Farm Land: Reap What You Sow in Your Self-Directed Investments

This harvest season may have you dreaming of owning your own orchard and of the delicious apples or oranges it might produce. Facilitating that dream may be the potential sweet profits it could produce, which is an interesting thought, indeed. And, while it’s not uncommon knowledge that many different types of farm land can generate income, did you know that you can invest in different agricultural assets and earn income for retirement using a self-directed IRA?

Farm land investments combine diversity and the ever-present need for food with a growingself directed IRA farm land real estate investment population—making these assets a potentially viable, long-term addition to your retirement portfolio.

Self-directed IRAs give you the freedom to choose your own investments—to make those choices based on what you personally know and understand. So, if you have a knack for farming, you have many options to consider if you think agricultural assets are a good fit for your portfolio. You can use retirement funds to invest in horses, cows, small farms, corn and grain fields, apple orchards, and so much more.

The ins and outs of farm land investments

Investing in an individual farm (or even a herd of animals) often requires a significant initial capital investment, as well as the continual expense of overseeing agricultural activities, caring for animals, and/or leasing farm equipment. While these assets have the potential to be profitable, it can be quite a bit of work to orchestrate that profitability. As the IRA owner, you are responsible for facilitating the needs your investment requires within the limits of IRS rules and regulations.

For example, you can’t ride the horses or eat the apples owned by your IRA. The benefits of IRA-owned farm land are to be enjoyed when you retire (when begin taking distributions) and not a minute before! You’re also unable to perform any work on the IRA-owned property yourself—your IRA must hire a trustworthy property manager to do so—but you’ll be the one who has to find a good fit. You’ll also have to monitor the expenses incurred by your investment, and ensure there are adequate funds in your account to cover them. Additionally, you’ll need to be somewhat well-versed in farm land assets in order to judge the potential gains and stability to achieve your desired return on your investment.

When you invest using a self-directed retirement plan you gain freedom to invest in what you know best, but you also take on the responsibility of performing due diligence to ensure your success. Plainly put, you reap what you sow.

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If  the more hands-on approach above seems a bit much, there are other options you can invest in with your self-directed account that are less intensive. You can invest in farm land through real estate investment trusts (REITs), or even simply invest in stocks, futures and exchange traded funds (ETFs) available in the agricultural market. These platforms allow a range of investment possibilities, from becoming a sharecropping partner with a large capital investment to just purchasing a small share in your portfolio.

You’ll still be responsible to perform due diligence to protect yourself against fraud and to make sure the asset(s) you’re considering are viable. But, once you make the initial investment, all you do is sit back and watch your IRA reap the benefits of your choices. You don’t have to worry about operation expenses or paying farm hands, etc., as you would with individual agricultural investments.

Self-direction allows an abundance of opportunities. Seeding your retirement portfolio with farm land assets is an opportunity that can mature and strengthen over time with the proper care. The rule of thumb for investing for any purpose though, is not to put all your eggs into one basket. If you plow all your funds into one specific farm or commodity you increase your risk should the asset prove unfruitful. Diversity is critical to your overall retirement planning success, no matter which assets you choose.

If you’d like to learn more, contact Advanta IRA today.