Should We Buy A Coffee Farm? Alternative Investments For $50,000 Or Less

Our last investment was a private loan at 10%, to fund a flip, and it’s coming due shortly. This is a borrower we have worked with before – a family business but with decades of real estate experience. We also know their work firsthand because we bought a rental property from them (they do sales, renovations and property management) and have done very well with it. Finally, we like investing with them because they have opportunities at a relatively low entry point – this loan was for just over $50,000. Other alternative investments require six-figures or more, and sometimes even getting a chance to invest is competitive.

The downside of this type of investing is that you don’t get compounding working for you during the hold period (the 10% is a simple interest rate paid monthly) or even after, since it’s not guaranteed that there will be another loan opportunity to roll the proceeds into. We can’t do anything about the simple interest during the hold – those are the terms, and I have found that pretty standard with other private loans (at least at our level). However, we can try to minimize the dormant period after the loan by picking a new investment sooner than later.

Sure, we could roll it into our paper asset portfolio, which is currently invested following a tactical asset allocation service that tells us how to rebalance bimonthly among diverse asset classes. However, we already have a third of our total net worth in traditional securities, and while new retirement contributions go in there, we’re not looking to add even more money there – especially given the seemingly overvalued stock market.

However, there are several alternative investments that have come across our radar recently. Which, if any, would you choose?

1 – Private lending for a cannabis business

Another real estate company that we have been following for a while is raising money for a cannabis investment. Units start at $50,000 and pay 12% (again, simple interest).

What we like:  This is a company who we have almost invested with multiple times over the last few years. The timing never aligned, which is why we didn’t do it, but over time we have seen them put out quality product. This company is growing significantly (they have already hit the Inc 5000, the ranking of fastest-growing companies, at least once if not repeat times). I’m concerned that, if we don’t do an investment with them soon, they will close their future investments to existing investors.

The downside: For this particular loan, there is a 2 to 3 year holding period. The loan is a promissory note from the LLC that is running the investment – i.e., it is not secured by the farm or building or any other asset from the business. We prefer a shorter hold so that our money turns over faster, and a secured investment so that we are backed by something other than the credit of the borrower.

2 – Cocoa syndication in Belize

This is a from a different real estate company, but also one that we have been following for a while. They specialize in farmland in Panama and Belize, which they use for coffee and cacao products. The investment would be part of a syndication. It is a multi-year hold, since it takes an estimated 3 years before the farmland becomes a working facility. There is 0% return during this period, and then profits start to be distributed with estimated ROI of 13% and up as production increases. 

What we like:  Similar to the other company we’re considering, we’ve been following this coffee and cacao outfit for several years. They have several working farms already, and their products have won quality awards. I love the diversification into farmland, the geographic diversification into Belize and the sustainable practices this company priorities (they hire locals and use part of the proceeds to improve the communities where they farm).

The downside:  There is a long holding period. Except for eating an inordinate amount of chocolate, we don’t know anything about farming or Belize. We really are relying on the materials provided by the company. While they offer scouting trips of their facilities, we realistically can’t make a trip anytime soon.

3 – Half-acre coffee farm parcel in Panama

The coffee farm parcel is run by the same company that is offering the Belize cacao syndication. It is an investment we were thinking about even 5-6 years ago, but at the time, the company was just breaking ground, so it was higher risk than now that this parcel is part of a 3+ year old farm, already generating revenues. It is a resale opportunity at $20,000 with a current return of ~6% (if you look at 2020 revenues) and projected to rise as the company’s market share grows.

What we like: This company no longer offers deeded parcels where you actually own the land in half-acre units. This parcel is from the early batch that we passed on, so it’s a second chance to get into that initial investment, but with the benefit of hindsight – in this case, seeing that the company has actually delivered and created an award-winning business from that raw land. At $20,000, we would have some remaining cash to roll into another investment.

The downside: We still don’t know anything about farming or, in this case, Panama. We’re still going by the reported financials of the reseller. While the company also offers scouting trips to their Panama facilities, like Belize, we realistically aren’t taking a trip there anytime soon.

4 – Local angel investing

There is a hybrid syndication/ angel investment fund based in Florida and focused on Florida and other southeastern start-ups. It’s a hybrid because each start-up that they promote gets investment from their larger VC fund (that buy-in is $500,000 so more than we want to do). For $50,000, you get a look at all the start-ups that passed their investment criteria and can allocate your $50,000 across all investments (minimum $5,000 per company) or in just one or any mix in-between.

What we like:  I have been thinking about angel investing for some time because I like the business analysis of it and the chance to get deeper into the start-up ecosystem. For this particular investment, I like that it is focused locally, so a chance to get more integrated in the community here.

The downside:  Angel investing is not at all a reliable way to build wealth and takes an inordinate amount of time to do well. Tucker Max makes a substantial case against angel investing here. We haven’t done any angel investing to date because I see it more as an activity – like a high-priced professional membership – than an investment.

5 – Holding the proceeds in cash to roll into a larger investment

While I just said that this mom and pop we already invest in has lower-priced entry points for its loans, most of the opportunities are over $100,000. Rather than wait for the next $50k opportunity, we could hold our $50k in cash till we amass an additional $50k and then make a larger investment with this same mom and pop.

What we like: this is an investment that we know. The property which secures the loan changes with each deal, but we know the company and their terms. Investing at a higher level means that there are more deals to choose from, and we can likely roll over our money more quickly than at the lower price point.

The downside: we already have cash in our paper portfolio as part of our tactical asset allocation strategy, so holding onto cash on the real estate side (beyond reserves, of course) lowers our expected investment return. It takes us about a year to generate an additional $50,000, so we would be holding onto cash for a long time.

We could also add to our rental real estate portfolio

One option I didn’t include above is the prospect of buying more real estate. I already said why we’re not buying more traditional paper. I have similar reservations about increasing our traditional real estate holdings. We already have half of our retirement portfolio in rental property and the majority of our non-retirement tied up in rental property. These are illiquid investments, and given the market volatility, I want to be more liquid, not less.

We are still scouting, but the most recent interesting deal we saw was a duplex in Atlanta that seemed overpriced and still had 10 offers within its first day on the market. With interest rates so low, everyone with cash to invest is chasing yield. Real estate prices are rising. The stock market valuations are high. Alternative investment providers can be choosy and require high minimums or dictate favorable terms (like simple interest!).

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We haven’t made any decisions yet, and some of the above investments may already be gone. But if you had $50,000 to invest, what would you do?