The savviest investors have long understood the advantages of investing in tangible, real assets, particularly those that are secured by land. Real estate, both commercial as well as residential, is perhaps the one of the most popular options for investors who satisfy this requirement. Agriculture has many of the same advantages and is a great way to increase the diversification of the asset parts of portfolios. In the majority of cases, commercial real estate as well as agriculture yield yields by recouping rents from tenants as well as recouping from the appreciation of the land as well as the improvement of the land.
Variety is the Spice of Life
Both agriculture and real estate encompass a variety of property (or crop) kinds. The Real Estate Investment Market comprises single-family properties, multifamily units commercial office buildings and retail. These categories can be further subdivided into more specific categories. Production agriculture comprises special crops, row crops, wood, livestock operations, timber as well as some more modern varieties like urban and vertical farming. Furthermore, these different items can be further classified according to the way they are produced, for instance organic farming, conventional agriculture and also by the size that the farm operates.
Location, Location, Location
The importance of location is as much when it comes to agriculture and real property. In real property the ideal commercial property could be situated at an intersection with a lot of traffic or a multi-family property could be more successful in an area that has a rising and diverse economy. In the field of agriculture an ideal farm will have excellent soil, easy access to water, as well as close proximity to infrastructure such as highways and processing plants. Furthermore, while one property market or type of property may be booming however, other types may have been deemed unsuitable by investors or due to being in areas that are economically weak. Contrary to real estate, agricultural products are mobile, which means that the products produced are moved across state or international borders. Certain items, like coffee and cocoa are more perishable than others, such as beef or lettuce. Before making a purchase, it’s essential to comprehend the entire supply chain for an agricultural product starting from the production stage, through processing, then transportation to the market.
Ups and Downs
In general, the real estate market and investments in agriculture are long-term, non-liquid therefore, they aren’t subject to the fluctuations of the market. Like real estate, commodities are also subject to cycles. If the prices of one particular crop are reduced for a long time period the value of land can be impacted by falling prices as well. These market fluctuations can provide opportunities for the prudent real asset investor. In rare instances, agriculture is not a subject of “bubble” markets, such as those seen in the residential real estate market before the crisis of 2007–2008. In the near future both categories of assets will benefit from unstoppable population changes. Food and housing are two basic necessities that demand is increasing with a rising population. Urbanization in the world reduces arable land and increases the value of farmland. As people grow with wealth, people are likely to consume more protein and this is another reason that can boost the long-term outlook of investment in agriculture.
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