Why should you consider adding farmland to your investments? Peter Badger, Chief Strategy Officer at Farmfolio, sees agricultural investing as a secure asset to add to your portfolio. In this episode, Peter shares the benefits to investing in agriculture and what makes a good land deal.
Peter Badger | Real Estate Background
- Chief Strategy Officer at Farmfolio, which focuses on agriculture investing and development in emerging markets.
- Since it was founded in 2015, Farmfolio has invested in a diverse selection of high-demand agricultural products in emerging markets. They have quickly become one of the largest exporters in all of Colombia.
- Based in: Miami, FL
- Say hi to him at: https://farmfolio.net/ | Facebook | Instagram | LinkedIn
- Best Ever Book: The Gap and The Gain: The High Achievers’ Guide to Happiness, Confidence, and Success by Dan Sullivan
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TRANSCRIPTION
Ash Patel: Hello Best Ever listeners. Welcome to The Best Real Estate Investing Advice Ever Show. I’m Ash Patel and I’m with today’s guest, Peter Badger. Peter is joining us from Miami, Florida. He is the chief strategy officer at Farmfolio which focuses on agriculture investing in development in emerging markets. Farmfolio has now become one of the largest exporters in all of Colombia. Peter, thank you for joining us in how are you today?
Peter Badger: I’m good. Thanks, Ash. A pleasure to be here today.
Ash Patel: The pleasure is ours, Peter. Before we get started, can you give the Best Ever listeners a little bit more about your background and what you’re focused on now?
Peter Badger: Yeah, I spent 18 years on Wall Street, Morgan, Merrill, Credit Suisse and Barclays, got the inside track, drank the Kool-Aid, and then I went to Silicon Valley for 8-9 years, I started my own tech company, exited, got acquired, and I started my crazy real estate journey around eight and a half years ago. My only goal in life, Ash, was to try and keep my money and grow it.
Ash Patel: Well, hold on. So all those years in Wall Street and Silicon Valley… Why real estate?
Peter Badger: I went around, when I started my tech company, to all the founders in Silicon Valley that I knew, and I said “Listen, guys,” they’re mostly guys, sorry to say, “…how do you keep your wealth and grow it?” Bar a couple of them, all of them said “Listen, we make our money from public and private company stock, and then when you’ve made that money, you put into hard assets like real estate, agriculture, and other similar assets.” Their point was basically don’t roll it into the stock market once you’ve made something; put it into real buildings, land, structure, all the stuff that is really hard and inflation proof.
Ash Patel: Okay, that makes sense. So why not do the typical, buy single-family houses, multifamily houses? You don’t seem like a typical kind of guy, do you?
Peter Badger: No, I went through the whole journey. I did single families, I’ve bought 21 of them in like 18 months, I couldn’t scale it. I bought some multifamily buildings, went through that, I’ve had a good run with multifamily. I did mobile home parks, short-term rentals, I tried everything. Then I ended up basically with three pillars, a bit of money in the stock market, liquidity, I have a decent multifamily real estate portfolio, which is solid steady US real estate, and then agriculture is my third pillar. I did agriculture because of the non-correlation with the first two pillars.
Ash Patel: To diversify?
Peter Badger: Exactly. Because if you think about it, with farmland — the stock market will ebb and flow and crash every seven to 12 years. Real estate has its own cycle based on the local market you’re in. With agriculture, people are still going to buy coconuts, avocados, citrus fruits, all the stuff that’s in high demand in supermarkets, 12 months a year. Who cares what’s happening in the economy? Macro, micro, people are still going to eat.
Ash Patel: Peter, did you start out by buying farmland in the US?
Peter Badger: I did not, because you cannot buy farmland in the US, because it’s too expensive. Our little secret is that land is inflated in the US, labor is expensive, so I went to actually Eastern Europe, Latin America, Central America, I went to a place where there’s amazing agriculture, but there’s a lot cheaper land and cheaper labor.
Ash Patel: You sought out agricultural land as an investment, and you traveled the world to find it. Why? How did this bug get in your head?
