You’ve probably heard about farmland investing and how it’s a great way to diversify your portfolio or hedge against inflation – but do you know what a farmland REIT is? That’s what I’ll be unpacking a bit more for you today. Before we get into that, though, hands up if you’ve considered farmland investing because of all the good things you’ve heard about it…
But who the heck knows how to own and run a farm??? Enter management companies – now that you can buy into! Generally speaking, people tend to outsource or just pay extra for the convenience that comes with somebody else doing certain tasks that they’re not fond of on their behalf.
I like to believe that’s how the concepts of farmland REITs were birthed, as a way of getting people with a common interest together and leveraging on their varied skills and resources. But what exactly is a farmland REIT?
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What is a farmland REIT?
A farmland REIT (real estate investment trust) is a company that is created solely for the purpose of holding real estate, which, in this case, would be farmland. A company that buys and manages farmland, meaning that you don’t have to get involved with the day-to-day operations when you own it.
Let’s face it, one of the main things that scare people out of investing in this golden opportunity is the actual overseeing of farmland because it’s complicated! A farmland REIT is considered one of the easiest ways to get a foot in the door when it comes to farmland investing.
How to buy a farmland REIT
If you’re an avid investor, you probably have some sort of understanding of regular stocks and how they work. REITs are stocks so to buy into a farmland REIT, you just have to purchase shares using your favorite stock trading platform.
If you don’t have a favorite I have gone through and found what I think is the best trading platform. Then you’re off to the races to get your share of the farmland REIT action, and possibly even dethrone Bill Gates as the owner of the most farmland in the US.
What makes a farmland REIT special?
Okay, so by now you’re probably asking yourself, what makes a farmland REIT so special, and what’s with all the hype? Well, for starters, REITs aren’t subjected to corporate taxes. In addition to not having to pay corporate taxes, a farmland REIT has to pay out a lot of dividends – that’s a BIG WIN for investors who get cash in their pockets.
One requirement of being granted REIT status by the IRS is that the company must pay 90% of its profits as dividends back to investors. BUT, at the same time, it makes it difficult for those companies to invest in themselves. So investing in these is usually more of an income play than a growth mindset one.
Don’t let that deter you from investing in a farmland REIT, dividends make the whole equation of how to live off of an investment very simple. What do I mean by this? If a company you buy has a 3% dividend and you have $100,000 invested with them, you can (somewhat) count on getting $3000 per year from them forever.
The biggest draw for a farmland REIT though is that farmland is notoriously recession-proof and inflation-proof. Food prices determine inflation and it happens to be kind of a staple – recession or not. Awesome.
How are farmland REITs taxed?
REIT dividends are usually counted as income instead of capital gains since the government has to charge taxes somewhere.
This means that if you have invested in a farmland REIT, you will receive the pre-tax dividends that you will have to pay ordinary income tax on. This is unlike dividends from other stocks which are often treated as capital gains.
So what about the tax implications if I sell my shares in a farmland REIT? If your shares were held for less than a year then they get short-term capital gain treatment. If held for a year or longer, long-term capital gains rates apply.
Farmland REITs vs farmland crowdfunding
You probably have a pretty good idea what a farmland REIT is by now and what it entails, but the other big contender is crowdfunding.
Farmland crowdfunding is a relatively newer way of investing in farmland. It’s no secret that before all these options came to the fore, getting a foot in the door in farming was quite demanding, financially that is.
Farmland crowdfunding is essentially a collective that purchases actual farms – as opposed to a farmland REIT which is purchasing shares in a company that owns farms. The biggest thing for me is that REITs fly around with the stock market since they are stocks. This defeats the purpose of owning a farm for the purpose of balancing inflation and recessions.
A farmland REIT offers a lot more liquidity than farmland crowdfunding, but crowdfunding gives you the satisfaction and benefits of directly owning a farm.
What about agriculture REITs?
Investing in agriculture is something that some investors are turning to, mostly because it has a relatively higher chance of consistent returns and there is a growing demand. The concept of an agriculture REIT is somewhat similar to a farmland REIT.
With an agriculture REIT, you’d be purchasing shares in a company that deals with agricultural operations. This may be in the form of land or anything related to the agribusiness industry. Essentially, an agriculture REIT is slightly more all-encompassing than a farmland REIT.
If you’re still questioning why one might invest in an agriculture REIT, the fact is, they are super related and will have the same pros (wealth protection) and cons (some investments are more lucrative if they don’t crash).
Top 2 farmland REITs
The two main farmland REITs that investors can consider are Gladstone Land Corporation (LAND), and Farmland Partners Inc. (FPI).
