565: Passive Cash Flow With Farmland

SHOW NOTES FOR EPISODE 565: PASSIVE CASH FLOW WITH FARMLAND

The great thing about investing in real estate is that it’s an asset class that meets a person’s basic needs.  The same is true for food-related asset classes.  In today’s podcast, real estate investor and farmland investor Peter Badger shares the advantages of investing in farmland both for its great returns and to build intergenerational wealth.

What You Will Learn

• Why farmland is a good cash flowing real asset selected by many high net worth investors
• How farmland can produce consistent cash flow from generation to generation
• Why there is an advantage to invest in non-U.S.-based farmland
• Where are the best places to buy high-production farmlands
• What farm products are best and what products generate the highest yield
• How you can invest in farmland for as little as $30,000
• Why you do not need to be an accredited investor to purchase farmland

About Our Guest

Peter Badger

Peter Badger has been a full-time investor in Real Estate and Agriculture over the last 8 years and recently joined Farmfolio as Chief Strategy Officer. Peter brings a multitude of skills to Farmfolio after spending 18 years on Wall Street and a decade in Silicon Valley. He is data and process driven and drives strategy, sales, and distribution for Farmfolio’s LOTs products.

Before becoming a full-time investor, Peter co-founded and led Framehawk, an enterprise software company, through to acquisition by Citrix Systems. Prior to co-founding Framehawk, he held leadership roles in technology strategy, enterprise architecture, and software development at Barclays Global Investors, Qwest Communications, Merrill Lynch, Credit Suisse, and Morgan Stanley. After earning his BEng (Hons) in Computer Systems and Electronics from King’s College, London University.

Peter has been fortunate to live around the world, mostly in Denver, Medellin, Puerto Rico, San Francisco, Hong Kong, New York, Valencia, and London. He has also visited Antarctica, climbed Kilimanjaro and loves to run, ski, hike, and bike wherever he happens to be traveling as a real estate and farmland investor.

More About Peter

• Peter is British
• Graduated King’s College in London
• At 23, he landed a job on Wall Street
• Spent 18 years in financial centers around the world building technology for a major investment banks
• He got a real good insight of financial systems and financial markets
• Then, he went to Silicon Valley and started his own tech company
• His company was sold in 2014
• He made a good amount of money (a good “single” as he calls it – not quite a “home run”)
• California took 52% of his profits
• He set out to grow the capital he had left
• He lost a lot of his 401-K and cash assets in 2001 and 2008
• He did not want to invest in the stock market

Becoming a Real Estate Investor

• So, he started investing in real estate
• He met a guy who bought single family homes
• So he bought 21 single family rental “Class C” homes out-of-state (13 leveraged and the rest he paid for in cash)
  • People moved out
  • Some trashed the place
  • A/C unit got stolen
  • He learned a lot from the experience
• Next, he bought a mobile home park
• Then, bought some multifamily buildings
• Then, bought into syndications
• Bought some short-term rentals on the beach in Mexico
• Bought a place in Orlando, FL
• Went overseas to Latin America and Europe
  • Bought farmland
• There were only 2 asset glasses that did well and out-performed during the pandemic:
  • Multifamily syndications
  • Agriculture/Farmland
• He interviewed successful Silicon Valley owners to see where they were investing and, hands down, they said they made their wealth in public and private stock and they put that money in real assets (real estate and farmland) to grow it
• Peter found out that very high net worth individuals in Silicon Valley had anywhere from 14-22% of their personal wealth invested in agriculture or forestry assets.  It is intergenerational wealth building
  • If someone moves out of a rental property, you run the risk of losing income
  • With farmland, you, for example, buy and plant a coconut tree, wait 5 years, and the tree will produce coconuts for the next 60-80 years in a row
    • There are farming risks but most notably, it will continue to produce for you, your kids and your grandkids – producing intergenerational wealth

