Has anyone invested in farm or agri land in California?

Question

Hi,

After building up to 23 apartments in 3 years and seeing the recent spike in prices in bay area in MFH, I am trying to increase my knowledge in agri as an alternative long term investment, in addition to still finding the needle in the hay stack called a good value in MFH. Has anyone dipped their toes in agri and if yes, would you care to share your experiences. Are you aware of any reading material and valuation modelling techniques?

Thank you

Benjamin Winokur · Answer

Bill is right, Northern Ca is much different beast. I can't really speak to the land investing side of things, but I grew up with agribusiness in California.

Right now the biggest  growth markets for agribusiness are in central California (Think Paso Robles-Santa Barbara) as it has a very specific mediterranean climate which is great for vineyards, lavender (which is going to be huge in the next 10 years), olive trees (has taken off and out paces new vineyards right now almost 2-1) and, in very specific areas- saffron.

After 2007 property values in this area were hit quite hard (duh); however, the values have been recovering much slower than other parts of the state and can still be had for a discount if you look closely.

Jak, do you have something in mind that you want to be involved with, a certain size, or type of operation? Send me a PM, perhaps I can help out.

-Ben

Jak Dadi · Answer

Very very very helpful! Thank you so much!  My experience with long distance investing was not good with Stockton ( PM's were bad in addition to lack of knowledge of market and we were able to get out quickly to prevent bleeding) but farming will be a different ballgame. Hence I am nervous about out of state or investing anywhere more than 40-50 miles, which means I could face similar risks with farming.

But there is something luring about walking through your own land, as you said, just need to find the right one. I am going to take some of your tips in doing the research and will provide an update in a bit :-)

Thanks again!

Bill B. · Answer

Sorry, for the double post.  I forgot a good resource.  This link is to case studies regarding farming that were prepared by UC Davis.  They cover a LOT of different farming operations from inception to full production.

http://coststudies.ucdavis.edu/

The studies will give you a decent idea on returns on investment from many different crops and types of farms.

I hope this is helpful.

Good luck.

Bill B. · Answer

I'm in SoCal.  We have a small avocado operation managed professionally.  Think PM but for trees instead of doors.  You make the big calls, they do the labor.  We have our place leased to the management company.  They cover ALL costs of the operation outside of mortgage and property taxes and we split profit.

NorCal is a completely different animal.  Different crops and WATER is HUGELY different.  Water availability is the number one issue in SoCal.  Some operations in San Diego county have closed down due to lack of reliable access to water.  Land pricing is HUGELY different as well, with land being much less expensive in NorCal.

All that said, the things that are similar for both NorCal and SoCal include a very VERY highly regulated environment that is getting worse ALL the time.  Also, there are new and destructive pests that are being introduced with alarming frequency from all around the world.

The best advice I could give is very similar to REI in general.  KNOW the market.  Are you going into row crops or orchards?  HIGH cost for labor and HIGH risk as the market can turn against you and leave you with all the costs of growing a crop and NO revenue.    Orchards have "less" risk....but this is like saying row crops are like craps tables and orchards are like blackjack.....the odds can be against you from the get-go.

The old adage is "Legalize gambling!!  Why should Farmers have all the fun?"

I don't know the first thing about raising meat or dairy, or vineyards so I won't speak to them at all.

Another REI parallel is to vet the numbers from the seller (expenses and revenues) thoroughly.

Also like REI get a mentor.  To do that, you can contact farm management companies in your area.  Like other REI, they not only can mentor you in the business, they can also look for properties that may interest you.  The other first stop is the County Farm Advisors office.  AND the local Farm Bureau.  The California Farm Bureau publishes a weekly newspaper named AgAlert.

Also keep in mind that the cost to entry is VERY high in farming (at least in SoCal)  the ONLY reason that we have our place is that we got it when the dotcom bubble burst and the general recession around that time.   We were just plain lucky that we got it before the general run up in RE that began in the early 2000s.  Also, if we could not have arranged the lease I described above, we would have NEVER purchased the property.  That lease protects us against any operating loss.  We don't have the resources to withstand a crop failure.

Do NOT expect to get the same type of COC returns that you see in MFH or SFH.  But, similar to MFH and SFH the returns are much better if you can scale up and payoff the properties.

There are many other issues, labor shortages due to the immigration reform debate, hydroponics, etc.

With all the risks, it is GREAT to take a walk through the orchard on an afternoon.  It is quiet, peaceful, relaxing.  We hope to build out there someday.

Finally, with all that said, I'd recommend you stick with REI investing in MFH in other areas.  Central Valley?  Out of state?  You KNOW the basics of that.  You just have to find another "farm" for MFH where the pricing is rational and learn that market.  The learning curve will bend MUCH faster if you do MFH out of state than learning farming and my guess is that your COC returns will grow faster, MUCH faster in MFH out of your current market than in farming/ag.

I hope this is helpful.