1. Farmland Partners Inc
- Ticker Symbol: FPI on the NYSE
- Holdings: $1.1B in real estate book value alone.
- Types of Holdings: 160,000 farmed acres owned across 18 states and 25 types of crops.
- Price Growth Rate: 7.42% since 2018, 0% since 2014
- Listed since 2014
- Annual dividend yield: 1.86%
- Debt: $427M (37% of book value)
There is some talk about FPI having some difficulties a while back but overall you can see that over the past 5 years at least it has matched the S&P 500 returns.
2. LAND
- Ticker Symbol: LAND on the Nasdaq
- Holdings: 1.35B$ in book value.
- Types of holdings 115,000 farmed acres and 45,000 Acres of water bank in California.
- Price Growth Rate: 6.2% since 2018, 2.01% calculated from 2013
- Dividend yield: 3.05%
- Founded in 1997 listed in 2013
- Debt: $762M (56% of book value)
LAND skyrocketed during covid as the highly leveraged growth play in farming but due to leverage its returns haven’t been so great and it’s fallen off a cliff again.
Crowdfunding Comparison: AcreTrader
- Typical holding period: 3 to 8 years
- Founded in 2018
- Returns: 3% – 5% dividend yield, 8-12% Total Annual Returns
- Debt: 0%. All the farms are owned free and clear by AcreTrader and then run by farmers.
- Ticker Symbol: You have to buy it on their platform
- Holdings: You actually choose and own specific farmland when you buy
- Types of holdings: Farmland and Timberland
- Price Growth Rate: Since you own a farm individually each farm is its own entity, but they track at about 15% per year if you look at the farm deals that have closed over the years.
Read my full review:
AcreTrader Review – Everything You Need To Know About The Best Farmland Investing Platform
AcreTrader’s goal is to make it easy to invest directly in farmland (as opposed to a REIT) so they can extend the opportunity to a lot more people. I like them A LOT as you own each farm individually and debt free so you don’t get into any issues with interest rates, inflation or corporate governance holding you down.
Frankly, I think anyone who doesn’t sign up at least to see the possible investments is nuts.
Honorable mention: Iroquois Valley
Iroquois valley is the tiny underdog, feel-good, socially responsible investing one of the bunch.
They own organic farms and help farmers convert over to organic farming practices. They however don’t have liquidity like LAND and FPI (as it’s a private investment platform) or the returns of AcreTrader so I really can’t feel justified recommending them.
But there are only 10 full-time employees and they make under $2M, so that’s kind of fun!
My top recommendation
That being said, I recommend AcreTrader because of super recession-proofing and inflation-proofing benefits of direct farm ownership.
- No debt, so interest rates are relevant. The whole point of farmland is an inflation/recession hedge so why tie yourself back into that system with debt? That’s stupid.
- Not publicly traded so market fluctuations don’t exist. I am very open about the idea that owning downturn-resistant stocks (REITs vs crowdfunding) doesn’t work that well.
- Great historical results (15% for your inflation protection, wow!)
They have extensive vetting processes to make me feel safe about what they offer and a comprehensive platform to make the actual nuts and bolts really easy.
I definitely prefer to put my money in the hands of people who know how to make it work for me so I don’t recommend actually owning a farm without help, even if you know more than the average person. It’s complicated!
TL;DR – Farmland REIT
- A farmland REIT is a good way to get into farmland investing and hedge against inflation.
- The peace of mind that comes with farmland and not having to be involved in the management of the farms is great for many people.
- But the best REIT of all is the non-REIT, AcreTrader, it’s the best way to gain the benefits of farmland.
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FAQs
What are the Best REITs to invest in 2023? ›
| REIT (Ticker) | Specialty | Forward Dividend Yield |
|---|---|---|
| Invesco Mortgage Capital (IVR) | Residential and commercial mortgage-backed securities | 18.8% |
| Orchid Island Capital (ORC) | Residential mortgage-backed securities | 16.6% |
| Annaly Capital Management (NLY) | Mortgage assets | 16.2% |
| Ready Capital (RC) | Mortgage assets | 12.1% |
Gladstone Land Corporation (LAND) is the largest and fastest-growing farmland REIT. Farmland Partners Inc. (FPI) is the second-largest farmland REIT. Farmland offers a secure and uncorrelated asset to protect wealth during market downturns.
What is the best farmland stock? ›Billionaire Bill Gates is the #1 private farmland owner in the United States. Some of the best agriculture stocks to invest in include The Mosaic Company (NYSE:MOS), Bunge Limited (NYSE:BG), and Deere & Company (NYSE:DE) according to hedge funds.
