How to Invest in Farmland REITs

Investing in farmland REITs (real estate investment trusts) offers a unique opportunity to capitalize on the growing global demand for agricultural products while enjoying the benefits of real estate investment. Farmland has historically been a resilient asset class, providing stable returns, portfolio diversification, and an effective hedge against inflation.

Unlike traditional farmland ownership, which requires significant capital, operational expertise, and active management, farmland REITs allow investors to gain exposure to this lucrative market in a more accessible and passive way. By investing in farmland REITs, you can benefit from regular dividend income, the potential for long-term appreciation, and the security of owning a stake in productive, income-generating farmland.

What is a Farmland REIT?

Farmland REITs work a lot like residential REITs. They are corporations that buy, sell, and operate farmland investments. While the diversity in a residential portfolio comes from having properties in different geographic areas or classes of buildings, farmland REITs tend to have land holdings in different areas with a diversity of crops. 

Instead of drawing income from apartment rents, farmland REIT investors earn money from selling crops or renting land to farming operations. As you might expect, farmland REITs concentrate on cash crops and staples that have multiple uses and consistent consumer demand. Examples of the kinds of farms or crop interests you might find in a farmland REIT include:

• Dairy products like milk, cheese, and eggs
• Cattle
• Soybeans
• Corn
• Grains
• Seasonal fruits
• Vegetables
• Diversified farmlands
• Working farms with several revenue streams

Benefits of Farmland REIT Investing

Here are some of the benefits of investing in farmland REITs:

• Steady Passive Income: Farmland REITs generate consistent rental income from leasing land to farmers, often paid out as dividends.
• Portfolio Diversification: Farmland investments have a low correlation with traditional assets like stocks and bonds, helping to reduce overall portfolio risk.
• Inflation Hedge: Farmland values and agricultural product prices tend to rise with inflation, preserving and growing purchasing power.
• Accessibility: Unlike direct farmland ownership, REITs allow investors to gain exposure to farmland with lower capital requirements and no operational responsibilities.
• Long-Term Appreciation: The increasing demand for food and limited supply of arable land drive steady appreciation in farmland values.

Risks Associated with Farmland REITs

All investments carry risk, and farmland REITs are no different. Listed below are the risks to consider before taking the leap.

• Commodity Price Volatility: Farmland income depends heavily on the crops grown and their market prices, which can fluctuate due to supply-demand dynamics, weather conditions, and geopolitical events.
• Weather and Climate Risks: Farmland is vulnerable to natural disasters like droughts, floods, and storms, as well as long-term climate change impacts.
• Tenant Risk: Farmland REITs typically lease land to farmers or agricultural businesses. If tenants experience financial difficulties or default on leases, it could affect the REIT’s income.
• Regulatory and Policy Changes: Government policies, such as subsidies, tariffs, or environmental regulations, can impact farming profitability and, by extension, the returns of farmland REITs.

How to Invest in Farmland REITs

The fact that so many publicly traded REITs exist is a real boon to investors. There are no investor accreditation requirements for most of them, which means almost anyone who wants to take advantage of farmland REIT offerings can purchase them directly through an online app or brokerage-operated web platforms. 

If you’re an investor who would feel comfortable with more hands-on assistance or advice from an experienced broker, you can also purchase farmland REITs with the help of a broker. 

Largest Farmland REITs

A couple of the largest farmland REITs are discussed below:

Farmland Partners Inc. (NYSE: FPI)

Farmland Partners is a Denver-based REIT that owns and operates farmland throughout North America. The farms it operates specialize in providing agricultural products that are needed across the globe including:

• Food
• Feed for farm animals and livestock
• Fiber
• Fuel

As of January 17, 2024, Farmland Partners has a market cap of $578.2 million and a dividend yield is 2.03%.

Gladstone Land Corp. (NASDAQ: LAND)

Gladstone Land is based in McLean, Virginia. It is primarily a land REIT that invests in farmland in various parts of the U.S. and leases it to farmers. Gladstone investors receive monthly distributions based on payments from the farmers who lease the REIT’s land. 

Gladstone’s current dividend yield is 5.17%, with a market cap of $389.7 million as of January 17, 2024. 

Farmland REIT ETFs

Exchange-traded funds (ETFs) are funds that have diversified holdings across some or all of the REITs in a given sector. Doing this allows investors to get a fully diversified slice of multiple REITs while making only one investment. Because only two farmland REITs exist, there isn’t a sufficient number of them to have a proper farmland ETF. 

Although no farmland ETFs exist, investors have a variety of options in agricultural ETFs. Agricultural ETFs invest in a number of different agricultural sectors such as corn, soybeans, and sugar at the same time.  

REIT Alternatives

Investing in Farmland REITs

There is a good reason America’s farm belt is also known as its heartland or bread basket. It produces a variety of products that are essential to the nation’s economy. That, paired with the fact that farmland’s historical performance is not tied directly to the success of traditional investments like stocks and bonds, makes farmland REITs an attractive option for investors looking to diversify their portfolios. 

This is especially true during periods of high inflation, which the nation and world are experiencing. Farmland REITs allow investors to participate in this lucrative sector without having to be directly involved with in-depth knowledge of farming or agriculture. If you’ve been searching for a way to protect your portfolio from losses caused by inflation, this sector is worthy of your consideration. 

Frequently Asked Questions