Farm Land Investing

• In the beginning, Peter made some really bad agricultural investments (in 2014-2015) because he didn’t really understand what he was investing in
• He normally likes to listen to podcasts and read up on a new asset class but there wasn’t much information available on the farmland/agricultural asset class investing
• He lost a bunch of money early on by trusting people he shouldn’t have trusted in
• Later, however, he found a company called Farmfolio, he liked what he saw and started investing in Farmfolio’s syndications
• How does Farmfolio work?
  • Just like a multifamily syndication, Farmfolio buys farms (instead of multifamily properties)
  • For example, Farmfolio buys farms, plants 32,000 coconut trees on that land, then, they manage all of the farming
  • Over the 5 years, he saw how it worked
• He joined the company this year
• He designed, with Farmfolio, a farm land ownership product which gives investors control and consistent cash flow
• When you invest in a syndication, you rely on the operator to make it work (which is fine because he/she should be experts in their field) but they also control how long you will have ownership, how long you will receive the income on that project and how much you will receive
• What they did with Farmfolio over the last few years is:
  • Send the fruit to:
    • Philadelphia on the East Coast
    • Rotterdam in the Netherlands for European distribution
    • They then truck the fruit to distribution centers (i.e. Walmart, Costco, Trader Joe’s, Albertson’s, Publix)
  • Peter is very data and process driven
    • So, he monitors all these farmers who are sending their fruit to their pack house
    • He can tell which farms are the best, which have the best fruit
      • When it comes into a pack house, you can determine the percentages that are good for export and what percentages are not good for export
      • So he could track the percentages for all these different farms – the quality of the fruit, etc.
      • They, then, went back and purchased some of those farms
        • They, then, broke the farms into individual parcels that investors can now purchase
          • For example, you could buy a parcel of farmland with 220 mature Tahiti lime trees and get cash flow as those limes are being sold in Walmart, Costco, Trader Joe’s, etc. in the U.S., year-after-year, as long as you own that titled farm land
  • They have multigenerational farm teams, managing the crops, where the farms exist
    • It is a very specialized discipline
  • When Peter collected the data on the “best” farms, they all had a common denominator
    • 60% of those farms had a third-party farm manager – a gentleman called Jorge Capisano – who was a multigenerational farmer for all the best crops they monitored
      • He has an amazing agricultural protocol that he does for all his farms
      • He has a team that goes from farm-to-farm, sweeps through, applies all the sanitary process, trims the trees back, makes sure there’s no brush underneath, conducts the right harvest protocol – right size, color, no spotting, no shading
      • The pick on day 85, after flowering, for example, with limes to get the perfect 34-36 millimeter size
  • They now have Jorge Capisano managing all their farms
  • Last month Walmart asked Farmfolio to triple their production
  • Their goal is to bring this product to the masses – to democratize farmland ownership
    • Note:  Because it’s a land transaction, it’s available to non-accredited investors
    • They want to make farmland ownership available to the average person
    • When he refers to L.O.T.s, it stands for Land Ownership Title, meaning a parcel of land
      • You can’t just farm a parcel.  You have to farm the entire farm
      • A farm breaks into 103 parcels
      • You can own one or multiple titles
      • He has some investors who own 10 parcels
      • They farm the entire farm and give the investors 103rd of the income from the fruits, minus 103rd of the expenses

 Selecting Products

• They try to broaden the product offerings (lime, teak, coconuts, avocado, etc.) as much as possible
• Once the shipping and distribution is in place, it’s easier to add different products
• That way they can diversify the products available for investors
• They choose the assets that have an incredible track record and grow
  • Limes are always in demand
  • Coconuts are incredibly versatile (every part of the coconut can be used from coconut water (very popular now), husks for furniture, beauty industry (oils, creams, etc.), food
  • Haas avocados have extremely high demand
  • They look only for products that have robust demand and will continue for years and years
• Longevity of certain products
  • Coconut trees have 60-80 year mortality
  • Lime trees – 20-24 years
• All of the farms are overseas – non-U.S.
  • You cannot make money on U.S. farms today – land and labor costs are too high

International Locations

• Farmfolio has had the best, most consistent success in farming from Columbia
  • It is an amazing agricultural country
  • The right climate, weather patterns, right mix of sunshine (makes the limes green) and rainfall
  • Different altitudes/regions – you can produce crops 12 months out of the year
    • The fruit retailers want product all year long
    • Mexico and Brazil, for example, are seasonal
      • They have a massive output in the summer
      • It dies off in the winter months
  • Columbia is excellent foreign ownership property rights
    • U.S. investors can own land there just like a Columbian citizen
    • Columbia has a strong legal system to enforce your land ownership rights
  • Columbia has a strong currency in comparison to others in that region

