Farmland Investing Explained:Returns,Risks, & Why It Outperforms Traditional Real Estate

Artem Milinchuk (00:00)
So looking at real estate farmland in the last 30 years has returned.

10 plus percent net. So it’s done really well. It’s done it with way less volatility at about 7%. So on a sharp ratio, which is returns divided by volatility roughly, it’s done better than S &P. It’s done better than real estate as well.

Dylan Silver (01:51)
Hey folks, welcome back to the show. Today we’re joined by Artem Milinchuk founder of Farm Together and a seasoned finance leader with over 14 years of experience across food, agriculture, and farmland investing. Through Farm Together, he’s built a platform that gives investors access to institutional quality farmland investments, bringing a traditionally hard to access asset class into modern scalable investment model. Welcome to the show, Artem.

Artem Milinchuk (02:16)
Thank you, Dylan.

Dylan Silver (02:17)
Now when we talk about the farmland space, is of course an alternative asset class. How did you get into this space?

Artem Milinchuk (02:24)
So I started the company in 2017. Before that, for about 10 years, I was working in Canada in financial institutions, investment funds. And a lot of my focus was on natural resources and actually invested a little bit in farmland, which was even more niche back then. And it kind of blew my mind that ⁓ even in this large organizations, no one heard about farmland, no one was looking at it. ⁓ But when you look at these sort of the large capital markets,

It’s very much about doing the right asset allocation and thinking long term versus trying to chase the latest stock. Like when you have a lot of capital, you’re not really thinking, man, I should buy Bitcoin today and then tomorrow I’m going to buy Tesla or something else. And farmland is a huge ⁓ vital asset class. And so it kind of was obvious to me that just as we have seen the last 10 years with a lot of other asset classes becoming more mainstream, farmland would be that as well. And so that’s sort of a bit of history there.

Dylan Silver (03:20)
How does farmland compare to traditional real estate from a returns and risk standpoint?

Artem Milinchuk (03:26)
Yeah. So one is, you I’m glad that you said how does it compare to real estate because while it is its own asset class, I think real estate is a great lens through which to look at farmland. ⁓ It’s also real asset. also, it’s built on land, is land. ⁓ And a lot of the income comes from leases, although that’s where the comparison will break a little bit.

So looking at real estate farmland in the last 30 years has returned.

10 plus percent net. So it’s done really well. It’s done it with way less volatility at about 7%. So on a sharp ratio, which is returns divided by volatility roughly, it’s done better than S &P. It’s done better than real estate as well.

real estate has high volatility. It also depends what kind of real estate. So for example, commercial real estate has had a lot of trouble last few years after the pandemic. Farmland actually has done really well.

So there is some similarities but also some key differences.

Dylan Silver (04:25)
That goes counter to the narrative that farmers are struggling.

Artem Milinchuk (05:16)
There is a pervasive and long running narrative that farmers are struggling. ⁓ Overall, they’re not. ⁓ So there’s of course challenges and certainly depends where you are. But ⁓ if that was the case, we wouldn’t have food and would be the national crisis every year. When you look at one, the returns of farmland I just mentioned, but also at the USDA farmland net income.

It’s very high and it’s consistently done quite well. ⁓ Sometimes you’ll see ⁓ headlines like 300 bankruptcies or bankruptcy is a skyrocketing. ⁓ If you like 300 bankruptcies over 2 million farmers is 0.00, it’s like negligible, it’s like a blimp. in reality, farming overall can be profitable, but of course you have to be smart about it.

Dylan Silver (06:12)
Who is the typical investor in farmland today and what’s the scale of their investment?

Artem Milinchuk (06:19)
So a typical investor is a high-end worth individual. So right now, we only open to accredited investors. There’s no unique one profile. It’s people all over the place. It’s typically people that are a bit older. They’ve seen through cycles. They don’t like chasing hype. They’re looking for stable long-term returns. They plan 10-plus years. So it’s people who are investing for their retirement.

or people that want to invest and forget. So we have doctors, we have lawyers, we have dentists, we have business owners, we have farmers, we have finance people. So it’s really all over the place.

Dylan Silver (06:53)
Now what makes a farmland deal a good deal? And then of course, the underwriting process is going to be different than if you’re underwriting a multifamily investment property. What’s the underwriting process look

Artem Milinchuk (07:06)
Yeah, certainly. So same as in real estate, location is key and price that you buy it at. In case of farmland, location means good water because we invest a lot in places like California and then also Oregon, Washington, ⁓ good soil, proximity to the right infrastructure, ports, logistics, ⁓ labor, equipment, fertilizer, things like that. ⁓ And then same as in real estate, the price you buy it at. So our returns are twofold.

