Farmland properties have delivered an average return of 10.5% since 1992, according to the NCREIF Farmland Index. This comes as no surprise, with farm land being one of the most profitable and least volatile investments one can make.
Investors who see strong returns have one thing in common: they identify the untapped potential of the land and create a strategy to optimize it.
In this article, we’re doing that for you by breaking down how you can spot land with the best investment potential.
How to Spot Valuable Land with Investment Potential
When your goal is to invest in added-value farms with strong potential for income and appreciation, you should be confident in answering one question. What makes farmland valuable?
Here’s your answer:
Soil Quality
Land with a poor soil composition is land that won’t properly produce crops. Valuable land starts with soil quality, and land with nutrient-rich, well-drained soil with balanced pH levels produces significantly higher yields.
Land Upgrades
Irrigation systems, fencing, drainage, and internal roads can reduce upfront capital requirements. When you don’t have to make costly infrastructure enhancements, you spend less money on improvements and more on generating revenue..
Water Rights and Access
In areas with limited access to water, water rights directly affect land value. In 2023, irrigated cropland averaged $5,900 per acre, compared to $4,100 for non-irrigated, a 44% premium according to the USDA.
Farmland with secure or transferable water rights holds a clear investment advantage.
Higher Income Crops
A farm’s land microclimate, market access, and zoning determine its potential to produce high-value crops. Crops like almonds, grapes, or organic vegetables have strong market demands, which translate into higher revenue per acre.
A basic understanding of how all of these factors work together to create valuable farmland also helps you avoid the common risks that come with buying land. Risks can range from poor soil quality or zoning constraints to legal issues to lower the land’s value. Tools like Farmland Intel bring these risks to the surface through data-informed farmland valuations.
How to Verify Added-Value Farms
After identifying farmland with promising revenue potential, validating it against objective data is the next step. That means going beyond what you see on the surface and evaluating the land’s productivity, risks, and long-term value. The data you want to assess includes:
- Soil Tests
- Satellite Imagery and Remote Sensing
- Zoning and Land Use Maps
- Historical Crop Yield Data
- Topography and Water Flow Analysis
Leveraging land valuation technology like Farmland Intel makes it simple to access this critical data, so you can make the best investment decisions.
Three Ways to Add Value to Farmland
Investing in farm land with quality soil, land enhancements, or high-income crops is just the beginning of what the land can potentially produce. With that as your base, you can start looking for other opportunities to generate revenue.
Three strategic upgrades that can increase income potential include:
- Drip Irrigation Installation: Boosts yield efficiency, conserves water, and may qualify for conservation incentives
- Organic Crop Conversion: Organic crops have price premiums that open up your access to high-margin markets
- Agrivoltaic Development: Combining solar panels with agriculture can generate up to $10,000 per acre annually through dual-use land revenue
When investors focus on value-added agriculture backed by data with potential for more upgrades, they can reduce risks and get a higher return across the farmland market. Make smarter land investments with Farmland Intel, the valuation platform trusted by serious farm land investors.
