Real estate has long been a great investment, but buying and managing real estate properties creates a huge barrier to entry. From needing tens of thousands of dollars for a down payment, to capital improvements, to finding quality tenants, to regular maintenance, real estate investing is not for the faint of heart.
Recently, real estate crowdfunded investing has opened the doors for retail investors to take part in larger commercial real estate projects, giving investors access to a new asset class. AcreTrader, a newer crowdfunded real estate platform, has opened the doors to investing directly into the heart of America, offering shares of ownership in U.S. farmland. With markedly low volatility and great returns over the past few decades, AcreTrader offers a unique investing opportunity for accredited investors.
What Is AcreTrader?
Founded in 2018, AcreTrader is a real estate investing platform that leases farmland to farmers in the United States, and allows accredited investors to own shares of farmland property. It is a real estate crowdfunding platform offering farmers leasing options, including leasebacks, and the ability to raise capital for farm expansion and soil sustainability.
AcreTraders offers end-to-end management of the farmland, including insurance and accounting. Investors can purchase portions of farm parcels, earn regular dividends from monthly rents, and collect capital gains once the farm parcels are sold off.
AcreTrader specializes only in farmland, seeing it as a stable, long-term asset that offers potentially higher returns and lower volatility than traditional equity markets. Currently, it is only available to accredited investors, who must have at least $1 million in net worth (excluding personal residence), or $200,000 in annual income.
How Does AcreTrader Work?
AcreTrader first reviews farmland investing opportunities, weeding out low quality opportunities, and only investing in about 1% of the parcels reviewed. Once a piece of farmland is selected, AcreTrader purchases the property in cash, and puts it in its own LLC (legal entity).
AcreTrader then puts the farmland on its platform for investors to choose, dividing the parcel into shares that represent ownership of 1/10th of an acre. Investors can choose which parcels they want to invest in, choose the amount of shares desired, and then invest entirely online. Details of each investment are available on the AcreTrader website, including business overview, financials, and a proprietary AcreTrader rating system (most properties are B-rated properties or better).
AcreTrader handles the farm management, including insurance, accounting, technology improvements, sustainability, expansion, and working with farmers to improve their business. Farmers pay rent in cash, usually in advance of planting season, protecting investors from crop and weather risk.
Each December, AcreTrader pays out annual distributions from the rents collected to shareholders. It’s important to note that AcreTrader “generally expects” an unlevered yield of 3% to 5% for lower-risk properties. Once a property is sold (usually after several years of ownership), capital gains are distributed to shareholders. AcreTrader’s “typical target unlevered IRR (internal rate of return) goals” are 7% to 9%. AcreTrader is a fairly new platform, so actual returns may vary.
AcreTrader Pros and Cons
While AcreTrader offers investors a way to diversify their portfolio by investing in farmland properties, it’s not a perfect platform. Here are a few things we really like about AcreTrader, plus a few things that could be improved.
- Investments do not currently have any debt (cash purchases)
- Lower minimum than some CRE platforms ($10,000 investment)
- Farmland in general has the potential for higher long-term returns than other assets like commercial real estate, based on historical data
- Only available to accredited investors
- Illiquid investment (holding period of three years or more, depending on investment)
- Who Can Invest With AcreTrader?
- AcreTrader is only available to accredited investors, which means there are income or net worth requirements that must be met to qualify.
An investor is considered accredited if they either:
- Have earned $200,000 in the previous two years, with a reasonable expectation to earn $200,00 in the coming years, or
- Have a minimum $1 million net worth, excluding a personal residence
While this is a higher barrier to entry than some other crowdfunded real estate sites that allow non-accredited investors to participate, it follows the guidelines put together in Title III of the JOBS Act that first allowed crowdfunded real estate to become a new investment option for retail investors in 2016.
AcreTrader Minimum Investment and Fees
AcreTrader requires a minimum investment that varies per offering, but can be as low as $10,000. Typical investments will range from a $10,000 minimum up to $25,000 (or more).
As for fees, AcreTrader charges an annual maintenance fee of 0.75%, as well as a pass-through acquisition fee of about 2% per investment purchase.
AcreTrader makes most of its revenue by acting as a broker-dealer for acquired properties, and charges farm sellers a 5% commission (which is typical of a real estate transaction), but these fees are not charged directly to investors.
How Do Investors Make Money?
Investors earn money in one of two ways with AcreTrader:
- Annual distributions from rents collected
- Market appreciation of farmland properties
The annual dividends are paid out in December, and AcreTrader conservatively aims for a 3% to 5% annual payout. This income is typically considered a dividend, and may be taxed at ordinary income tax rates, though it may be offset by real estate expenses (such as capital improvements).
Market appreciation is an increase in the value of the property owned, but is not considered taxable until the property is sold and the capital gains are disbursed to shareholders. This is usually a long-term investment that is considered a long-term capital gain, with more favorable tax rates.
Want more unique investing ideas? Check out our Yieldstreet review.
Can You Lose Money With AcreTrader?
As with any real estate investing platform, AcreTrader investments come with the risk of loss, including total loss of capital invested. Properties could be sold at a significant loss, and shareholders may lose money.
That being said, AcreTrader is one of the lower-risk crowdfunded real estate companies, buying thoroughly analyzed properties with cash. Even in the event of business failure and the property being sold off, proceeds of any sale will go to the shareholders since there are no creditors to pay out.
If there was a market downturn, the farmland properties still maintain a relatively high equity valuation, since there is no debt financing, lowering the overall risk for investors. And, AcreTrader will still manage the properties and collect rents. Acretraders properties also all have independent operators, so the farm's operations can continue.
Biggest Difference Between AcreTrader and Other Platforms
AcreTrader is one of the few real estate investing platforms that offers direct investing into farmland property. It also does not rely on debt when making investments, substantially lowering the risk for investors, and giving AcreTrader the ability to get better deals when purchasing land.
While AcreTrader is currently only offered to accredited investors, its $10,000 minimum investment threshold is lower than some commercial real estate platforms. Also, AcreTrader offers a low annual fee, at only 0.75% of your total investment.
On the flip side, AcreTrader is a fairly new company, and investments are illiquid compared to investing in REITs or other platforms that offer a secondary marketplace. While this may not be an issue for long-term investors, it is important to note.
Want more? Check out all of the best real estate crowdfunding sites.
AcreTrader offers a unique opportunity to invest in American farmland. With a transparent fee structure, a stringent review process, and zero debt on the properties acquired, Acretrader is a great option for diversifying your portfolio into a solid asset class.
AcreTrader is only available to accredited investors, so those with lower income or net worth will need to find another crowdfunded real estate platform to choose from. It also requires a $10,000 minimum investment (or more), and those funds are locked into the investment for several years, so those looking for a tradeable asset are better off exploring publicly traded REITs or other real estate investing options.
Overall, AcreTrader is one of the better crowdfunded real estate platforms, and is worth a look for those who meet the minimum investing requirements.
Ready to start? Check out AcreTrader for more information.