So you have the price appreciation. Farmland in the last 50 years has appreciated by 5.9 % a year. It’s very nice. And then you have the rent or the income component. So like in real estate, if you rent out the land, then the farmer pays a lease. But unlike in real estate, you can also run the farm direct operated. We’re essentially running a whole farming business. And that’s where we excel at farm together, by the way. So then you’re receiving the profit from the farm.

Dylan Silver (07:59)
Now, when we talk about scaling a business, ⁓ what’s the hardest part of scaling a, you know, agricultural business from scratch?

Artem Milinchuk (08:09)
⁓ Yes, so for us, we are an asset manager. ⁓ So we don’t have to scale the agricultural business. Thankfully, what we do is we rely on trusted partners that will farm the farms for us. And oftentimes, to your question, there’s some multi-generational businesses. So all the farms we work with, this are most often families. Sometimes, I mean, you hear amazing stories, people have done it for a century. So we had…

Dylan Silver (08:37)
Yeah.

Artem Milinchuk (08:38)
Yeah.

Dylan Silver (08:39)
I mean, one of the interesting, you know, segues to real estate here is, as these cities are expanding, farmland is becoming less and less. But that also makes the farmland more valuable. Right. And so I experienced this living outside of Dallas, Texas. I was living in a town called Denton and there was certainly a lot of farmland out there.

Artem Milinchuk (08:57)
Mm-hmm.

Dylan Silver (09:02)
But then it was also being encroached upon by kind of the urban sprawl. And I’m sure that’s happening pretty much everywhere.

Artem Milinchuk (09:42)
It is, yeah. millions of acres of farmland have been lost in the last 10, 15 years and the trend continues. So the farmland that we have somewhat is close to urban centers and one of the potential exits for investors may be a sale to the city or to a developer. There’s also development around solar and wind.

So thankfully, the United States is blessed with farmland. We have almost 900 million acres. So again, that number is decreasing. And then a lot of that farmland is used for ethanol production. So as you can imagine, as we continue to electrification of our fleet, a lot of that farmland can be repurposed to grow food. I think there is certainly trends happening around urbanization, but we’re good.

Dylan Silver (10:27)
Are there any global trends that you’re seeing in the agricultural space and farmland that investors aren’t aware of or paying attention to?

Artem Milinchuk (10:36)
Yeah, so there’s nothing of that caliber. think everyone kind of gets farmland intuitively. You buy land, you grow food, you sell food. And we’ve been eating every day. So that’s what makes this asset class ⁓ excitingly boring. You don’t need to worry about, today you have this SaaS company, tomorrow AI has destroyed it. Like, food is not going away. You can’t buy code an acre of productive farmland.

Dylan Silver (10:58)
People need food. I can’t take over.

And that’s

right. I know you have extensive experience in the financial world. You know, how did your experience at Ontario’s teachers pensions plan help you think about and shape your thoughts on investing in farmland?

Artem Milinchuk (11:19)
Certainly. so for those who don’t know, OTPP, as it’s known, is one of the oldest, largest and most successful investment organizations period. They’ve done tremendously well for the parent teachers and it’s a global direct investing multi-asset organization. so I think I just had Fran Roci to extremely talented and thoughtful investors.

So everything from how to use technology to be a good investor, to how to think right, how to think strategically in long term. All of that I bring to farm together. And it’s also understanding how to take a farm, a farmland, and present it in a way that’s clear to the investors, right? Because investors, I we have a lot of people who do actually care deeply about feeding the planet sustainability, but they also want their returns. And so you have to explain it same as in real estate.

This is what the returns are. This is what the risk is. This is how it’s different, similar to real estate and other investments you may have in your portfolio. So all of that, thankfully I was able to learn at OTPP.

Dylan Silver (12:23)
One of

the more challenging things that I’ve seen about purchasing land in general is that it can sometimes be difficult to secure financing for land deals of all varieties. When farmers themselves are looking at purchasing farmland, are they typically paying a huge portion of it in cash? Do they have financing? Are there specific partnerships that they’ll have with banks to where they may kind of have a one-off or a very unique relationship with their lender?

Artem Milinchuk (12:50)
Yes, so typically when you buy farmland you get a mortgage So in our case, it’s a farm credit system, which is a government organization that supports The farmers so it’s kind of like pharma Mac and Freddie Mac. We have similar structures in farmland The loan the LTV you get loan to value is like 50 to maybe 60 70 percent tops So the rest is Yet the rest you get cash

Dylan Silver (13:15)
Yeah.

Artem Milinchuk (13:17)
So that’s why farmers work with us because oftentimes we follow the farmer. We’re very farmer centric. They will ⁓ tell us, hey, I want to buy this land, but I can’t afford the whole thing. Can you do sale at least back or can we buy it? But then I buy back from you in 10 years. And so there’s a lot of that, that we actually do. So that’s a good question.

