This week we interview George Bravante and get some behind the scenes farming secrets. Investing in agriculture is not for everyone, but it is a great under appreciated asset class that some of the wealthiest people in the world invest in. Bill Gates is one of the worlds wealthiest people, who made this fortune in technology. Yet he is also one of the largest land owners in the US. Why would he do that? We discuss why you should consider having at least some farmland in your portfolio.

The 6 Pillars of Successful Farmland Investing

Seldom will you find an investment opportunity to hedge inflation, mitigate downside risk, and end up with a passive investment that keeps delivering returns to you while building your wealth over the long term but at Bravante Farm Capital, we’ve found such an opportunity.
It comes from investing in farmland that produces someone everyone needs and wants -- food.

Here are the six pillars of our approach to investing in farmland in California’s remarkably fertile Central Valley:

Pillar #1: True Values are Higher Than We Pay

We may pay a slight premium for the farms we buy, but there’s a disconnect between what we pay and its true value as income-producing real estate. Farmland historically been sold by the acre based on comparable sales, and its income-producing capability has not been taken into account.

This can be a hard concept to understand as it makes no sense. Why would owners and lenders not
value an income-producing asset on the basis of the income it produces?

But it is the way farmers have always traded – on a per-acre basis. This incongruous methodology has been reinforced by regulations that prohibit banks from using the income approach when making loans to farmers. It does not matter how many orange trees you grow on an acre -- one or one hundred. Loans can be made only on the basis of comparable land sales. 

It makes no sense at all. But it is the way that it has always been done. The result is an inefficient market for farmland real estate versus that which exists for multifamily or other types of income-producing real estate. 

Herein lies our opportunity -- the disconnect between the way that farmland is valued and the potential it has for generating income for investors. But this is changing. Institutions are entering the farmland real estate market and they underwrite to yield using cap rates as their guide.

Bravante Farm Capital leverages this disconnect by buying farms by the acre, adding value, and watching their value increase as cap rates are introduced and then compress, driving investor profits.

Pillar #2:  Market Consolidation

Farmland in California is fragmented. There are some 70,000 farms in the state, many in the 20– to 40-acre range. It's similar to the 20– to 40-unit apartment building purchase opportunity. Nice for mom and pop, but of no interest to institutional investors.

Many of the farms we target for acquisition have been owned by multiple generations of farmers, but the current generation is aging, and the next generation has little interest in farming. By buying these smaller farms, adding value through redevelopment and improved operations, we can assemble larger and more profitable farms that can be combined to a scale that attracts institutional buyers at higher values, which in turn provides outsized returns for you, the investor.

Pillar #3 – Value-Add Real Estate

The farms we acquire are often those that have supported owners for generations, but in many cases they also are inefficiently operated with low-profit crops.

These farmers do not want to change. They do not want to invest, and they are happy with the income they receive. They also may be unaware of the true potential of their farms.
Our process is similar to what a multifamily operator looks for in an aging apartment building that needs upgrades. We: 

1. Remove old, outdated and suboptimal crops and replace them with high-profit, high-demand
crops with long life cycles and high sustainability.
2. Invest in upgraded irrigation systems by adding drip line systems to complement flood
irrigation systems.
3. Employ irrigation deficit strategies where crops are starved of water during parts of their
lifecycle to promote fruit development.
4. Invest in wind machines for frost protection.
5. Employ enhanced farming techniques like pruning citrus trees to optimize crop size, color,
sweetness and overall pricing, and tipping grapevines to promote shape, texture, color and
quality.

Pillar #4 – The Bravante Farm Capital Packing and Shipping Advantage 

There are four phases in generating returns to investors from farming:

1. Grow the crop.
2. Harvest and transport it to a packing house.
3. Pack it.
4. Ship it to the store.

At Bravante Farm Capital, we own and operate a state-of-the-art packing facility, and the farms we
target for acquisition rely on third-party packing companies.

This means that we earn more profit at the ranch through economies of scale, by reducing the cost of harvesting, packing and shipping, and by being more efficient in that process.

Our costs are about 8% lower than independent packers. This adds about 4% in profits to the bottom line. And because we are vertically integrated, we get higher utilization of the fruit being harvested which means that we sell up to 7% more produce from the same crop as an independent packer shipper.

All this adds to our bottom line and enhances investor returns.

Pillar #5: Special Tax Benefits Exclusive to Farming

There are four key tax benefits to farming and the first two are common to almost all commercial real estate – one, profits can be offset against expenses, thereby reducing taxes. And two, depreciation can reduce taxes on income.

The other two tax benefits give farmland investors an advantage over commercial real estate investing.

Bonus depreciation is the first and is unique to farmland. It accelerates depreciation tax deductions
more than any other commercial real estate asset class. And second, there are typically lower property tax rates on farmland versus commercial real estate.

Some of these benefits pass straight through to investors, and there are some deductions that investors can use to offset passive income they receive on other investments they may have.

Pillar #6: Leveraging the Upside of Supply Contraction Due to Drought.

 
California is in a drought. Some areas will run dry and the land will become fallow (unfarmable), and
other areas will continue to have abundant water.

Over time, those areas losing water will become of less value and will become worthless to farming. But those areas with water will become increasingly valuable as supply elsewhere in the valley shrinks.

We are focused exclusively on what is known as ‘The Oasis’ of the Central Valley, an area that will
continue to have abundant water, where the prices are already at a slight premium, and where we are predicting prices will go up disproportionately.

Conclusion

Bravante Farm Capital has identified a unique approach to investing in farmland that leverages various macroeconomic advantages to maximize investor returns while minimizing risk. We are acquiring farms at below true long term value, consolidating small farms into larger ranches that make them more attractive to institutional investors, adding value to underperforming assets, leveraging economies of scale through our in-house packing and shipping capabilities, enjoying tax benefits other income producing real estate does not, and leveraging supply and demand dynamics driven by drought.

In short, we offer investors ongoing cash flow from operation even (especially) during turbulent
economic times while providing them with long term wealth generation. To learn more visit
BravanteFarmCapital.comEnter your text here...