Is farmland the best investment? ›Farmland investment is a long-term asset
Historical returns from farmland have outpaced many other more popular investments like the S&P 500, Nasdaq, Gold, and multi-unit real estate. Gains in productivity play a role in driving the value of farmland, as well as higher rents.
For example, earning 11% annual total returns on a $300/month contribution would allow an investor to surpass $1 million after just 33 years. Setting aside $100 a month for each of these three real estate investment trusts (REITs) could make you a millionaire in the span of just over three decades.
What are the most successful REITs? ›| Symbol | Company | REIT performance (1-year total return) |
|---|---|---|
| GLPI | Gaming and Leisure Properties, Inc. | 28.8% |
| VICI | VICI Properties, Inc. | 28.8% |
| IRM | Iron Mountain | 26.7% |
| ADC | Agree Realty Corp. | 21.5% |
Warren Buffett, Bill Gates, and Michael Burry all invest in Farmland. Yet, most individual investors don't.
What is the best way to invest in farmland? ›- Owning land directly. Opportunity: If you want to invest in farmland, it's still possible to own land directly. ...
- Farmland REITs. ...
- Agricultural stocks. ...
- Farmland mutual funds and ETFs. ...
- Crowdfunding platforms.
Oklahoma. Oklahoma currently sits at the lowest cost per acre among the best states for farmland in the U.S., so this is another state with farmland you can invest in at a low price point.
Is it smart to invest in farmland? ›Farmland offers both short-term and long-term opportunities for creating wealth. The land parcel itself is a hard asset typically maintains its value in your investment portfolio. Its low-risk nature can help diversity your holdings and balance out some of your riskier stock market investments.
What farming company is most profitable? ›
One of the fastest-growing and most lucrative business opportunities in farming is in organics. No longer are Organics only sold in health food stores. These days all supermarkets have a dedicated organic produce section. Often you can charge more for organic produce than traditionally grown crops.
What are the largest farmland reits? ›1. Gladstone Land. With around 25 years in the market, Gladstone Land is the oldest REIT. It was established in 1997, and as of 2021, its total portfolio had grown to over $876 million in assets.
Are rich people buying farmland? ›Some of the wealthiest landowners — including Jeff Bezos, John Malone, and Thomas Peterffy — are buying up forests, ranches and farmlands across the United States. Why? Well, investments in farmland are growing as people look for new ways to grow their money.
Is farmland better than stocks? ›Investment Performance of Stocks and Farmland
While stocks take up a majority of nearly every investor portfolio, this doesn't necessarily mean that they are the best investment option. In fact, farmland has historically outperformed the S&P in many areas, from stability to diversification.
Can You Lose Money on a REIT? As with any investment, there is always a risk of loss. Publicly traded REITs have the particular risk of losing value as interest rates rise, which typically sends investment capital into bonds.
Which REITs pay the highest dividends? ›- Chimera Investment Corporation (NYSE: CIM) - Dividend Yield 16.45% ...
- Annaly Capital Management, Inc. ( ...
- New York Mortgage Trust, Inc. ( ...
- Ellington Financial Inc. ( ...
- Necessity Retail REIT Inc (NASDAQ: RTL) - Dividend Yield 13.11% ...
- How much of these REITs would an investor have to own to yield $100 per month in dividends?
The Cheapest Option: REITs—$1,000 to $25,000 or more
A REIT offers the investor a relatively high dividend as well as a highly liquid method of investing in real estate. Most real estate investments are not easy or quick to get out of. An exchange-traded REIT is. Moreover, you can start small with a little bit of cash.
REITs are well-positioned for economic uncertainty in 2023 because of their strong balance sheets. Leverage is near historical lows and REITs have well-termed, well-structured debt. Lower leverage has led to lower expenses as a share of net operating income (NOI).
What is the safest REIT to invest in? ›Most REITs pay above-average dividends backed by steady rental income. However, some REIT dividends are safer than others. Three of the safest in the sector are those paid by Prologis (PLD -1.41%), Camden Properties Trust (CPT -1.19%), and Realty Income (O -0.90%).
What is better than REITs? ›Direct real estate offers more tax breaks than REIT investments, and gives investors more control over decision making. Many REITs are publicly traded on exchanges, so they're easier to buy and sell than traditional real estate.