Dylan Silver (13:38)
Are there any common mistakes that you see folks making when they’re investing in the farmland space or is it somewhat of a operator driven model and as long as you’re successful ⁓ working the land that you’ll be successful in the agricultural space?

Artem Milinchuk (14:35)
No, it’s a difficult sector ⁓ and we definitely took some hits early on learning, but I think we’re much, much smarter now. ⁓ Again, price is really important in order to understand what our location is. Having the right operator and partner is critical, absolutely. And then it is still a hands-on business, so you need to be able to continue monitoring it.

So I think the mistake I see, look, the farmers, they’re incredibly capable, they’re smart, they’ve been doing it for generations. So that’s why, again, I say we are farmer following and we want to partner with the right farmers. It’s people that have this romantic notions of farming. Oftentimes people in tech call us and be like, I had an exit, I wanna buy a farm, I’ll have chickens and I’ll have goats and this and that, and I’m gonna live on the farm.

Dylan Silver (15:26)
But no experience.

Yeah.

Artem Milinchuk (15:27)
It’s just a lot of work and you need scale. ⁓ You ⁓ competing globally. You’re competing with very smart, creative people. You’re competing with people constantly introducing new technologies, new varieties, new genetics. And so yes, I think a mistake is just thinking that you kind of gonna buy a farm and coast. It’s a active business.

Dylan Silver (15:50)
Do you think it’s at all likely that we will start to see smaller farms on some level, whether that’s for people who, like you mentioned, may have a tech exit and they want to do something closer to home and maybe not thousands of acres? Or is it just at that point that the deal economics don’t make sense on any level and you’re either, it’s kind of go big or go home?

Artem Milinchuk (16:01)
Mm-hmm. Mm-hmm.

It’s go big and go home. It’s a commodities business, And so unless you have some sort of agreements with nearby stores or it’s a small farm or it’s like highly organic regenerative, which is some of what we have. ⁓ Yeah, it’s hard. have to. And the thing you’re competing with countries like Brazil.

You’re competing with places like Mexico, right, where labor is cheaper, land is cheaper. Competing with places like Russia that grow wheat where a lot of them, they don’t have the history that we have in the United States and the Homestead Act and just a lot of people moving west. you know, I was reading this biography of Lyndon Johnson randomly. It’s like Texas, right? And how you get these pieces of land. But the reason is now our land is highly fragmented, whereas other places, like Russia, Brazil,

Dylan Silver (16:38)
Hmm.

Artem Milinchuk (17:05)
it’s huge, huge pieces of land that were made like that from the beginning or for many, many years. So yeah, unfortunately, ⁓ as much as I appreciate the local farmers market and being able to have a vibrant farming ecosystem, the realities of the market are that it’s go big or go

Dylan Silver (17:23)
Now, when you’re competing with other international farmers, ⁓ There’s of course, and I think we take this all for granted when we’re buying food at the grocery store, but there’s also transport and logistics that goes into getting food from Brazil, right, to your local grocery store. When people are taking that into account, I’m imagining that a big part of it as well is that the

Artem Milinchuk (17:43)
Mm-hmm.

Dylan Silver (17:51)
expenses the cost to produce those goods in a place like Brazil is going to be substantially less than places in the US as well. So is there an element as well?

Artem Milinchuk (17:59)
Yeah, it’s Yeah,

so Dylan, absolutely. So really good point. So it’s true. For some commodities like citruses or apples or cherries that are perishable or that have growing seasons ⁓ that you have to account for at the time of storage or cold supply chain. I mean, that’s why US is still dominating in California as an ag producer is the sixth largest country in the world. So think about that.

Dylan Silver (18:27)
Yeah

Artem Milinchuk (18:27)
So yes,

absolutely. But at the same time, so one, ⁓ for ⁓ cash grains or cash ⁓ crops like ⁓ corn, soybean, you’re talking about massive scale, right? That you’re transporting globally in ships that can be stored. So here you’re competing not against bringing something to US, but we also are about agriculture goods are exported. So you have that problem. Yeah, that’s what.

Dylan Silver (18:50)
I got you.

We are coming up on time here, Artem. Any new projects that you’re working on and then as well, what’s the best way for folks to reach out to your team?

Artem Milinchuk (18:59)
Yeah, absolutely. So no new public projects at the moment, although always something under the hood. ⁓ Just to give a quick recap, basically, our website is farmtogether.com. You can invest with us with as low as 15,000. Target Net returns are 8 to 11%. It’s all done online very simply. ⁓ And our contact information, ⁓ emails, phones are all on farmtogether.com. So yeah, thank you so much for having me.

Dylan Silver (19:28)
Thank you, Artem.