Posted At: Apr 08, 2024 - 1,015 Views
We will be comparing these two areal of investments based on various factors as listed below:
1. Active & Passive
2. Risk and Returns
Active and Passive:
Investing in agriculture typically calls for a longer time horizon Than Commercial Real Estate. Farmland does not provide the shorter-term, usually high-risk/high-reward active possibilities than the conventional real estate offers, such as home flipping.
ACTIVE investments in commercial real estate, is typically simpler to see yourself handling completely on your own for example : renting a property vs trimming and harvesting your own almond trees.
You can become a more passive investor and reduce your margins by hiring someone to manage the property for you, but it may only make sense in large scale situations and still require knowledge in property selection.
On the more PASSIVE end of the commercial real estate spectrum, you can purchase shares in investment vehicles, where a portfolio of properties will be chosen and managed by the fund manager on your behalf. But the fund's scope and the portfolio manager's strategy determine what you can invest in.
Investing in farmland offers both active and passive choices. But it wasn't until lately that farmland started to become a more accessible investment option. The ACTIVE investment in farm land posses a strong disadvantage mostly due to It’s time consuming and a difficult job to farm (trimming and harvesting your own almond trees), and manage your farm land and farm produce by yourself.
In 2012, crowdfunding emerged as a novel concept that enables PASSIVE investors to choose certain assets (such as active options) that are assessed and overseen by a team of professionals with specialised knowledge (like more passive options). We’re now making advancement toward this area, our aim at Tecumus Nigeria Limited is to bring to Africa the crowding funding investment strategies so the common man on the street can be part of something big.
With an online investing platform, you may obtain the advantages of direct ownership of farmland without having to possess the necessary agricultural knowledge to select the best bargains or the capital to purchase a whole farm.
Risk and Returns:
Similar to traditional real estate, there are several sorts of farmland, each with its own set of dangers and possible rewards.Similar to commercial real estate, you may classify different types of farms based on its intended use to get an idea of how market trends affect prices.
While farmland consists of pastureland and other crop kinds, commercial real estate consists of multifamily, retail, office, hotel, and industrial buildings.Cropland is divided into two categories: permanent crops and annual crops, which include row crops and specialty crops. Just that—annual crops are planted and raised annually.Large grains and commodities (corn, soybeans, etc.) make up row crops, whereas vegetables make up the majority of annual specialty crops.The economic life of permanent crops can reach over 20 years, and some can even reach considerably longer, although they require many years to reach maturity.
Reduced risk results from having more adaptability to market developments.A manufacturing plant is less versatile than an office block in a city with a variety of industries, which may be rented out to numerous kinds of firms. When it comes to farmland, yearly crop plantings enable farmers to take pricing and consumer trends into account before selecting what to plant the following year (i.e., removing unprofitable crops).Similar to commodity grains, row crops are needed for a variety of purposes (food, feed, etc.) and frequently have some level of government protection. Because of their more consistent need, row crops normally have smaller margins.
The majority of our investments are in permanent crops, which carry a higher risk but potentially higher return.Since it takes years for trees to become profitable, owners are forced to stick with what they plant or make the costly choice to start over.
We always consider market dynamics and trends when purchasing mature trees or choosing what to plant for a new development since it might result in poor pricing for producers when there is an excess of a good, as is the situation right now with wine grapes. Below, you can see how annual and permanent crops differ in terms of return volatility, particularly when it comes to income-derived returns.