Peter Badger: Well, I love to travel, so I was like, “Listen, I can’t buy U.S. farmland.” I just met some people, and I actually visited 19 cities in three years, and lived there between four to six weeks. I was kind of a digital nomad. You just network while you’re down in these countries, you just meet more people, meet more people, and you just get to a bunch of providers who are trying to offer farmland, agriculture, anything really real estate-wise. So I just built the network that way, by trial and error.
Ash Patel: I’m trying to see how grounded you are or lack thereof. Did you start out by investing in other people’s farmland?
Peter Badger: I did, yes.
Ash Patel: Okay. Coffee plantation, or something of the sort?
Peter Badger: Yeah, I did coffee, avocado, mango, got my feet wet… I lost a bunch of money, by the way. I trusted the digital glossy marketing brochure. On that crazy journey, I ended up meeting a company called Farmfolio, I spent five years investing in all of their products, their deals, and I eventually joined last year, because they’ve got it right.
Ash Patel: Alright, you’ve already made it, you got a ton of money, you’re just looking to diversify… It sounds like you’ve taken on a new job, a new career.
Peter Badger: I have, I have.
Ash Patel: Take us through that evolution, if you would?.
Peter Badger: Well, I think for me, once you understand agriculture and the reason for it, I wanted to find a way to share it with everybody else. Because to date, we as little people have not been allowed to invest in farmland or agriculture. Most of the land is owned by big rich landowners, old farm families, or big private companies. So there’s very little ability to get into the ag space as an individual investor. Farmfolio, who I was investing with five years in a row, they’re basically going out and buying farms that are producing, that have been basically harvesting their high-end premium fruit, coconuts, avocados, limes, they’re being washed, packed, sorted, exported to North America and European markets. So there’s this amazing opportunity whereby the fruits are being sold in the supermarkets that we shop in, for the highest price, but the farming is being done in Central ir South America, at a lower price. That’s what the arbitrage allows us to make some money along the whole supply chain.
Ash Patel: Alright, so you invested money with them. Now you can come back to Silicon Valley, come back to the states, you’ve got your three pillars set up… Something didn’t go right. What happened?
Peter Badger: It all went well.
Ash Patel: I mean, something sucked you in…
Peter Badger: Well, I think we all need to have a purpose. I think when you hit the right idea at the right time for the right reasons, that’s when I jumped into Farmfolio. Because I’ve found a way to give titled farmland real estate to people like you and me, that gives a great return for a consistent, multi-decade period. I don’t know whether, Ash – people may have heard this concept, but it’s called the financialization of everything. So there’s like MasterWorks, people are taking art, allowing to invest 10 to $100,000. RobinHood did it on stocks, no more having to buy a share, you can buy $1 amount. So I think every asset class right now is being financialized down to the n-th degree. I think the journey I’m going on right now for the farmland piece is that we’ll be tokenizing it and giving people the ability to invest their $1 amount into harvesting income-producing farmland such that you can control the income you receive from a passive income perspective.
Ash Patel: Peter, what is your role with Farmfolio?
Peter Badger: I do strategy and a bunch of marketing for the company. So I help find some farms, I help market the farms, I help basically put the strategy together for the long-term. It’s kind of a FinTech meets agriculture. As you can imagine, we want to give everybody access to farm as an asset class, and the ability to democratize that, so it’s going to require a technology play to make that happen.
Ash Patel: When did Farmfolio start and why did they start?
Peter Badger: They started in 2015, and the CEO is Dax Cooke, he’s still the CEO today. Dax, in a similar manner, was living in Central America and he was looking for an ability to actually build agricultural assets for his own portfolio. He found a way to actually raise private equity syndication money in the early days, and eventually get to this farm and ownership model, and start to build this amazing company. He started it personally for himself. As usual, these things get a life of their own, they become successful, and you’re like “Oh, we can help others benefit in the same way we intended for ourselves.”
Ash Patel: Peter, you are an investor; how did you become an officer in the company?
