Gold vs Farmland

Over the centuries there have been two measures of wealth that have consistently outperformed across the test of time. Land and gold. Kings and Queens knew full well the value of these two investments, always rewarding their closest allies and confidents with large amounts of gold and vast areas of land.

Today, monarchs have largely been replaced by democratic governments, and capitalism combined with meritocracy has proven to be the fairest and most efficient way of distributing wealth across all levels of society. Young men and women across the western world dream of becoming wealthy. Of course, only a very small percentage ever achieve true financial freedom – it’s not an easy path – but for the lucky few who ‘make it’, the issue then becomes, how to invest your fortune. It is true many people take huge risks whilst they are creating wealth (after all, these people have nothing to lose). However, once created, the key investment issue becomes protecting and maintaining wealth. It is a commonly held view ‘real assets’ should be an integral part of any investment portfolio. They provide stability in uncertain times giving investors comfort when bond and share markets gyrate up and down like oceans in a wild storm.

Gold is a relatively easy investment. There is a liquid, world wide market. It is easy to store. It’s a hedge against inflation. It performs well when stock markets are in turmoil and it has a history of holding its value. For wealthy individuals or families, it’s the ultimate low risk investment that can be passed down to the next generation. The one negative aspect of owning gold is that it doesn’t generate an income. The yield is extremely low. In fact, it is zero!

Agriculture Investment Made Easy

Farmland has many of the same qualities of gold. It’s a real asset, it’s a hedge against inflation, it possesses an inverse correlation to stock markets, it can be handed down to the next generation, and it stores well. But what makes it even better than gold, is that it can generate a stable yield year after year. The wealthy aristocracy have known for centuries that land was a sign of true wealth. This traditional form of wealth has been lost somewhat over the last few generations as people have migrated to cities creating a disconnect between farmland and city dwellers.

Australian Farmland Investment

Australian Farmland offers astute investors the opportunity to invest in farmland in its purest form. Unlike farmland in Europe and North America, Australian farmland prices have not been distorted by subsidies provided by the Government (Australian farmers do not receive government assistance). This means land prices are determined by supply and demand and the fundamentals pertaining to agricultural commodity production. Since European settlement in 1788, Australia has always had a strong export oriented agricultural industry.

Wool, Sheep Meat, Cattle, Grand and Oilseed Investments

Wool, sheep meat, cattle, grain and oilseed production are the main agricultural products grown on Australian farms. Australian farmers have become very efficient at what they do. They operate in a very competitive world market place often competing against farmers in other countries who receive subsidies from their governments.

With a global population of seven billion, which is expected to grow to nine billion by 2035, the United Nations expects demand for food to grow 70% by the year 2050. In addition to population growth, the rise of the middle classes in Asia are changing diets, with greater demand for more high protein foods such as beef, lamb, fish and dairy products. Further adding to food supply issues, land in many emerging countries is being converted from growing crops into other uses such as housing.

Australian Farmland Investment Group

Over the last ten years, Miller and James Real Estate, an Australian based rural property management business has built a $150,million AUD portfolio of farming properties across Australia. The majority of these farms are owned by a number of high net worth investors from Europe, Asia and North America. The farms are leased to local farmers who take on the operational risk involved with day to day farming. In the first instance, Miller and James identify suitable farms, which meet certain investment criteria and risk parameters. After a ‘ground truthing’ due diligence process, the findings are reported back to the investor.

The next step is to set up an entity to hold the asset. Miller and James have close relationships with several law firms, all of whom specialize in rural transactions and foreign investment. Also, at this stage, an accountant needs to be appointed. The solicitor and the accountant work closely together to ensure the optimum investment vehicle is created for the farm investment.

On most occasions, prior to the purchase of the property, Miller and James have already identified a tenant who is interested in a long-term lease of the farm. Miller and James have access to a large pool of quality farmers who are interested in increasing their operations through leasing additional farmland. It is important to take special care in selecting the right tenants. A good tenant is important to ensure your farm will improve in quality, fertility and appearance and ultimately, also in value.

Once the property is purchased, the next stage is the management of the lease for the investor. Miller and James ensures the lease payments are made on time and takes care of the invoicing, collection of GST, and CAPEX issues. If a tenant believes funds need to be spent on improving infrastructure, Miller and James will conduct an on site visit, collect quotes, and then advise the investor on the best way to proceed.

Miller and James also provide annual reports on the cropping program and other relevant facts to the investor. This might include a summary of commodity price trends or a detailed analysis of the weather.

At the end of the lease term, Miller and James will either renegotiate an appropriate new lease price with the existing tenant or find a new tenant.

Leases can be structured in many ways. Miller and James usually recommend five year leases, but they can be for shorter or longer periods. The lease price is often linked to CPI (consumer price index) and will increase on a yearly basis. The lease yield depends on many factors such as, the region where the farm is situated, whether it is a cropping farm or a mixed farm, or whether there is expensive infrastructure on the property.

Lease yields currently range from 4% to 5.3% based on the purchase price. Lease yields have reduced slightly over the last few years, mirroring falling interest rates across the globe.
Over the last ten years, investors who have purchased farms and leased them through Miller and James have averaged returns of around 13% (including capital gain).

Farmland Investment Performance

Farmland Investment Performance
Farmland Investment Performance

Farmland Investment Opportunities Conclusion

When purchasing a farm, you are buying a real asset that provides all the benefits of owning gold with the added benefit of receiving an annual dividend from lease payments. The lease model takes away all the operational risk traditionally associated with farming. Investments can be as small as $500,000 AUD right up to $20 million AUD. Your investment will be professionally managed by the Miller and James team

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