8 Reasons You Should Invest in Farmland
When it’s time to invest in your future, you may immediately think to put your money in the stock market. While investing in stocks and bonds has the potential to grow your wealth, there’s another option that many investors overlook. Farmland is a scarce commodity that steadily increases in value over time. When you make a Missouri land purchase, you are diversifying your financial holdings and adding a stable asset to your portfolio. If you’re not convinced that farmland is a good investment, check out these eight reasons you should buy farmland in Missouri or Iowa.
Farmland Values are Rising
According to the University of Missouri, land values continue to rise throughout the state, often exceeding expectations. From 2019 to 2020 non-irrigated cropland rose 2 percent to $5,555 per acre. Pastureland gained even more value during this time, rising 6 percent over the year to $3,374 per acre. The value of farmland varies between regions so take your time exploring different areas before investing. Depending on how you plan to manage your investment, you may decide to purchase irrigated or non-irrigated cropland, pastureland, timberland, or recreational/hunting land.
Food Demand Is High
According to National Geographic Magazine, the increasing global population will require roughly double the amount of crops we grow by 2050. Only seven percent of the planet’s land is suited to food production, and the majority of that land is already in production. An increase in food demand is an increase in land demand. Whether you choose to farm yourself, rent your land out to a farmer or rancher, or sell the land for a profit in the future, the scarcity of land suitable for food production increases the value of your investment.
Farmland Investment is a Hedge Against Inflation
As of September this year, the annual US inflation rate was up to a 13 year high. This means you are paying more for the same goods and services than you did last year. In other words, the value of the dollar has decreased. There are very few investments that often keep pace with inflation, and they are gold, Treasury Inflation-Protected Securities, and physical land. Adding farmland to your investment portfolio can serve as a hedge against inflation and may help protect the value of your money over time.
Farmland is Exempt from Certain Taxes
There are numerous tax breaks and exemptions available to farmland investors. Agricultural property in Missouri is assessed at 12 percent of its market value, a significantly lower rate than the 19 percent on residential property. Mortgage interest on agricultural land is deductible from your federal taxes, lowering your yearly tax bill. If your land is home to a working farm, your farming income is exempt from the federal government’s wealth tax and entitled to numerous tax exemptions on your Missouri state taxes.
Farmland Can Diversify Your Portfolio
Farmland offers both short-term and long-term opportunities for creating wealth. The land parcel itself is a hard asset typically maintains its value in your investment portfolio. Its low-risk nature can help diversity your holdings and balance out some of your riskier stock market investments. Land can also serve as a vehicle of wealth to be transferred to your heirs through a revocable living trust.
Farmland is a Good Source of Passive Income
Just because you own farmland, doesn’t mean you have to work as a farmer. In Missouri, 60 percent of agricultural land is farmed by the owner, 25 percent is rented out for someone else to use, and 12 percent is used for non-farming purchases. According to the USDA, there are roughly 911 million acres of farmland in the United States and over half of the cropland acres are rented out. You can produce passive income on your land in three major ways:
- Rent to tenants who wish to grow crops or raise animals.
- Rent to renewable energy companies who wish to place wind turbines or solar panels.
- Rent to hunters or off-road enthusiasts who wish to access your property for recreation.
Farmland is Stable
If you’re looking to add a stable asset class to your portfolio, farmland may be the answer. Typically, farmland steadily increases in value does not see turbulent swings in prices. The housing market may bust and the stock market may crash, these are unfortunate events that have happened more than once in our country’s history. Adding farmland property to your investment mix can create stable growth that protects your portfolio from economic volatility.
Farmland is an Investment That You Can Enjoy
Unlike stock certificates, land is a tangible asset that you can enjoy while it grows your investment. Want to invest in waterfront property? Thanks to all the wonderful lakes in the state, Missouri has more miles of coastline than the Pacific coastline of California. If weekend hunting trips are more your style, invest in forested acreage a few hours from home. Off-roading and ATV driving can also be a fun pastime on the right piece of land. An investment in land can lead to an abundance of recreational opportunities for you and your family.
How to Invest in Farmland
Now that you are ready to diversify your investments with a land purchase, you need an agriculture bank in Missouri and Iowa. At BTC Bank, our associates have helped generations of farmers and ranchers with farmland loans. Agricultural loans in Missouri are our specialty, and we offer farm loans and land financing for financial investors as well as family farmers. Finance your farmland purchase with a Farm Real Estate Loan, or get your farm up and running with a Farm Operating Loan from BTC Bank.
To learn more about farm real estate financing in Missouri, visit one of our 18 Missouri locations (Bethany, Gallatin, Albany, Pattonsburg, Chillicothe, Carrollton, Boonville, Beaman, Trenton, Maysville, Osborn, Buffalo, Jamesport, Gilman City, Oregon, and Cameron) or our Lamoni, IA branch. You can also contact our ag lenders by phone at 1-877-BTC-BANK. We look forward to helping you make your new farmland investment.