Peter Badger: I tip my hat in around a year ago, because the pandemic was a great leveler for everybody. I realized from all my portfolio investments – Airbnb’s, mobile home parks, multifamily… You name it, add everything. The thing that kept going and was exceeding my expectations during the whole damage was food and shelter. My multifamily portfolio was occupied 95% plus, the farmland, fresh fruit, vegetables – it doesn’t stop; people have to eat. For me, it was a great leveler. When you look at Maslow’s hierarchy of needs, if you’ve see that triangle, at the bottom is food, shelter, and security. I think, really, if you stick to that bottom layer with your real asset allocation, I think you’re on for a good thing long term.
Ash Patel: Do you spend a lot of your time in Colombia now?
Peter Badger: I do. I spend probably a third of my time down there at this point. I’m heading back on Sunday.
Ash Patel: And from an investment perspective, why would somebody want to invest in farms in South America?
Peter Badger: Because it is the best agricultural land on the planet. In the same way, Ash, that we use data to invest in US real estate, you look at population growth and jobs, local to the buildings, and reducing crime rates, I have a similar set of characteristics when I invest in farm and agriculture. Weather is a primary one. You want a place where there’s lots of rainfall, lots of sunshine, soils that are healthy. When you look at a world map – I actually challenged people, type into Google “world precipitation”, and it’ll bring up a map of all the rainfall. There is this layer with this tip of South America, it goes through Columbia and various countries. That’s where most of the rainfall and best agricultural lands are. So stop investing in farmland in California, because there isn’t any water. Go to the places where there is water, plenty of sunshine, and decent farming or agricultural skills in that region.
Ash Patel: Peter, what are some of the risks that investors should consider?
Peter Badger: Outside of generally having the right climate, the right rain, and sunshine blend, land price and labor costs are two major ones to make sure they’re part of the characteristic. But then it’s just the traditional stuff we normally see, which is around the team; have they got the track record, have they the ability not just to actually do the farming itself, but then to wash, pack, export, and sell the produce? I find that when you meet these people, they’re either really good at farming, or they’re really good at fruit sales and distribution. You’ve got to be good at the whole supply chain to be successful in this domain. That’s the key.
Break: [00:13:36] – [00:15:33]
Ash Patel: You mentioned the pandemic being a bit of an equalizer to US equities and assets. What about insects or viruses for fruits and vegetables in agriculture?
Peter Badger: I think part of this is on the farming side is absolutely, you’ve always got to look for insects and pests when you’re farming, and then you have a really good high-end packing facility. When you actually bring it from the farm into the packhouse, you need to process that in a very hygienic environment. There’s SMETA, there are all these certifications you can get now which actually the retailers in the US and Europe demand to make sure the packhouse have that ability to not only wash and clean the fruit, but then pack it and store it for that journey across the ocean to the premium fruit markets.
Ash Patel: Here’s probably a really dumb question… Pineapples, limes, avocados, coconuts, all have a pretty tough exterior; does that make them less susceptible to insects?
Peter Badger: It does, and it also allows you to have a longer shelf life in some cases. A coconut is an easy thing, isn’t it? It’s a robust, hardy shell, you can’t mess it up; shelf life six to nine months. It’s not like getting blueberries off a farm and onto your plate in a very short period. So yeah, look for those crops that are perennial, they’re tree crops. There are row crops and tree crops, or permanent crops, as we call them. With row crops, anybody can get into it; wheat, barley stuff. You can plant it today, nine months from now, you’ll see the harvest occur. It’s very labor-intensive, very low barrier to entry. Look for those permanent crops where you’ve got to plant a tree, wait three to four years, the first harvest appears, keep improving the harvest, and then it basically produces fruit for 20, 40, 60, 80 years straight. That’s the key. A coconut tree, -I can plant it, wait four years, wait for the harvest, income in my pocket, and then touch wood, another 30 years from now when I pass, I can pass it to my kids, and it passes well intergenerationally.
Ash Patel: I’m intrigued now. As an investor, what would I buy into?
Peter Badger: With Farmfolio, you buy a title piece of farm real estate. So instead of a single-family home producing rental income, we get 220 Tahiti lime trees producing harvest income, because those limes are being exported to the US and being sold in Walmart, Trader Joe’s, Albertsons, Publix, etc.
