For real estate investing, there are laws, procedures, theories, and probabilities to contend with, but the human element is also a concept that must be factored in, just as important. However, there’s one line of thinking that virtually, all investors would probably agree on, that investing in undeveloped farmland or “Strategic farmland Investment” as we like to call it, is one of the safest real estate investment vehicles there is, as long as you invest at the right place, at the right time, and for the right price.
For hundreds of years around the globe, vast fortunes have been made in farmland. farmland can often be purchased extremely cheaply, and with little or no effort at all it can bring a return that’s many, many times its original investment cost. That, in a nutshell, is the attractiveness of strategic farmland investing. However, even though foresight and knowledge play a very important role in successfully investing in farmland, research and patience are often just as vital.
Investing in raw farmland brings its best return when the farmland lies along a path of expanding economic growth and prosperity. That may sound easy to speculate, but such expansion is not guaranteed and the path of growth can often change directions. This is why expertise and research are required in order to invest in farmland. An increase in farmland values depends on the farm land’s future use, economic growth, and demographics, which boils down to the fundamental law of supply and demand.
The value of farmland can appreciate with near-painful slowness, or it can rocket upward literally overnight. When Plantations International invests in raw undeveloped farmland, which is strategically located in the path of growth and the timing is correct, the returns on the investment are huge. A very good example is Disney World, where the majority of the farmland on which Walt’s theme park is situated started out as swampland. Not only for that farmland, but also the value of the rest of the farmland within the vicinity of Orlando, exploded, a day after the Disney corporation announced its’ plans to build there. This value increase affected everything from residential buildings to large tracts of farmland which still continues to rise as the value of farmland appreciates in an ever-widening spiral around that area. Whoever already owned that swampland – or had a hunch about what Disney was going to do and invested made a fortune.
Although successful farmland investment is often a combination of foresight and luck, having an understanding of this type of real estate can certainly increase the investor’s odds for success. There are three basic types of farmland investment: long-term holdings, subdivision and development, and strategic farmland investments.
Long-term holding is a no-work, no-worry (at least not much) form of real estate investing. This involves buying a parcel of farmland that’s generally considered out-of-the-way, far from everything. You then sit back and wait for growth and development to move towards your parcel, or you begin hoping and praying that some major corporation will announce plans to locate its headquarters or a branch either on your farmland or nearby. As your farmland becomes less out-of-the-way (in other words, as growth closes in), its value begins to increase. When the value reaches an acceptable level, you sell. Usually, these are long-term investments that could require your money to be involved in the investment for over 10 years.
The challenge of this type of investment lies in the fact that there’s no way to be sure that growth will move in your direction or if it will continue along that path. One cannot determine how long the move will take to reach the vicinity where your property will gain from it, because you are investing in a piece of farmland far from everything. And in the interim, owning the farmland will cost money in the form of property taxes. Long-term farmland investment, therefore, is acceptable if you have money that you’re sure you won’t need for a long while.
Because of the time, expertise, and money necessary for the subdivision and development of large tracts of raw farmland, few individual real estate investors choose this route. On a somewhat smaller scale, however, there are opportunities for profit by starting out in parcels of farmland that can be subdivided into several or more lots. This entry strategy works well, especially when there’s a house already located on the property.
Strategic farmland Investment seeks a return in a medium-term investment period of 3 to 5 years and on a low-risk factor. The investor sees some type of growth, development, or changes coming in the area, either due to the need for housing and development in the area, infrastructure that is under construction, or due to a major development that has been announced. As such, he considers that there will soon be both a need and a general desire for a possible change in the use of a particular area or a parcel of farmland. With the change in use, there will be greater demand for the farmland and therefore an increase in its value. It is very important to strategically spot the specific area that you want to invest in. It must not be far from everything, but in the path of growth and very close to the boundaries of the existing infrastructure and /or the development.
Strategic farmland investment is not easy and requires a lot of resources, research, expertise, and time to spot a lucrative area in the path of growth. There are several examples of areas all over the world that have appreciated more than 10 times in value, in just a few years. Disney in Orlando in USA, Turkey, Kenya, Greece, Malaysia, Indonesia. Almost in every country and every major city, the demand for housing and the need to expand the city boundaries makes the prices soar and produce an amazing ROI for those who speculate on time and invest in the right area.
Strategic farmland Investment Model
The “Strategic farmland Investment Model” makes a clear distinction between farmland promotion and investment on the one hand and, on the other, the construction of buildings. Investments in master planning, infrastructure delivery, and estate management become the key to unlocking value, and the sale of farm land is phased to capture values as they rise. In contrast to the standard business model, where value is created through planning permission and development, the new model posits that value is created through the delivery of infrastructure and the establishment of a sense of place through quality urban design. The key for this type of farmland investment is to transform a simple farmland acquisition into a READY to GO project where the developer will be offered not just a piece of farmland but a totally integrated project where the investor will offer the farmland, the infrastructure, unique design, Planning permission, fully detailed approved plans which will give the developer the ability to buy the project and start doing business immediately without any delays, gaining the most out of a booming market!!!
The farmland investment model has six basic steps.