Land Ownership

• Investors have two options
  • Farmfolio can “custody” the farm title, for those who want a truly passive investment
  • Or, an investor can opt to transfer the title/ownership to their personal name or entity or trust
    • Farmfolio will help you with the paperwork
  • The reason why most people leave the land title with Farmfolio on a “custody” basis is because Farmfolio can handle working with the local municipalities, handle land taxes
    • Translation from Spanish to English

Investing

• L.O.T.s range from $30,000 to $60,000
  • This is determined based on:
    • The age of the trees
    • The amount of produce being produced
  • The more expensive the lot, the more cash flow you are receiving
• You can purchase one or multiple lots
• You can own for for 3, 5, 10, 20 years – as long as you want
• If you want to sell your lot, Farmfolio will handle the transaction (for 3% transaction fee)
• Rates of Return
  • On yearly basis – between 12-20%
• Payments are delivered every 6 months – in January and July

Peter’s Personal Investment Mix

• Stock Market: allocates 10-30% of his investments
  • All global markets are correlated
  • They all go up and down at the same time
• Multifamily, value-add projects  – returns of 8-10% C-O-C on mature projects, 16-22% with appreciation
• Farmland – Returns of 12-20%
  • It is a “steady Eddie” real asset
  • Regardless of how the stock market is doing, it remains consistent

Biggest Mistake(s)

• You can find people who can sell but can’t farm, or
• You can find people who can farm but cannot sell
• Peter met a couple of teams
  • He trusted the person who introduced him to the teams
  • They didn’t know how to farm or to sell
• He lost $250,000 in mistakes
• He invested in Farmfolio for 5 years
  • They consistently outperformed every year
  • He believed so much in them, that he wanted to join the company to help make the product available for everyone
    • To broaden and scale the product

Biggest Success(es)

• Starting with the end in mind
• Finding Farmfolio was a home run
• But you need to conduct very detailed due diligence
  • What’s the produce they have available?
  • Who do they have relationships with?  Who are they selling to?
  • Do they have a track record of 5, 10, 20 years?
  • Do they have clear lines of distribution – the big retailers?
  • Who is the multi-disciplinary team?
    • Farming
    • Sales and distribution capability in the fruits business
• His 3 best investment products
  • Limes
  • Coconuts
  • Teak
    • Incredible hardwood
    • In demand is plantation teak
    • In Columbia, in 2002-2004, the government asked cattle farmers to plant teak trees to avoid soil erosion and they would give them a tax subsidy
      • 10s of thousands of hectares were planted with teak
      • Now it’s 16-20 years of growth, ripe for the harvest
      • Cattle farmers don’t know how to harvest it
      • Farmfolio built a sawmill
        • They process it for the farmers and pay them
          • The cattle farmers now have an additional revenue stream for their families
        • They build teak deck tiles and sell them to a Florida distributor

Advice for Old Dawgs Looking at Real Estate Investing to Help Them in Their Retirement Years

• First, decide on a strategy for your asset allocation
• Having a diversified portfolio means
  • Having some public market stuff (stocks, bonds, etc.)
    • Take advantage of the market cycles when they happen
• As you get older, move your wealth into real assets
  • Farmland
    • It is consistent, steady cash flow for the next 20-30 years
    • You can pass it down to your kids
  • Regular real estate (apartment syndications)

Current Business

• Farmfolio is an amazing team
• The company is experiencing incredible growth
• It didn’t just survive the pandemic – it thrived during the pandemic
  • His other investments:
    • Short-term rentals in Orlando – empty for 12 months
    • His multifamily did very well but he has friends that had student housing that lost a lot (40% occupancy)
    • Other short-term rentals in the cities (to accommodate business travelers) did not fair well
• He calls it the Maslow’s hierarchy investment strategy
  • Food – Farmfolio
  • Shelter – Multifamily syndications

Rap-It-Up

• Favorite real estate book: Raising Capital for Real Estate by Hunter Thompson
• Favorite business book: The Ultimate Sales Machine by Chet Holmes
• Most valuable web site for success (other than your own): NeighborhoodScout.com
• Favorite app: RVLife
• Favorite quote: “Trust but verify.”
• If you lost everything – all your assets – and had to start all over, knowing what you already know, and you only had $1,000, what would you do to re-launch your real estate investing business? I would throw a cocktail party for my richest friends. Get them in a room, buy them drinks and ask them, “How can I serve your wealth-building needs?”

How to Reach Peter

• Website: Farmfolio.net
• Email: Peter@Farmfolio.net

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