Ash Patel: Do you harvest and split across multiple farms, or do I get what’s on my particular plot of land?
Peter Badger: So you’ll receive your portion of fruit from that farm for the titled land you have, and then we consolidate all of that through multiple farms in the packhouse to export to the big retailers; because they need scale. Your little plot wouldn’t suffice to give much scale at all, so we bring all these farm lots together into the packhouse and then export that in containers full.
Ash Patel: So I get some kind of land title to a lot in Colombia?
Peter Badger: Absolutely.
Ash Patel: Can I get a loan against that?
Peter Badger: We are looking into leverage for this product, we’re discussing with a few lenders. But right now, you’re taking title to the real estate itself. When I talk to people about when you take your money and your wealth and you invest it, you try and take control of that wealth. If you put it into private equity syndication, then the asset manager decides how long to own or hold that. So listen, if you got titled real estate, as you would for a piece of US real estate, you control the title, you control how long you keep that, and how long you benefit from the passive income. So always go for farmland ownership on a titled level.
Ash Patel: What kind of returns do your investors get?
Peter Badger: It depends, as usual. No one guarantees returns. We should put it in the single-family home bucket, because it depends on the age of the tree, the crop type, the price of the land, the price of labor… And the same way that you work out which market you’re buying a single-family home in, what the rents are in that market, how much the house costs, how much the insurance and taxes are – we have a similar set of characteristics. You can basically end up with a single-family realm of returns; you’re looking at an 8% cap rate, to 10% to 12% on a consistent basis.
Ash Patel: What have you seen as far as land appreciation for these plots?
Peter Badger: The beautiful thing about Farmfolio’s farms is we buy them earl. We’ll buy an average age of three to four years a tree. For a Tahiti lime tree, for instance, the crop has a massive increase in harvest between years three and eight. So what you’ll see is as the harvest goes up, the income goes up, therefore, the NOI goes up, net operating income, and therefore the entire land parcel appreciates in tandem with that income profile. So it’s just like a value-add – buy a rubbish home in a good neighborhood, do the rehab and charge more rent – you get that low rent to high rent, it becomes a low crop to high crop return.
Ash Patel: What’s the challenge with having US investors and what are the tax implications?
Peter Badger: I don’t give tax financial advice, obviously. Everybody’s different. I have a lot of people who are basically buying these farms and lots in their IRAs or solo 401Ks. Obviously, the more you can use existing US tax-sheltered vehicles, the better off we’ll all be. That’s what I send people, because it is a beautiful thing.
Ash Patel: So then that’ll be shielded from a lot of the typical [unintelligible [00:21:06].05]
Peter Badger: That’s right.
Ash Patel: Can you give us a percentage over five years what the IRR cash-on-cash return would be?
Peter Badger: No, because we don’t deal in IRRs. This is a real estate, basically ownership model. But you buy a three-year farm, hold it till it’s eight years, and you’re looking for double-digit returns from a harvest income perspective. There are characteristics around that number. It’s hard unless you saw the type of farm, the crop, the age of the tree, the density of the trees on your land. Come visit farmfolio.net and we’ll show the different options and the different profiles that those harvest incomes become.
Ash Patel: Do you find a lot of investors want to come down and actually see their plot after they buy it?
Peter Badger: Yes, I’m going next week to meet two people who have bought a coconut lime lot.
Ash Patel: I love that.
Peter Badger: People love to travel. Why not travel and go and do your due diligence?
Ash Patel: That’s a business expense. Yup.
Peter Badger: Exactly. I’m just saying.
Ash Patel: Absolutely. Peter, you mentioned tokenization. I want to dive into that. Currently, do you have to come up with the amount for the entire plot of land?
Peter Badger: Yes, you do. Right now, we’re offering a single plot between 32,000 and 65,000 depending on the tree age, the crop type, etc. One of the goals basically is over time, as we’re sourcing these farms and getting better technology plants from underneath this offering, we intend to get on the tokenization route to enable fractionalized purchases.
Ash Patel: Yeah, I love that concept. What part of your Silicon Valley background has helped you apply some tech to this business?
