A diverse portfolio offers you a cushion … if one investment suffers, you won’t feel the impact across your entire portfolio. One method for portfolio diversification is to step outside home or apartment investing … and into farmland investing.
Investing in a commodity like produce or cattle allows you to lose your focus on an individual market and start focusing on the GLOBAL market for your product.
Like any real estate investment, there is a learning curve to figuring out agriculture … especially when you’re growing and exporting produce outside your home country.
But agricultural investments are worth the effort … they offer the best of all worlds, combining agricultural income with land banking and offshore strategy.
In this episode, global investor Carsten Pfau discusses his journey into the world of agricultural investing … and offers ideas on how YOU can get started as a passive investor in this low-risk option.
In this episode of The Real Estate Guys™ show you’ll hear from:
- Your orange-loving host, Robert Helms
- His like-a-lemon co-host, Russell Gray
- Carsten Pfau, manager of a thriving international real estate business
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How Carsten Pfau got planted in Paraguay
Trees don’t understand what’s happening at the Fed. They just grow. And the fruit, vegetables, and nuts they produce fulfill a fundamental, permanent human need for food.
Bread-and-butter commodities like agriculture will be valuable forever … that’s one reason we were so excited to chat with agricultural investor Carsten Pfau.
Carsten’s family is established as real estate developers and investors in his native Germany and in South America.
He decided to shift from traditional real estate to agricultural investing for one big reason … “You can sell agricultural products word wide.”
That’s one reason agriculture is so great. It’s less about getting the MARKET right, and more about getting the PRODUCT TYPE right.
For Carsten, the primary product is oranges. He also grows vegetables and grazes cattle.
When he stepped into the Paraguayan market with his brother Michael Pfau, Carsten quickly realized oranges were a great choice. Eighty-five percent of the oranges sold in Paraguay are imported, so there’s a huge market for locally grown produce … and potential for favorable margins.
Why Paraguay? One reason is its competitive cost structure. Because it is a developing country, costs are low, but there’s tremendous opportunity to innovate and bring in new technology … resulting in excellent profits.
Paraguay is great, but in order to do business there, Carsten says he had to learn the language … and the mentality. Every nation has different cultural mores, and identifying and learning them is essential to business success.
Growing from the ground up
Carsten says growing his business was an “amazing process.” When he opened up his orange plantation to investors, he expected 10-15 people to join in.
Instead, he ended up with 500 investors.
Agriculture requires a scale approach … the larger you are, the more efficient you can be, and the higher your profits. That’s why Carsten started syndicating.
He also says demand for oranges is growing so quickly that the biggest challenge is growing more. It’s the opposite of traditional real estate … instead of recruiting buyers and renters, he can sit back and CHOOSE from all the buyers who are coming to HIM.
We asked Carsten how he figured out the science of agriculture.
Carsten told us every plant he buys for his home dies … so his oranges aren’t thriving because of his green thumb!
They are thriving because he has compiled a team of the best experts in the business. His advice for investors is to “never think you know it all.” Instead, admit your strengths and weaknesses and join forces with talented people.
Plant your feet in a plot of your own
Agriculture can be daunting because it requires a lot of specific knowledge. One option for investors who want to get involved but don’t have the time or interest to get their hands dirty is passive investing.
“People are interested in two things,” says Carsten, “owning land and getting a cut of the action.”
Carsten combined these two things in his own business by offering investors the opportunity to buy the rights to their own parcel of land … and then sign a farming agreement with his management company, which plants, cares for, and harvests the trees.
This type of investment offers the best of two worlds … a land investment that appreciates over a long period of time, PLUS regular income from the produce.
Investors do have to wait about four years after their initial investment to start seeing proceeds. That’s how long it takes orange trees to mature and start bearing fruit.
Parcels start at 1.2 acres. For an initial $35,000 investment, clients get payroll for the Pfau’s workers, pest control, watering, and the trees themselves … and they never have to pay anything again.
Profits range from $5,000 to $12,000 per plot per year … and continue for 25 years, the span of the trees’ life. That’s a pretty good ROI!
“I like traditional real estate and still do it,” says Carsten. But the approach is very different. Marketing, financing, and selling are all different challenges.
The upside? “Here we can sell nation- and world-wide.”
“I like that I can lean back and choose when to stop,” says Carsten.
And he’s confident in the longevity of demand for his product. The middle class across the world is growing … and they’re hungry for high-quality food and water.
Whether you’re in Latin America or on the other side of the world, food is a fundamental human need. Succeeding in the food production business lies in getting the right scale.
The right way to do it is to find a pipeline of deal flow that will allow you to leverage your due diligence into MORE deals.
In many international markets, new technology and techniques allow forward-thinking investors to create massive economies of scale … allowing both syndicators and investors to get decent returns.
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