1. Identify the Market.
In order to set up a successful strategic farmland Investment Project, the Investor and his strategists need to identify the “Market”. By the term Market, we mean the Country and the City that is the right place to choose for the project, the specific timing that we are interested.
2. Analyze and research the Market
This step is very important as it is the one that will give the data for the expected investment period as well as the dynamics of the market in order to calculate the potential ROI, as well as will guide us to spot the specific area where we want to invest.
3. Choose The site in the path of Growth
After identifying and analyzing the market the investor needs to make a strategic acquisition of farmland, which has to be in the path of growth of the City . This step is as important as the first 2 of the model as the location of the farmland will define the ROI as well as the final investment period. The type of farmland that is required is Raw farmland, just outside the developed area of the city, with a maximum distance of 1 klm from the border of the development. The area of the farmland must be identified as being in the path of growth . That can be determined from different factors, as for example a major infrastructure project going on in the area, an announcement from the local authorities of a new school or hospital, another large-scale project starting in the area.
4. Unlocking farmland Value
Optimizing farmland parcels and phasing schemes, and mechanisms for long-term estate management are key features. The farm landowner needs to maximize the possible returns of his investment by Unlocking farmland Values. In order to succeed that the first step is to make sure that the farmland will have all the required infrastructure on-site before the project will mature for sale. That means that the investment scheme needs to make all the necessary applications to the local authorities in order to make sure that the farmland will be serviced with water, electricity, gas, sewage, accessibility etc. This is the first step into the process of maximizing the expected ROI. . A collaborative working partnership between the farmland promoter/investor and the local authority is required to develop an optimal scope and phasing arrangement that delivers the infrastructure and creates value.
5. Master Planning
This step is equally important as all the previous ones. The company engineers need to come up with a master plan for the specific farmland. The farm landscaping, the architectural design as well as each part of the required planning must be conducted carefully, in order to realize a project that will be almost ideal for any developer who would be interested in acquiring the farmland, as well as in order to assure the approvals from the local authorities.
6. Liquidating the Investment
The Strategic investor needs to keep conducting constantly internal evaluations of the project in order to follow the market fluctuations. When the targeted returns will be achieved on evaluation terms and the 5 steps are fulfilled the investor needs to proceed with the final step which is to promote and market the project. Once the Project is sold the dividends are split between the investors according to their contribution to the equity of the investment scheme and this investment entity stops existing.
This model requires a farm landowner to come into the deal as a co-partner with the promoter and the investor, using the farmland as an equity investment to ease the early cash flow and benefiting from the fact that the sale of farmland is phased to capture values as they rise. Returns are commensurate with the risk and timeframe of the investment. The introduction of this investment dimension to unlock value over the medium term is in sharp contrast to the standard business model where promoters need to immediately sell housing units and excess farmland to recoup their investment – and that fails to deliver a more complex product that creates value over the longer term.
The model does not require the different entities involved to operate separately but the farm landowner or investor could also be the promoter. In fact, any one of a number of other players – including the local authority, housebuilder, investor or a registered social farm landlord-could serve in one of these roles. In the beginning, the farm landowners and promoter become partners in promoting the farmland for development, supported by investment equity looking for a return commensurate with the risk and timeframe of participation.
Plantations International is setting up projects in different countries all over the world, following the markets as they grow and playing the role of the farm landowner, promoter, and investor, setting up healthy medium-term projects that we offer as a private placement JV to our Investors.
Plantations International is a multi-disciplined international investment firm whose specialty is spotting lucrative and unexploited income-producing property, farmland, forestry, and renewable energy investment opportunities for its clients. Advising clients ranging from private individuals to major developers and institutional investors, we put teamwork, innovation, and our passion for creating “ethical & sustainable capital” at the heart of everything we do, striving to go the extra mile to exceed our clients’ expectations.
Specializing in Strategic farmland Investments, Plantations International is continuously searching for lucrative unexploited property opportunities all over the world. We diversify our investment portfolio as much as possible by investing in different countries, different markets, and different asset classes following the markets, implementing technology and expertise. This is in order to succeed in getting the maximum results while minimizing the risk of the investment.
Realizing the need of individual investors to have access to the global market, outside the boundaries of the real estate market of their country of residence, Plantations International expands all over the world, by forming investment opportunities that provide to its investors as “ready to go“ projects. This helps them to follow the markets, diversify their portfolio, and spot lucrative property investment opportunities that they could easily have missed. Plantations International also always maintains a presence and financial commitment in all its projects, literally putting its money where its mouth is, Plantations International only makes money when its investors make money, a true “partnership” in every sense of the word.
Separately but the farm landowner or investor could also be the promoter. In fact, any one of a number of other players – including the local authority, housebuilder, investor or a registered social farm landlord-could serve in one of these roles. In the beginning, the farm landowners and promoter become partners in promoting the farmland for development, supported by investment equity looking for a return commensurate with the risk and timeframe of participation.
This is a model that has proven successful in Malaysia, Indonesia, and Thailand and that is presaged by many of the other innovative partnerships and schemes that are emerging, many of which are cited in this study. It requires the collaboration, of the farm landowners, promoters, investors, and the local authorities. But it may be the win-win proposition that creates value for everyone, including the home-buying public, by delivering places that are diverse, interesting, lively, prosperous, and sustainable.
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