Millionaire investors take refuge in Kentucky farms
Mississippi's Barry Gollott made his fortune in the auto salvage business. To guard against what he sees as an inevitable economic collapse should the U.S. default on its $19 trillion national debt, Gollott has sunk a good chunk of that nest egg into four Kentucky farms.
"In a doomsday economy, farms are where the food has to come from," said Gollott, age 71, who has also poured assets into blueberry farms in Chile. "The way we are going, I think default is inevitable."
Another 20 percent of Gollott's money has been sunk into gold and silver. And then there's his purchase of an Alabama farm, a rural family refuge against a potential economic apocalypse with hyper-inflation and food shortages in the U.S., troubles akin to the likes of Venezuela or Greece in recent years.
Conservative investors like Gollott, many of them self-made millionaires, are finding safety for their assets in the farmland investor pools assembled by American Farm Investors, a Lexington investment firm conceived in the ashes of the 2008 Great Recession.
To date, the annual financial returns on the nine farms purchased and managed by AFI mirror or exceed results achieved by investors in the bond market. Unlike stocks and bonds, farmland is something an investor can touch, or visit. Unlike volatile securities, farmland's been appreciating in value an average 5 percent annually.
American Farm Investors is the dream child of Brian Luftman, a financial whiz kid who once traded derivatives in the cattle pit of the Chicago Mercantile Exchange. On his best day, he made $200,000. On his worst day, he lost $150,000. He did that for 10 years. He saw the bank crisis coming and began liquidating his stocks in 2006. He bought gold.
"I was making money and I was good at it," Luftman said. "At the end, I wanted to walk away."
"Because the market was so scary, so tumultuous, and the banks were on the verge of collapse, I bought a farm," Luftman said of Illinois acreage purchased for $4,800 per acre in November 2008, two months after the crash. Three years later, Luftman sold that same farm near Champagne for $8,800 an acre.
When he looked around for a company that managed farmland for investors like himself, Luftman could not find one. So he created American Farm Investors in Kentucky, his home state, in 2011.
A typical AFI deal is the Danville, Ky. farm just purchased with $1.4 million raised in $100,000 increments from different investors. These are people with a net worth of at least $1 million, a requirement of the Securities & Exchange Commission for these types of deals. Farmland investments are long-term arrangements, like that 226-acre William Crow farm expected to produce an annual cash flow of between 1.5 and 3.5 percent. AFI leases the land to farmers, in that instance grain crops bound for bourbon distilleries. Within the city's limits, the Danville farm may be ripe for residential or commercial development, but would require a vote of the majority of investors before it could be sold.
Kris Schmitz has never visited any of the three Kentucky farms he owns in part via his investments with AFI. Schmitz is a 40-year-old currency trader whose income from investments exceeds that of his day job as a high school teacher in rural Minnesota. Like Luftman, he believes high federal debt jeopardizes the economy. He's wary of electronic trading, of hackers, of last-minute changes in monetary policy by banking bureaucrats.
"I want to own something very real in this very fake world," Schmitz said, who added he's part of a growing vanguard of investors holding tangible investments like gold, land, ammunition and artwork.
Biff Buckley is the retired owner of a Lexington commercial insurance agency. For him, there's no safer place to put his money than real estate. He has purchased four stakes in four farms operated by AFI. Unlike other real estate investments that might be leveraged by a mortgage, the farmland is owned outright by investors, away from the clutches of any bank, Buckley said.
"There is something special about being able to drive by an asset and pick the dirt up and run it through your fingers," Buckley, 66, said. "Come spring fever, I might drive out there and pull a leaf off a soybean plant and smell it."
Luftman acquires one to two farms annually, running each through a battery of tests for soil quality, water resources, and long-term yields. While his deals are privately traded, they mirror growing interest in an emerging cropland investment sector.
Since 2013, publicly traded farmland investment real estate trusts have sprouted up, like Farmland Parntners Inc. and Gladstone Land Corp. Institutional investors, like TIAA-CREF, are increasingly recruiting municipal and pension fund investors for cropland returns, the Wall Street Journal reported last year.
In his Lexington attic, Luftman has also stored three months worth of food. He's got some gold and a gun and a lot of investments, like land, that are "real assets."
"Ideally our world continues to revolve with a massive government debt. That could continue for 50 more years," Luftman said.
Unlike most of his friends, Luftman predicted Donald Trump would win the presidency. He won $1,500 making those bets.
"A run on the banks could happen tomorrow, anything that causes the public to worry can cause disruption," he said. "It will happen in my lifetime. I'm certain of it."