JF1977: How to invest in farmland without huge amounts of capital with Brandon Silveira
Fourth-generation farmer, Brandon Silveira, could never see himself venturing too far off from his roots. He focuses on acquiring a variety of farmland, especially through his crowd-funding website, FarmFundr. Listen to this episode to hear Brandon explain everything you need to know about passively investing in farmland.
Brandon Silveira Real Estate Background:
- Fourth-generation farmer and real estate investor who has bought and sold millions in real estate
- Currently manages over $100 million in assets
- Specialty is in farm management, land acquisition and a variety of farm and land financing and strategies
- His passion is to bridge the gap between the farmland and investors
- Based in Fresno, CA
- Say hi to him at https://www.farmfundr.com/
Best Ever Tweet:
“You expect a certain amount of return on your capital – say 15% – you may not hit that number, you may only do 2%, you may only do 3%, but if you’re doing your job right you should never lose money on that deal.” – Brandon Silveira
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Joe Fairless: Best Ever listeners, how are you doing? Welcome to the best real estate investing advice ever show. I’m Joe Fairless. This is the world’s longest-running daily real estate investing podcast where we only talk about the best advice ever, we don’t get into any of fluffy stuff. With us today, Brandon Silvera. How are you doing, Brandon?
Brandon Silvera: I’m doing good. How are you?
Joe Fairless: I’m doing well, and looking forward to our conversation. A little bit about Brandon – he’s a fourth-generation farmer and real estate investor who has bought and sold millions in real estate, currently manages over 100 million in assets. His specialty is in farm management, land acquisition, and a variety of farm and financing strategies. His passion is to bridge the gap between farmland and investors. Based in Fresno, California. So with that being said, Brandon, do you want to give the Best Ever listeners a little bit more about your background and your current focus?
Brandon Silvera: Sure. I was born and raised in farming. Just like any farm kid, I was out here on the ranch most of my life. I went and got an agricultural degree at Cal Poly, and came back and figured I’d better do what I like and know best. So I just kept farming.
Joe Fairless: Okay. So you’ve got 100 million in assets right now. What is that comprised of?
Brandon Silvera: Mostly agricultural property. So we farm almonds, walnuts, grapes, garlic, tomatoes, cotton, corn, wheat, oats. We’ve got a variety of permanent crops as well as real crops that we own and manage.
Joe Fairless: So you own the land, and the business, which is the product that you’re farming.
Brandon Silvera: Yeah. There’s the land that we own that we grow our crops on. Then we also manage some other property where we grow crops on other land for other owners; kind of a full service type situation. I’ve been doing that for quite a while. We put together some bigger investment deals. One thing that I saw was there was a need for lower capital entry for some investors. Some of the deals that were happening were, say a $5 million farm and it’s five guys putting in a million dollars apiece. Then there’s one guy who has $100,000 but couldn’t get in on the deal. I just saw a huge need for this lower entry level to buy smaller farms and for people to get in and invest in farmland without putting up huge amounts of capital.
Joe Fairless: Okay, and that is the company that you founded.
Brandon Silvera: Yeah. I founded FarmFundr, which is a crowdfunding website, where with as little as $10,000 you can invest in a property that we have on our site, and own the land. We also manage the farm instead of leasing it back. The way that works is, we either hire a separate farm manager, or if it’s in our geographical area, we’ll hire our company to manage the farm. That way the investor sees a larger return.
Joe Fairless: Got it. Okay. So as an investor, if someone were to invest, say, as you said, as little as $10,000… Let’s say they invest $10,000 in a deal, then they’re buying a portion of– what exactly are they buying?
Brandon Silvera: For example, we have an almond orchard up right now as an offering. We have a $900,000 capital raise. For as little as $30,000, in this particular investment, you buy a portion of that orchard. That orchard is put into an LLC, and you own a portion of that LLC, and the LLC owns the almond orchard outright. That way, you can see the appreciation of that farm, and when you harvest those almonds, that profit from that crop goes back to you.
Joe Fairless: I know next to nothing on different types of crops and what they yield. I imagine — well, I do know that certain things are seasonal. So what are some products that you would farm that are more seasonal, versus others that are always generating income?
Brandon Silvera: There’s not many monthly cash flow type of commodities out there that we’re growing. There’s some alfalfa, different things that you harvest every month, but those investments really aren’t great on the scale that we’re trying to do things. Almost everything is once a year, after you harvest the crops; after the crops are sold, the payments are distributed back. It’s pretty crazy compared to the commercial world or apartments or anything like that. The returns can be great, but you just aren’t going to see that 12 months of income in every 30 days.
Joe Fairless: With alfalfa, for example, you said it doesn’t really get you to the scale that you’d like to get. Why wouldn’t it be able to?
Brandon Silvera: Here in California, land prices are pretty high. So if you’re going to buy a piece of property with a high land value – and alfalfa is a water-intensive crop, and the water is pretty expensive here as well – to go out and buy this property, and the return you’re gonna get on your investment probably wouldn’t be something that would be interesting to an investor. Now there is a lot of that crop around, but most of these are older dairy farms and whatnot that farm those types of crops.