What REIT does Warren Buffett own? ›
Warren Buffett invests in a wide range of industries through the conglomerate Berkshire Hathaway (NYSE: BRK. A) (NYSE: BRK. B), real estate included. Yet only one real estate investment trust (REIT) holds a position within its portfolio: Net lease REIT STORE Capital (NYSE: STOR).
How much farmland does Jeff Bezos own? ›Bezos owns 420,000 acres. Much of his land is in West Texas. Philip Anschutz owns 434,500 acres of land in Wyoming and Colorado.
What is the projected value of farmland? ›The United States farm real estate value, a measurement of the value of all land and buildings on farms, averaged $3,800 per acre for 2022, up $420 per acre (12.4 percent) from 2021.
Which ETF will grow the most? ›- iShares Russell Top 200 Growth ETF (IWY) ...
- Schwab U.S. Large-Cap Growth ETF (SCHG) ...
- Vanguard Russell 1000 Growth ETF (VONG) ...
- Vanguard Mega Cap Growth ETF (MGK) ...
- iShares Russell 1000 Growth ETF (IWF) ...
- SPDR Portfolio S&P 500 Growth ETF (SPYG)
...
related ETFs.
| ETF | Ticker | Net Assets |
|---|---|---|
| Vanguard 500 Index Fund | (NYSEMKT:VOO) | $744.8 billion |
| Invesco QQQ Trust | (NASDAQ:QQQ) | $145.9 billion |
| Vanguard Growth Fund | (NYSEMKT:VUG) | $132.3 billion |
| Avantis Small-Cap U.S. Value ETF | (NYSEMKT:AVUV) | $4.72 billion |
Farmland is a wise candidate for diversification because it often moves in the opposite direction of other asset classes, proving itself as a recession-proof asset class.
Which is the best place to invest in land? ›- Panvel – Navi Mumbai. ...
- Mahadevpura – Bangalore. ...
- Hebbal – Bangalore. ...
- Lucknow. ...
- Hyderabad. ...
- Ahmedabad. ...
- Mira Road East – Mumbai. ...
- Andheri West – Mumbai.
Farmland has a positive correlation with inflation and is considered a classic inflation hedge. In fact many investors view it as more favorable than other hard assets such as gold because farmland produces positive cash flow while shielding from the deleterious effects of inflation.
What is the forecast for REITs in 2023? ›We forecast total returns for REITs in 2023 to be between +8% to +12%. Longer term, we maintain our outlook of +6% to +8% total returns based on a long-term dividend yield of 4% and long-term dividend growth of +2% to +4%.
Will REITs recover in 2023? ›
After facing performance headwinds in the past year, real estate investment trusts (REITs) could see some stabilization in 2023 if the pace of interest-rate increases slows. REITs that rent out residential apartments and homes, in particular, could fare strongest given current dynamics in the housing market.
What stocks will boom in 2023? ›- HAL+0.14 (+0.39%)
- CEGUNCH.
- ENPH+0.39 (+0.19%)
- MCKUNCH.
- NOCUNCH.
- NFLX+0.48 (+0.14%)
- SWK+0.50 (+0.59%)
- VFC-0.11 (-0.44%)
Warren Buffett invests in a wide range of industries through the conglomerate Berkshire Hathaway (NYSE: BRK. A) (NYSE: BRK. B), real estate included. Yet only one real estate investment trust (REIT) holds a position within its portfolio: Net lease REIT STORE Capital (NYSE: STOR).
What will happen to property prices in 2023? ›Zoopla says all the leading supply and demand indicators it measures 'continue to point to a rapid slowdown from very strong market conditions. We do not see any evidence of forced sales or the need for a large, double digit reset in UK house prices in 2023. We still expect house price falls of up to 5% in 2023.
Will 2023 be a better year for the stock market? ›After ending the year down nearly 20%, the S&P 500 index is in the green for 2023. And the Nasdaq Composite — which plunged 33% in 2022 — is up more than 4.5% this year. So when will stocks fully recover from the bear market? Many experts appear optimistic it will happen in 2023.
Will 2023 be a good year to buy a house? ›Redfin deputy chief economist Taylor Marr expects about 16% fewer existing home sales in 2023 vs 2022. Marr believes potential buyers are still grappling with affordability, high mortgage rates, high home prices, inflation, and a potential recession. “People will only move if they need to,” Marr says.
How long should I hold a REIT? ›REITs should generally be considered long-term investments
In many cases, this can take around 10 years to occur.
Well, it has to do with a lack of demand, and as we saw, a lack of demand causes prices to drop and yields to rise. Demand for REITs is dropping because interest rates are rising, and as interest rates rise, so do the yields of pretty much every fixed-income product.