From fruit to timber to vegetables, today’s opportunities for the individual investor to break into agriculture offer great potential returns.
But how do you decide which agricultural offering deserves your attention, and more importantly, your money? Here are 16 factors and some questions you should ask before spending your hard-earned cash on Mother Nature’s bounty.
1. Company Structure
Investing in agriculture is about more than just the final product. It’s the people behind the business who make it successful. Ask:
- Is this an international conglomerate, or a small family-owned company that will be more responsive and usually more concerned about the environment and the investors?
- Is the company helping the surrounding community and putting unskilled laborers to work and providing for their families?
- Do they give back to the community through charitable actions?
2. Company History—Previous Offerings And Successes
Since every investment carries inherent risks, it’s up to you to do your due diligence and research the developer before handing over your cash. Ask:
- Has this company produced this product or another one in the past?
- If this is a new product for the company, why have they changed their focus?
- What is their prior track record?
- Have they met their projected returns in the past?
- Has the company experienced a large turnover of personnel?
- How committed to the viability of the company are those in control?
3. Location Of Development
A successful and profitable agricultural project must be located in an optimal location with all necessary resources for its specific needs. Ask:
- How has the developer chosen the planting location?
- What kind of studies have been done?
- Did they consider soil type, average rainfall, wind, insects, irrigation, and any other factors necessary to produce the end product?
4. Type Of Product
There are many different types of fruits, trees, fish, and more, available for cultivating. Ask:
- Did the developer study multiple varieties of plant, tree, or animal to determine which is best suited for the designated area?
- Is there a strong demand for the chosen product?
- How long will the chosen product take to mature, and thus produce income?
5. How Will The Product Get To Market?
Once the product is mature and ready for sale, the developer must have a plan to move it to market. Ask:
- Do local options exist, or will this project require a brand-new mode of transportation for shipping?
- How much will it cost to bring the product to market and the anticipated impact on your net returns?
6. Intended End Buyer
Producing an agricultural product is admirable, but in the long run, it needs to be sold to make profit. Ask:
- Does a consumer market already exist, or is the developer counting on a viable need by the time the product is ready to sell?
- Where is the end buyer and how far must the product be shipped for sale?
- How strong is the demand for this product and how much competition does the market bear?
- Who is the competition and what market share does this developer expect to hold?
7. Beneficial Or Harmful Effect On The Environment?
Most investors today are concerned about how agricultural projects affect our environment. For many, it is important that they do not harm the planet just to make a profit. Ask:
- Does the project benefit the environment or strip the land?
- Has the developer been thoughtful about protecting the planet, reducing the carbon footprint, and encouraging healthy growth?
- Is the developer using the most current methods to optimize growth and profits while avoiding damage to the Earth?
8. Intercropping And/Or Thinning
Many agricultural projects have the opportunity to produce several products or provide interim payments to the investors while the final product is still growing. Ask:
- Has the developer determined the most effective way to maximize profits during the life of the project?
- Is it beneficial to thin the crop after a few years, to improve the crop, and provide an interim return on investment?
- Is there a possibility for intercropping with a different product to produce a second or third crop that will yield additional returns?
9. Project Life Cycle And Time Frame For Returns
Some agricultural projects can be replanted after harvest, but the original plants may produce several harvests. Ask:
- How long will your investment take to produce returns?
- Can the intended product be harvested quickly and replanted for multiple crop returns?
- Will the initial planting produce several yields over the expected time frame of your investment?
- Is this a long-term investment intended to provide for generational returns and rewards for your children and grandchildren?
10. Risk Of Loss
Every investment carries some risk. Agriculture presents additional risks that fall outside the developer’s control. Ask:
- Is this product susceptible to drought?
- Is there a chance of wildfires, and could the project burn?
- Does the area experience high winds, rainy seasons, tornadoes or hurricanes, or other natural phenomenon which could affect the crops?
- Has the developer taken all of these negative possibilities into consideration?
- What precautions have been, or will be, taken to protect the crop?
11. Do Investors Receive Full Title To Land Or Ownership Of The System?
Another benefit of agricultural investing is holding title to physical land or owning a system of equipment that can be sold in the future. Ask:
- As a result of this investment, will you be the owner of the land that will yield the crop?
- If the project is a growing system that doesn’t require land, will you fully own the necessary equipment?
- What will it take to sell your land or the growing system in the future?
12. Capital Appreciation Of Land Itself
Many projects do not include the value of the land in their projected ROI. Assuming you receive title to the parcel of land in question, you may realize additional profits upon sale. Ask:
- How much capital appreciation can you expect over the life span of the investment?
- Can you sell your land at any time?
- Is the expected capital appreciation included in the anticipated return figures, or listed separately?
13. Tax Benefits
As with any financial investment, you need to consider your taxable implications. Ask:
- Will your investment give you any tax benefits in the country it is located?
- Will you receive any tax benefits in your country of origin?
- How will this investment change your tax status, both in the investment country and your home country?
14. Residency Component
One of the reasons you may be considering an investment of this type is to establish residency in another country. Ask:
- Does this investment give you the basis for residency in the country?
- Will you have to spend a certain amount of time in the country, or can you simply invest money to qualify for a second residency?
- Will this developer assist you with a residency application?
15. Turn-Key Process
Overseas investments present certain complications for investors that do not live in the country and cannot regularly observe the project. Ask:
- How involved must you be in the project?
- Will you be expected to make day-to-day project decisions to meet the projected goals?
- Should you visit the project on a regular basis?
- How much feedback and reporting will you receive?
16. ROI And IRR—(Return On Investment And Internal Rate Of Return)
The financial benefit is why we invest in property overseas. Investors need to know what profit they can expect from each potential project. Ask:
- What are the bottom line numbers?
- Are the projected returns reasonable?
- How long will it take to reach the return you need and expect?
- How were the projections calculated?
- If the developer has prior completed projects, did they reach their goals for those projects?
Agricultural projects are an exciting way to diversify your investments. Not only can you expect excellent returns, but you will also help provide food, energy, and employment in the global market to those in need.
About The Author: Wendy was an attorney for 23 years until she decided there must be more to life than 60-hour work weeks and 10 days of vacation every year… So she left the rat race and winter snow behind and retired (very!) young.
After a lot of research and selling everything they could, Wendy and her husband Darren moved from northern Illinois to Medellín, Colombia, in 2014. She’s now reinvented herself as a real estate investment guru and freelance writer and photographer.