Investing in Turnkey International Coffee Farms

[Mark S.]

I recently heard an (non-BP, don't know if I'm allowed to say where) REI podcast where the guest talked about investing in international coffee farms (in Panama). The pitch was basically $15,000 for 0.5 acre parcel on an under-performing commercial coffee farm his group acquired with the expectation of a conservative 13% annual yield. There would be a 3+ year minimum hold and the opportunity to sell later, if desired. His team apparently hires the coffee farmers and provides them a good job, fair wages, health and pension benefits, etc. Often, they simply re-hire existing talent that have already been working on these farms for many years, just under new, better-capitalized management. It sounds great at first glance, but I feel like I might be missing something. Have you ever invested in anything like this? What questions would you have about it? I like that it's turn-key, cash-flowing, and I will not have to deal with tenants. By the way, I like the BP podcasts much better (this one is always a bit "salesy," which is another reason I am skeptical).

[Andreas F.]

Hi, 

Sounds good on paper, but the challenge is that you don't know what you don't know.

As long as you do not have someone local that knows the business etc, so that you get a second opinion, I would remain highly skeptical.

I got a similar offer for investing into RE in UKI, with 13% ROI. As I do not trust things remotely, I will fly to london and meet the guys face to face. I think this is the only ultimate way to get clear on a case.

AF

[Account Closed]

@Juan Valdez

[Karen Margrave]

I personally would never invest money in an area that I didn't know, with people I didn't know, in a business I knew nothing about. I'd probably have better odds going to a casino and gambling. But, that's me. 

[Cliff Mccue]

I believe I know who you are talking about.  I met him a few weeks ago in Chicago.  It is an interesting business model.  They focus on selling boutique coffee, for lack of a better term, where the margins are much higher.  My biggest concern for his business is margin compression.  

While I agree that you have to do your own due diligence on the individual and the company, I disagree that you need to know about the specific business.  I would bet that the majority of real estate investors have an equity portfolio where they have no clue about what the companies that they hold do or how they make money.  Time and time again you talk to an investor that has a portfolio of mutual funds that doesn't even know the strategy of the fund.

[Account Closed]

@Cliff Mccue 

I don't know a single person that has bought a company specific stock without knowing something about the company.  I am sure some people do, but you are drawing a comparison to mutual funds.  An investment that is in many companies, reducing the risk of complete wipeout of the investment.

Chances are these people you are referring to are invested in a broad market fund, and not in a highly volatile industry specific fund.  Likely recommended by an advisor who knows what their goals are. 

Bad example IMO.

[Mark S.]

So..., back to the original topic: what would your next step be?

[Jonathan Wilks]

I Agree with every one above. I would not invest in an area where you don't have solid knowledge. The investor sounds like they are trying to complete a business turnaround, however the Coffee business is a highly volatile business. The kind of coffee  grown, and the grade which will be produced. The relationships to bring the product to market or to a distributor. In addition coffee being a commodity varies so extensively on supply and demand, which is also impacted by the aforementioned characteristics i described earlier. 

[Eric Tait]

I know this gentleman and have spent a time with him, this is his second venture, the first was in Colombia.  I have not personally invested in either of these ventures, but the next step is to call him and ask him how the first venture is faring. 

Next, have him walk you through the business model and test his assumptions.  

You can also ask for references from his investors in Colombia and see if he has delivered as promised. 

This is just an international diversification play, and I will tell you that the coffee market has some very interesting and compelling dynamics, vice always sells and caffeine is a legal drug.  

[Mark S.]

That a boy, Eric Tait , someone with a degree of optimism on this thread.

I'm just thinking this could be better for me given my individual style as an investor and am not really sure where to get started with it. I guess I could call him, but I feel like I need to do a little more research first in order to have a more informed conversation.

[John D.]

@Mark S.  "the expectation of a conservative 13% annual yield. There would be a 3+ year minimum hold and the opportunity to sell later, if desired."

  That sounds really nebulous.  Are you a partner in the company?  Or are they leasing a commercial parcel you've purchased for these purposes?  Either way, what are the proposed terms?  While you would like to research more before taking a call, I think without a lot more info you will not know what to research.

  I would tell him you would like as much info as you can get, so that you can do your diligence and research.  Proposed terms.  Financial models.  Financials and references from any other related ventures this individual has worked on.

[Mark S.]

Thanks, @John D. .  

Their website is www.internationalcoffeefarms.com.  

