Farming for Investors
Different Types of Investors are looking for Different Things
There are a variety of types of landowners that a farm operation may encounter. One of the more intriguing segments is farming for investors. There are different types of investors, including the local guy who buys land, high net worth individuals who usually have hired someone to purchase and manage the land purchased, accredited investors, and institutional investors that typically have large funds (pension funds is one example) behind them providing the capital. Investors are obviously different from individual landowners that an operator may be accustomed to dealing with. Investors have different needs and goals from individual landowners; hence, the questions to ask them when determining if you are a good fit for each other must be different as well.
Here are some of the key differences:
- Investors generally are concerned with return and risk mitigation – other criteria are a distant thirdFarm Businessd
There is less emotion involved than when dealing with individual landowners; it is more of a business decision.
- Some may not be open to sharing certain information with you. Operators need to put investors at ease by telling them up front to not hesitate to tell you that they cannot discuss something or that they are not comfortable divulging specific information.
- There are several ways of calculating return, so be sure to learn the preferred method of each particular investor.
- Some investors have unrealistic expectations for returns – one thought he could get a 20% return. Most, however, are looking for 4 ½ – 5% or better, again, depending on how calculated.
- Most are not interested in listed properties nor tracts going to auction; they prefer private sales.
- Some don’t want to see land that has less than 95% tillable acres to total acres.
Farming for investors may require some additional paperwork. Some more sophisticated investors will ask for the FSA Form 156 (government payment) and the Form 578 (yield info) so don’t be surprised by this request if you bring a piece of land for sale to an investor. Simply be prepared and be willing to provide that information if requested.
The best way to start a relationship with an investor is to bring a piece of land for them to buy. Most investors will honor the “if you bring me land to buy, you can farm it” approach; however, this is by no means definite or guaranteed. It may be understood that you will be the operator for the first year or two. Beyond that, you still need to deliver on your service promise, take good care of the land, and communicate regularly and openly with the investor. There is never a substitute for good performance and customer care.
Know of land for sale? Want more details on working with investors and specifically what to ask them? Contact FamilyFarms at 1.877.221.FARM.
From Dave Bryden, Manager of Business Development