Joe Fairless: Okay. So what are the disadvantages of going to an area with much cheaper land? Is it that you just can’t command the same price that you get in California for the product once it’s ready?
Brandon Silvera: So the Midwest, for example, with $5,000 to $8,000 an acre, you can get some good ground out there. But you’re also limited to planting soybeans, corn, very few crops. Here in California, the range of crops that we could plant is astronomical. If you have class one really good soil, we can grow stone fruit, cherries, walnuts, you name it. There’s just so many different things that we can plant, which makes it very appealing to outside investors, because you have options. Unless you’re planning a permanent orchard or vineyard, if you’re in the row crop business, if you have one commodity that isn’t doing well that year, you can switch it out and plant something different. So it’s very appealing.
Joe Fairless: As a passive investor who’s looking at your opportunities, who has not invested in this type of asset class before, what are the questions they should ask themselves when looking at a specific opportunity to qualify if it is the right opportunity for them or not?
Brandon Silvera: If you’re going to invest in California, the number one thing you’re going to want to know is does it have water? Does it have two sources of water? Most everything, especially here in the San Joaquin Valley where we’re at, you’re going to want a groundwater source and you’re going to want a surface water source. If you don’t have both of those, I wouldn’t buy it. That’s going to be the absolute number one.
Joe Fairless: What exactly is a surface water source?
Brandon Silvera: Surface water source – we have a pretty intricate system of canals and dams here in California where you own stock or the ditch water owns a stock that owns a percentage of the water that’s held in the dam, and you have a right to use that on your crops.
Joe Fairless: Okay. So number one, make sure it has at least two sources of water.
Brandon Silvera: Yep. Then number two, you’re gonna make sure it’s good soil. Soil is very important.
Joe Fairless: How can someone analyzing this via the internet know if it’s good soil or not?
Brandon Silvera: Well, first of all, you’re going to want to see the past yield report. So if you’re buying a new piece of property, or investing in something like what we’re doing, you’re going to want to make sure that it has a history of producing what it should produce to have a good return on your investment. You can dive into it a little deeper. The USDA has soil reports that classify everything between a class one, two, or three soil. So if it’s a class one soil and you can see it on this USDA report, you know it’s pretty good there.
Joe Fairless: Okay. Is class three a deal-breaker?
Brandon Silvera: No. It’s like, if you’re going to invest in an apartment complex in an A, B, or C location. C location isn’t a deal breaker if the price is right. It’s the same concept. If you’ve got some pretty cheap dirt, and you can put a crop on there that’s going to give you a good return on investment, it may be a good investment. But you also have to look at what’s the lifespan of that crop, and am I going to have to take that crop out? How many years can I keep it in there? Then what am I going to put in there next? It’s class three bad soil, you’re very limited. So I definitely wouldn’t say it’s a deal breaker, but you’d want to be a lot more careful.
Joe Fairless: One, does it have two sources of water? Two, is it good soil? What else should we consider? And thank you for the analogy of ABC multifamily. That helped me personally, so I appreciate that.
Brandon Silvera: Yeah. You’re going to want to make sure that whoever’s managing it or whichever farm manager is going to farm that crop is familiar and knows what they’re doing. That’s something we take pride in here at FarmFundr, that if we’re not farming it ourselves, which we’re extremely familiar with these crops, we’re going to hire the best of the best.
Joe Fairless: When you’re initially looking at a new opportunity, I imagine you ask yourselves questions number one and two. Number three, you know that you have confidence in yourself. So that’s good. Number one and number two. What are some other questions that you ask yourself when assessing an opportunity to offer up to investors?
Brandon Silvera: Basically, what’s the upside? Can we add value? Is this commodity going to return a good yearly cash flow and is it going to appreciate? One thing here in California, we’re seeing a lot of consolidation as far as farms because of water districts and their location, and I look at what’s going to happen to this property in 7 years, 10 years, 20 years, and how long is the investor going to have to hold on? How long are we going to hold on to it, and what’s the upside gonna be? For example, in almonds – almonds have a lifespan of around 20 to 25 years, and there’s a lot of workers out there that are producing great right now that have high price tags on them, but they’re at 15, 18 years old. If you’re an investor and we invest in this particular orchard for, say, $30,000 an acre, in seven years we have to pull that orchard out. What’s that ground going to be worth? Is it going to be worth 20,000 acres? Do we have to replant? There’s so many different variables that we look at to make sure that–
Joe Fairless: How do you project that? How do you determine your assumptions there?
Brandon Silvera: Due diligence. I’m finding out the varieties, I’m finding out how old these trees are, or grapes or– what the price has been, what the demand is. There’s just probably 1,000 different things you’ve got to look at to make sure that you’re investing in the right piece of property. The hold period – seven years is a lot different than 12 years in this world.
Joe Fairless: Talking about some major successes and some not so much, let’s first talk about your most profitable venture. What’s the most profitable venture you’ve done?
Brandon Silvera: Single deal or in general?
Joe Fairless: Either one. Whatever you want to talk about.
Brandon Silvera: Almonds right now are very profitable. We like almonds; I think the demand is strong.
Joe Fairless: Don’t they take a bunch of water? Am I imagining that? I thought they did.
