Investment Vehicles (Equities/Mortgages)
1) Fee Simple or direct real estate ownership
LLPs, LLCs, and corporations are the typical means by which investor groups acquire agricultural properties. A general manager is in charge of overseeing the project and the direct supervision of the onsite farm management team. The benefits of direct ownership include (1) hand picking the more profitable commodities and (2) the possible appreciation in land values in the long term (a hedge against inflation).
2) Mortgages/First Trust Deed Lending
First trust deed lending allows investors to benefit directly from the economic strength of the agricultural sector. Benefits include, (1) the maximum diversification, (2) fixed predetermined rates of return, and (3) the highest probability of capital retention. In terms of diversification, loans are originated on properties that are located in a broad geographic location and that cover the spectrum of commodities grown. Rates of return are set at the time of funding and can be tied to spreads over the corresponding treasury market to insure that interest rate resets are at market prices. First trust deed lending offers the highest probability of capital retention. Agricultural real estate loans are generally under 65% loan to value. Per USDA data, farm land values have historically risen, making the agricultural sector a great hedge against inflation, which also results in a high probability of recapturing lent capital in the event a loan goes to foreclosure. Investors can lend directly to the farmer themselves or be part of a more elaborate diversified financing structure (e.g. self directed retirement account, mortgage pool, REIT, LLCs)