[John D.]

I would ask for the financial model, contracts, and any other relevant docs.  They say you are investing in land, but because you are paying $15k for maybe $1,500 in land, you are really investing in the business.

If the business fails, you will probably not be able to sell the land -- it's an incredibly small piece of land that is too small to be individually farmed (and therefore tough to individually sell).

Vet the business - that's what you are investing in.  Do you want to invest in an international coffee business as a small owner with a tiny share and no investor rights whatsoever?

[Eric Tait]

Just call him, all that you want to know in the questions above he can answer for you.

He is incredibly nice, but nonsense, he is ex military (navy if I remember correctly).

He is not a hard sell kind of guy, in his estimation you either want to invest or you don't so he is not going to chase or pester you.  But he will walk you through the business model in whatever depth you would like.

[Paul Wurster]

It is a relatively small amount of money.  As with any turnkey type operator, start small and tiptoe into it.  Make them show you the money first.  Don't get too excited.  

Here is a question, would the radio show hosts bet their reputation on someone that was completely out to lunch? (BTW, that is their second appearance on that show in as many years) If you think not, start asking questions.  

[Percy N.]

So, did anyone end up investing?

Is the investment and return in US dollars or Panamanian balboa?

[Mark S.]

@Paul Wurster, sorry for such a delayed reply and yes, I agree with you.  They've been on The Real Estate Guys Radio Show, Rich Dad Radio Show, and Get Rich Education podcasts (probably more, but those I'm aware of).  Honestly, they'd probably be willing to get on the BP Podcast, too, as a guest.  I don't believe that's happened yet.  Hey, @Brandon Turner, any way of getting David Sewell and International Coffee Farms as an upcoming guest on the BP podcast?

@Percy N., I actually convinced myself at one point that this would be a "cop out" for me, and I needed to focus on becoming a local landlord.  I've also been doing well with other investments and it sort of took a back seat.  The more I listen to different podcasts and continue to hear them on there, and continue to get their emails (they're on their 7th coffee farm right now), the more I've started to become interested again.  I've also since realized that I don't think my personality matches up well with the thick skin needed to be a landlord, and the deals I've found (yes, I know many can say I'm not finding good enough deals) don't have a ton of room for property management fees (or if they do, they're in areas that I would never want to have to go - and I would if something ever happened w property management).  With all that said, the opportunity has become more appealing to me again.  They're actually hosting occasional "come and see" type events where you can go out there BEFORE you buy (and even afterwards!).  Initially investment for a 0.5 acre has climbed from $15,000 to $18,000, but still seems reasonable.  I need to do more research on whether the investment return is in US Dollars (I'm assuming it is) and the taxation.

[Brandon Turner]

Hey @Mark S. if anyone knows how to contact him, he can always fill this someone helps us with podcasting schedules: https://www.biggerpockets.com/guest

[Rupa Keskar]

Hey Mark,

Wondering if you ended up investing with them?  I am looking at this too now, plus their cacao offering.  I'd love to hear your experience. 

On another note, you made a comment about not have the thick skin to be a landlord. I don't think I do either, but I now own 635 units.  I self-manage 100 of those units, and managed another 32 that I sold.  I refuse to talk to tenants, that's what I have employees for.

[Albert L.]

I am also looking for feedback. Thanks!

[Mark S.]

@Rupa Keskar, @Albert L., so far so good. I will be meeting a couple of the guys on an upcoming trip to Belize on a Cacao Farm Tour (BCC). Not much to report yet on the coffee front. My parcel is one of the raw land parcels, so no cash flow for several years. $15,000 + $750 transfer taxes for a 0.5 acre coffee farm parcel in Panama. IRR around 12%.

[Phil Ho]

@Mark S.

Any new updates since your last post? Thanks.

[Michael Plante]

holy freak if they are connect d with the rich dad poor dad scam group I would run far and fast away from them 

[Mark S.]

@Phil Ho,
I went on the Belize tour with them (for cacao) back in September and got to meet everyone. I feel very comfortable with the team. While it may take several days to a week for email responses at times, everything else seems solid. I'm in the process of picking up two cacao parcels in Belize with them. A little pricier, but same business model/structure as the coffee deal in Panama. Feel free to PM for more info.

[Simon Ruiz]

I listen to this podcast you speak of.... And heard the coffee farm pitch... if you know of anyone doing this please share there experience here..

[Mark S.]

@Account Closed, do you even lift, bro?