Exploring Agricultural Real Estate: A Guide to Diversifying Portfolios

In a world where investment portfolios are as diverse as the investors themselves, agricultural real estate stands out as a unique and promising opportunity. For instance, the average price of an acre of farmland has gone from $186 to an all-time high of $4,080, and that’s just the tip of the iceberg. 

Often overshadowed by the glamor of urban skyscrapers and residential complexes, the realm of farms and rural land offers a different kind of allure. And with the population of rural areas going from 0.01% in pre-pandemic times to 0.47% afterward, realtors must jump on this eco-friendly bandwagon as early as possible. 

From expansive fields of agricultural properties to self-sustainability prospects, this article ventures into the fertile grounds of agricultural real estate, aiming to illuminate its potential for diversification and growth in appealing rural markets.

Understanding Agricultural Real Estate

Agricultural real estate encompasses a wide range of properties dedicated to farming and related activities. Of course, larger properties often contain a mix of two or more types of agricultural real estate but don’t forget that smallholders produce 84% of the world’s total supply. As such, most buyers will be interested in one of the following: 

• Arable land: Highly sought after for crop cultivation, arable lands offer a renewable resource for food production. The value of these lands often correlates with soil fertility, water availability, and accessibility to markets.
• Ranches: Livestock farms, including cattle, sheep, and other animals, require extensive land for grazing. Ranches are not just about animal husbandry; they can also offer opportunities for agrotourism and diversified income streams.
• Orchards and vineyards: Specialized agricultural lands like orchards and vineyards demand a deeper knowledge of horticulture but promise high-value returns. These properties can also enhance a portfolio’s aesthetic appeal and recreational potential.
• Mixed farms: Combining elements of cropping and livestock, mixed farms can offer balanced revenue sources, reducing the risk associated with market fluctuations in any single agricultural sector.

Who is Buying Agricultural Real Estate? 

There’s a stereotype that the agricultural sector in the US is dying out, but this can’t be further from the truth. It still contributes 5.5% to the national GDP and is the source of 10.4% of US jobs. Hence, it’s not just third-generation farmers looking to expand. 

You have everyone from hedge funds to venture capitalists looking to invest in both arable land, but also forests as well. But at the same time, farmers are still eager to invest in land, even as the 2020s are already roaring forward. Urbanism and the increase in mixed-used developments are also pushing more and more people out into the rural areas of the US. 

These are often young, well-educated people who know everything from using roofing software to collaborate with contractors to using cybersecurity solutions to protect their food processing endeavors. Thus, it’s not enough to just walk them around the property—you need to be informed about their needs and ready to understand why agricultural real estate appeals to them. 

The Investment Appeal

Agricultural real estate offers a compelling investment narrative, especially in today’s volatile market environment. Its tangible nature provides a sense of security, and the sector’s historical resilience in the face of economic downturns adds to its allure. Simply put—we need to eat, and some individuals want to invest during a recession. But, then again, other reasons play a role: 

• Inflation hedging: Historically, real estate and commodities, including agricultural products, have acted as effective hedges against inflation. As prices rise, the value of tangible assets tends to increase, protecting investors’ purchasing power.
• Stable income streams: Agricultural properties can generate stable income through crop sales, livestock production, leasing land, and even agritourism activities. This reliability is particularly appealing in uncertain economic times.
• Sustainability and ESG factors: With growing emphasis on sustainability and environmental, social, and governance (ESG) factors, agricultural real estate offers investors the opportunity to contribute positively to these areas. Sustainable farming practices and responsible land stewardship can enhance an investment’s appeal to ethically minded stakeholders.
• Rural development and appreciation potential: As urban areas become more crowded, the appeal of rural and agricultural land increases. This trend can lead to significant appreciation in land values, especially in regions with potential for development or conversion to recreational uses.

Challenges and Considerations

While every realtor immersed in agricultural real estate dreams about breaking the bank, the situation isn’t so simple. Selling an agricultural property is much harder than flipping a refurbished condo, and it mostly comes down to: 

• Market volatility: Agricultural markets can be volatile, influenced by global trade policies, weather patterns, and changing consumer preferences. Realtors must stay informed and adaptable to navigate these fluctuations.
• Operational know-how: Successful agricultural investment often requires knowledge of farming practices, land management, and the agricultural value chain. For realtors, this can be a daunting task, and the number of buyers with this know-how is also quite small. 
• Regulatory landscape: Agricultural properties are subject to a complex web of regulations, including land use zoning, water rights, and environmental protections. Understanding these legal frameworks is essential for navigating the sector effectively.
• Access to capital: While agricultural real estate can offer stable returns, the initial investment and ongoing operational costs can be substantial. Realtors should explore innovative financing solutions, including partnerships, agricultural loans, and government grants, to mitigate these barriers.

Strategic Approaches for Realtors

As the agricultural sector is quite specific and the market often experiences changes, realtors need to apply a bevy of focused, strategic approaches to effectively tackle this sector of the market and diversify their real estate portfolios:

Niche Specialization

Given the diversity within agricultural real estate, specializing in a niche market, such as organic farming or vineyard estates, can help realtors build expertise and a strong client base. Likewise, you need to be informed and have contacts for buyers looking to set things up on their new property. 

If it’s a small-time farmer, they’ll probably be looking to get van insurance for their produce-transporting vehicle. For large-scale enterprises, you might want to think of collaborating with equipment salesmen, other investors, and even architects specializing in agricultural facilities. So when establishing contact with a buyer, make sure you listen to their needs, first and foremost. 

Market Analysis and Trends

Staying ahead of market trends, including shifts in consumer behavior towards sustainable and locally sourced foods, can help realtors identify and rapidly respond to lucrative investment opportunities. 

For instance, if your area is being looked at by major food producers looking to invest in facilities, you might want to preemptively prepare a suitable level of network security. 

After all, even regular farm owners can be the victims of identity theft on Facebook, and that’s without mentioning serious cyber attacks on facilities, such as the $11 million one suffered by JBS Foods. The agricultural sector has become an enticing target for malicious actors—per Malwarebytes, it is the seventh most targeted industry and saw a 607% increase in attacks in 2020 alone.

Conclusion

Agricultural real estate represents a fertile ground for diversification, offering realtors and their clients a blend of stability, sustainability, and growth potential. 

By navigating the unique challenges and leveraging the distinct advantages of this sector, realtors can unlock new opportunities in appealing rural markets. And if you need help providing your agriculturally-oriented buyers with USDA loans or adequate financing, an Embrace Home Loan officer is always at your disposal.