Peter Badger: The whole thing. I mean, every business is the same. It’s just a different vertical, different subject matter. You’ve got to know how to basically do digital marketing, how to raise money, you’ve got to know how to run operations and financial processes, build technology underneath those processes. Every business is the same and I think the beauty of being in Silicon Valley is you’re at the forefront of that. And then applying those skills to an agricultural domain is one of those value-add domain areas on top of your existing skillset.
Ash Patel: Peter, you’re setting up a business in a whole different part of the world. What’s been your biggest challenge?
Peter Badger: It’s a lot easier nowadays, let’s be honest. Globalization has occurred. 20 years ago, forget it, you couldn’t have done this. The fact that everybody is remotely working now, Zoom, Google Workspace, there’s data, there are tools, there are SaaS services for everything you can imagine. So I think as long as you spend a lot of time down on the farms, down the packhouse, on the fruit supply chain, building the team, making sure everyone knows their roles, responsibilities, and we coordinate well, it’s a wonderful time to build a business compared to how it was a few decades ago.
Ash Patel: Peter, what is your best real estate investing advice ever?
Peter Badger: I have a proverb I live by; it’s a Russian proverb, it’s “trust but verify.” I see too many people trust a person they know who gives them a glossy marketing brochure, and just goes and invests their money or buys that real estate. I say to people “Listen, trust, but verify.” Yes, trust that brochure is correct, but you know what? Dig underneath it. Go and verify every single aspect of that offering; meet the people, get boots on the ground, understand the data behind all the returns or income profiles telling you what you’re going to get. You’ve got to do it. Laziness, when it comes to due diligence, is what makes you lose your money.
Ash Patel: Yeah. Peter, I want to ask you, what’s the liquidity in these investments?
Peter Badger: In the same way that you would buy a single-family rental, there’s always a market for it. If you’ve got a steady stream of cash flows, there will always be somebody taking off your hand; and there’s the ability over time to compress the cap rate, just like you would with real estate. So if you have a lime farm parcel that’s producing income for five years straight, [unintelligible [00:25:01].28]
Ash Patel: Yeah, absolutely. Peter, are you ready for the Best Ever lightning round?
Peter Badger: I am. Go ahead.
Ash Patel: Alright. Peter, what’s the Best Ever book you recently read?
Peter Badger: The Gap and The Gain by Dan Sullivan, that every entrepreneur–
Ash Patel: What was your big takeaway from that?
Peter Badger: That the key, the gap versus the gain – everyone that looks at the most successful people andlooks at the gap between where you are today and where they are as the most successful entrepreneurs, whereas the gain is where you should be. Where were you last year? What have you achieved in the past 12 months? Stop comparing yourself to unrealistic expectations, and therefore you’ll be happier because you see your gains, not everybody else’s gap.
Ash Patel: I love that. Peter, what’s the Best Ever way you like to give back?
Peter Badger: Education. I’ve been fortunate to have mentors my entire career. I continue to seek them out and I give back and I mentor everyone I meet, because the knowledge available today on YouTube, on websites is unbelievable. You just need someone to give you a framework on how to harness that knowledge and apply it in the real world. When I give back, it’s just mentoring helping other people learn what I’ve learned, and stop making the mistakes I’ve learned in the early days.
Ash Patel: Peter, how can the Best Ever listeners reach out to you?
Peter Badger: Reach me through my email address, peter@farmfolio.net, or check out our website farmfolio.net. We believe that you should have Farmfolio as part of your portfolio all day long.
Ash Patel: Peter, thank you so much for sharing your story with us today. 18 years on Wall Street, nine years in Silicon Valley… You set out to just diversify a little bit of money, and look at you now, in Columbia, South America. Thank you again for joining us and sharing your story with us.
Peter Badger: It’s a pleasure Ash, thanks a lot.
Ash Patel: Best Ever listeners, thank you for joining us. If you’ve enjoyed this episode, please leave us a five-star review, share the podcast with anyone you think can benefit from it. Also, follow, subscribe, and have a Best Ever day.
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