As any financial advisor or experienced investor knows, generating a passive income stream is a critical means to grow an investor’s portfolio. You might not immediately think of investing in farmland when contemplating ways to create a passive income stream, but fractional ownership of farmland is widely considered to be a promising long-term investment. In fact, business magnates like Warren Buffet and Bill Gates choose to make farmland a component of their portfolios.
Passive income not only brings in consistent streams of cash, but it does so without wasting temporal or energetic resources. We all know that time is money--when you free up your time and energy, you can invest more in your long-game, which might include personal or professional development, or diving into entrepreneurial endeavors, all of which can generate more wealth over the long term. Of course, passive income adds to any income you’re already generating, which also can increase wealth and, in turn, afford more investment opportunities,
Having passive income is also a smart way to diversify your portfolio. Since real estate and farmland investments are far less volatile than stocks, investing in these helps investors diversify their portfolio, mediating risk as a result. Even when someone has a diversified stock portfolio, market volatility can still end in losses. Having investments in farmland can potentially hedge against this risk, since farmland usually maintains its value and tends to be negatively correlated with most of the other asset classes.
Rental yields--or dividends--on farmland are often higher than those from stocks and money market accounts. Yearly cash yields from farmland can range between 3% and 8% per year, although its possible appreciation may be slower. Compared to a money market fund, which typically yields a 2% return per year, the farmlands potentially offer a far higher return on investment.
When you invest in farmland, you also have opportunity to increase the value of your investment by encouraging the farmers who rent the land to adopt sustainable farming practices that boost the health and long-term fruitfulness of the land. Most farmers see themselves as caretakers of their farms; they want the land that they farm to be as abundant as possible, so it’s in their best interest to take good care of it. By encouraging good farming practices as an investor, you can help increase short-term yields for farmers whilst boosting the farmland’s long-term value and productivity.
Historically, farmland has both maintained and grown in value, and as the global population continues to boom, its value will likely increase. After all, there’s a limited amount of land on the planet, and farmlands supply the main source of food for humans--and the livestock they consume.
Disclaimer: FarmTogether does not intend to provide tax, legal or investment advice. This material has been prepared for informational purposes only. You should consult your own tax, legal and investment advisors before engaging in any transaction.