Brandon Silvera: Well, it all depends on how you look at it. They don’t take as much water as a lot of other crops. For example, walnuts take a little bit more water, alfalfa takes tons of water, corn takes more water than almonds. Almonds take a little bit more than you would put on, say, a tomato crop or some of these other row crops, a little more than you put on a vineyard… But they got some bad press because people said, “Oh, it takes a gallon of water per nut.” Well, it’s a terrible way of looking at things, because when you put water on these crops, they’re building an entire plant. They’re building the root system, and any excess water is going down, and is being pushed back down into the aquifer. So if you use a certain amount of water, there’s a good amount of water that’s going back into the soil and going back into the aquifer as well. It’s not really a good way of–
Joe Fairless: Interesting soundbite, but not completely painting the whole picture.
Brandon Silvera: Exactly.
Joe Fairless: Thank you for that, because the press got me on that one. So thank you.
Brandon Silvera: Yeah. There’s so many other good things that these orchards are doing. Almonds, depending on how they’re farmed, they call it a zero carbon crop, where they take as much out as it’s costing us to farm these crops. That’s a whole different story, but they’re a good investment.
Joe Fairless: Let’s talk about a individual investment that didn’t go well. Which one have you lost the most amount of money on?
Brandon Silvera: Me personally, the only thing I’ve ever really regretted was I bought a condo and it was a bad investment. It wasn’t farmland. I’ve done real well in the farmland in the past. Maybe that’s because I’m more familiar. But I bought a condo one time that we had an HOA that was pretty reasonable. I think it was 300 and some; and the HOA started going up and astronomically to where I thought, “Man, there’s something wrong here. I don’t understand.” It was in a high rise building. I had bought it for an investment. I kept saying, “Man, I think this guy is going to go bankrupt. There’s too many fees on this condo owners, because the units underneath aren’t doing very well.”
Joe Fairless: You’re probably right.
Brandon Silvera: The board of HOA’s are like, “No, you don’t know what you’re talking about.” I’m like, “Okay, okay.” Well, sure enough, 18 months later, the guy claimed bankruptcy. The whole building went bankrupt. I didn’t do too well on that particular investment, to say the least.
Joe Fairless: How much did you lose? Do you remember?
Brandon Silvera: Well, I ended up hanging on to the unit and renting it out until the building was actually sold. We kept our units and whatnot. The price rebounded back to about the same price. It was exactly the same price I bought it at. But considering interest and what I was losing money for the mortgage and rent…
Joe Fairless: Plus stress.
Brandon Silvera: Yeah, I don’t even want to do the math.
Joe Fairless: We won’t make it. That’s fine. That’s fine.
Brandon Silvera: Yeah, I’d probably be very sad about it.
Joe Fairless: This is a happy show. Well, based on your experience, what is your best real estate investing advice ever?
Brandon Silvera: Honestly, “Never lose money.” That’s it. If you expect a certain amount of return on your capital, say 15%, you may not hit that number. You may only do 2%, you may only do 3%, but if you’re doing your job right, you shouldn’t lose money on that deal.
Joe Fairless: We’re gonna do a lightning round. Are you ready for the Best Ever lightning round?
Brandon Silvera: Sure.
Joe Fairless: Alright, let’s do it. First, a quick word from our Best Ever partners.
Joe Fairless: Alright, you said that, “Never lose money.” So I heard that. But earlier we talked about the cycle of what you do, and you said you get money basically once a year after harvesting. So one might hear, “Don’t lose money”, but then think “Well, shoot, you’re getting one pop and hopefully the market doesn’t change over 12 months. Hopefully, some wacky stuff environmentally doesn’t change…” So it seems like it’s a riskier investment, because you’re only getting paid after harvest and you’ve got to hold your breath and cross your fingers that hope everything works out over 12 months. What would you say to that thought process?
Brandon Silvera: I’d say that it is riskier, but you have to hedge your bet. We have crop insurance and we have different things that we can do. Also, you can’t gauge a long-term investment like farmland after 12 months. It really is a long-term investment. So you may lose money in a year, but if you lose money over the life of that particular investment, it was a bad investment from the start.
Joe Fairless: How many years should one expect to invest in farmland in order to give it a fair shake?
Brandon Silvera: I wouldn’t invest any less than seven years. I think appreciation and the commodity prices need a fairly good life cycle. Anything over 12 or longer is probably a great investment.
Joe Fairless: What’s the best ever way you would like to give back to the community?
Brandon Silvera: We’ve held a couple of different events strictly for our local children’s hospital. It’s probably my sweet spot right there.
Joe Fairless: How can the Best Ever listeners learn more about what you’re doing?
Brandon Silvera: Go to farmfundr.com. You can also reach me anytime on email, email@example.com. Check us out on Instagram, Facebook, Twitter, LinkedIn, google us, find us. We’re out there.
Joe Fairless: Brandon, thanks for being on the show talking to us about farmland, funding, your company and your venture. I enjoyed learning about this, because I did not know much, if anything, about it prior to our conversation. So I hope you have a best ever day and we’ll talk to you soon.
Brandon Silvera: Sounds good. Thank you.