery are paid for by the owner or investor. The landowner benefits by receiving all of the income from sales but is at a disadvantage because the financial risk falls completely on the owner/investors of the land.
Best Ways to Directly Invest in Farmland to Increase your Investment Opportunities
The principle of investing in farmland is basically the same as investing in rental properties. The basic steps are as follows:
• Finding a farm listing that you are interested in. Many lucrative opportunities can be found by keeping tabs on the real estate professionals and upcoming auction events listed on our Central Texas Auction Services website.
• Take advantage of any opportunities to view the property and complete your research including past crop yields and generated incomes etc.
• Contact your local bank or credit bureau to discuss the types of loan that you are eligible to apply for.
How to Indirectly Invest in Farmland to Increase your Investment Opportunities
Buying Farmland Funds – One of the other ways that you can invest in agriculture without directly purchasing the farmland include purchasing farmland funds. This system works similar to a hedge fund where the investors’ money is pooled together and used to purchase the farmland (assets) which are then rented out to local farmers. Profits are made through capital gains, rent and other income. Basically, the fund manager is 100% invested because the more money that he makes for his clients (investors), the more money he can generate for himself.
Buy Shares in Publicly Traded Companies – Another lucrative way to in invest in farmland is to purchase shares of publicly traded companies. Statistically speaking, the average return that many of these companies have returned to shareholders over a 10 year period can be as much as 700%. It is always prudent to do your homework and research stocks before purchasing them. A good rule of thumb to lower the risk factors associated with investments is by diversifying. If you want to invest $6,000 for example, consider investing $3,000 to two separate companies with excellent reputations rather than putting all of your eggs in the same basket so to speak.