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Farmland makes up a huge swath of the country’s real estate and economy. As such, farmland real estate investment trusts (REITs) can be a profitable way to invest your money, depending on the focus, allocation, and holdings of the REITs you pick.
Farmland is a consistent, relatively safe investment with good returns. While farmland REITs tend to offer a lower rate of return than other thematic REIT investments, they’re historically more stable than something like retail-focused REITs. Whether you’re making your first real estate investment or simply want to diversify your portfolio, these REITs are an effective way to generate passive income.
Is a farmland REIT right for your investment portfolio? This overview will help you decide whether to take the plunge.
What are Farmland REITs?
REITS are a type of investment fund focused exclusively on real estate holdings. The REIT’s founding company raises capital from investors, then purchases property. In a farmland REIT, the investment company rents out farmland to farmers, who are then responsible for managing the land and growing profitable crops.
There are two types of farmland REITs: debt and equity. Debt REITs make loans to farmers to purchase more land or improve their operations. Equity REITs use the pooled funds to buy entire parcels of land, then rent them out to farmers. Equity REITs tend to be more volatile. Debt REITs, on the other hand, have a specific interest rate and payment schedule. This allows investors the security of knowing roughly how much they’ll make on the investment, and when they can expect to see dividends.
While traditional farmland investments can lock investors in for years, farmland REITs are far more liquid. They’re bought and sold on the same exchanges as the stock market—you buy and sell them in the same manner as stocks. However, this liquidity means that their value is tied to the stock market, which can work against investors.
Invest in Farmland
West Coast U.S. Farmland
Access to a secondary market
South American Farmland
Open to non-accredited investors
The best agriculture REITs to invest in
If you’re trying to decide which agriculture or farmland REITs to invest in, the choice is almost made for you. In 2022, there are really only two pure agricultural REITs to choose from. And while some investors may feel slighted by the lack of options, it’s important to note that these two REITs both have strong track records of rewarding investors. Here’s a closer look at both.
1. Gladstone Land (LAND)
Gladstone Land is the older of the two farmland REITs currently open to public trading. The REIT has been around for over 25 years, and currently holds over $860 million in assets. Gladstone Land has over 125 farms within the United States, and focuses on about 45 different kinds of crops. They also buy agriculturally-related property and equipment, like processing, packaging, cooling and distribution centers.
Gladstone Land uses the traditional equity REIT: they raise capital from investors, then buy farmland to rent out. This generates the income used to pay investors. Investors are paid in dividends—they have made over 90 monthly distributions to investors since they went public in 2013.
Gladstone Land’s diverse portfolio and crop selection make it a safe equity investment, and you can expect to receive monthly dividend checks when the property is rented out. This would be a good choice for new investors or those looking to diversify their portfolio.
- Website: https://www.gladstonefarms.com/
- Annual revenue: $75.26M
- Market cap: $619.20M
- Dividend: 3.02%
2. Farmland Partners (FPI)
Farmland Partners is another large REIT, headquartered in Denver, Colorado. Their farms are located in 17 states and boast over 155,000 acres of land. They currently grow about 26 crops over 100 farms. Again, this helps protect investments when crops fail or climate disasters happen. It’s this level of diversity that emphasizes the stability of farmland REITs.
What sets Farmland Partners apart is its goal to lower input costs and improve farms. Instead of merely leasing and profiting, they’re committed to strengthening the quality of the operations reliant on their land. This ultimately creates more profit for shareholders, especially as we’re seeing a rise in demand for both human and animal food.
Farmland Partners offers good dividends, paid from over 100 farms in 17 states. Like Gladstone Land, this traditional REIT can help investors generate passive income with relatively low risk. The REIT has reached a low price in 2022, but don’t be dissuaded—a deeper dig into its disclosures shows that it’s a buying opportunity with solid financials.
- Website: https://www.farmlandpartners.com/
- Annual revenue: $51.76M
- Market cap: $672.09M
- Dividend: 1.89%
Are farmland REITs a good investment?
Farmland REITs are a good passive investment, especially because each company does the research, vetting, underwriting and management for you. While you can do your own research, it’s not necessary. Both Gladstone Land and Farmland Partners have a good track record of responsible management and healthy, regular dividend payouts.
The other reason farmland REITs are a good investment is because the demand for crops, livestock and land aren’t expected to diminish anytime soon. With our growing population, demand for farmland is high. This makes it a smart way to generate passive income—and if you choose a REIT with a positive environmental mission, you’ll know that you’re actively helping protect the planet.
Farmland investments are a solid portfolio choice
In the end, farmland investments can be a very effective—and easy—way to generate passive income for new and experienced investors alike. REITs are the ideal vehicle for such an investment because of their accessibility, liquidity, and proven track record of performance. Buying stake in LAND or FPI is as easy as opening a brokerage account! Moreover, anchoring your investment portfolio with two proven REITs provides a level of consistency and reliability that allows you to hedge other, higher-risk investments.
Whether you want to diversify your investment portfolio or you’re looking for a low-risk way to generate income, farmland REITs are an excellent choice. Demand is higher than ever—take advantage of this by considering either of the two excellent agriculture REITs outlined above.