If you want to rent some farmland, there’s no use looking at Craigslist or scouring the back pages of a local paper. In most agrarian circles, rentals happen on a word-of-mouth basis, at the local coffee spot, or because the owner went to high school with your grandfather’s best friend. CashRent is hoping to not only take some of the antiquity out of this process, but make the prices fairer, too.
The Illinois startup has just closed a $750,000 seed round led by farmers and landowners from its home state and neighboring Iowa. The new funding will be used to expand its services into more Midwestern states throughout 2021 while also bringing on full-time staff and partnering with local land brokers to create a farm rental ecosystem.
According to CashRent, accurate rental values have been a fickle game for decades due to a lack of available data and the prevalence of handshake agreements. When co-founder Chris Baumann purchased a hobby farm a few years ago, he knew the land was worth more than what the farmer who rented it was paying – but he had no way to prove it. He called Brad Belser, who owned a land brokerage in the area, to figure out a solution. The duo then contacted Noah Berkson and Peter Larsen, co-founders of Chicago-based VC firm Candor Ventures Partners, to help make their idea a reality.
CashRent was born in July 2020. It’s a dual-sided online marketplace for leasing farmland, which enables landowners to better calculate the value of their land based on different data metrics. The site’s ‘CashRentstimate’ algorithm allows it to arrive at a value based on the number of farmable acres on a parcel, soil types present in the field, soil health, location, yield history, and other factors.
“On the other side, farmers can come on the platform and find farmland available near them to help them grow their operations. On the landowner side, it’s not the highest bid that wins. The landowner ultimately chooses who will farm the land,” Berkson told AFN.
The founders had planned on the business being able to fund itself indefinitely, but they changed their minds as more and more prospective investors reached out.
“It’s a really good indication of product-market fit. [At first we were kind of against it, but then as things started to progress we realized that we may want to put some fuel on the fire and take advantage of strategic capital,” Berkson said.
‘Strategic capital’ for CashRent doesn’t necessarily mean ag-focused VCs. Farmers and landowners have flocked to put their money in the startup – and in the rural communities where it operates, those kinds of investors are a stepping stone to building trust. Having their backing boosts credibility, Berkson said.
So far, CashRent claims to have facilitated $1 million in farm and hunting leases through its platform across Illinois and Iowa. On average, landowners have seen a 26.5% increase in the rent prices they are receiving for their properties, by the startup’s measure.
You can buy a farm, but you can’t buy trust
Although the transaction itself may seem relatively straightforward, penetrating rural communities is a delicate game that requires patience and perseverance.
Farmland purchase and rental startup Tillable recently found itself facing serious scrutiny from farmers over some of its practices, for example. It was sending letters to farmland owners offering cash up front to rent their acres, according to NPR. Many tenants on those acres had multi-year handshake leases with the landowners, some going back many generations between families. To many, Tillable’s unsolicited letters seemed like a threat to the security of their existing agreements.
Berkson says Cashrent is cognizant of the potential for pushback from the farming community, but the reaction from farmers so far has been “overwhelmingly” positive because the startup has “allowed them to grow their operations.”
“It can be hard to find more land available near them when it is so heavily based on word-of-mouth. It’s also becoming harder and harder to be a single-owner operator,” he said.
“If you’re not continuously accruing more acreage, it makes it hard to remain profitable.”
One way that CashRent tries to infuse more equity into the platform is through dynamic pricing. Most of the leases on its platform are for three years, but as the data on the land changes during the lease term, the price for the next lease contract may change.
“Let’s say it’s at $300 an acre. Three years from now when that lease expires, yields [could] have changed, commodity prices [could] have changed, and maybe now that land’s worth $270 an acre,” Berkson explained.
“We really just want to offer a way to understand transparently what something is worth at [a given] time and then let people transact using our platform.”
Microsoft founder Bill Gates and his wife Melinda were recently revealed as the largest private farmland owners in US. Read more here
Today, 30% of all US farmland is owned by non-operator landlords – meaning individuals who don’t farm, but who likely inherited farmland during their lifetimes. For a variety of reasons, they want to hang on to the land – but would prefer someone farm it in the meantime. A spirited debate has arisen around the consequences of this trend, such as the challenges tenant farmers face when they don’t actually own the ground they work.
CashRent believes its platform is helping to solve this problem. Many of the landowners who use it would otherwise run the risk of underselling their real estate, because they have no farming knowing and therefore lack the ability to identify the going rate for it. They may also find themselves in crop share agreements that are too complicated for their experience level.
On the flip side, some farmers would rather enter into a temporary lease instead of getting a mortgage and incurring the capital expenditures of buying farmland outright, according to Berkson.
“We do want to help farmers who would rather own that ground. Later this year, we are going to roll out some financing features that help farmers finance leases or purchase the property,” he added.
For now, CashRent wants to be seen as a ‘white glove’ service as it strives to build trust in an inherently skeptical community. If a landowner wants help listing a property, someone at the startup will work with them one-on-one to make sure the experience is smooth and satisfactory.
“Veering away from the neighbor who has been leasing your land for 10 or 15 years is a big change. So, we want to be there along the way,” Berkson said.
“[We want] to help people through that decision-making process and educate them about why we believe this is the way people will be doing this far into the future.”