Are you intrigued by the world of farmland real estate investment funds (REITs)? If so, you're in the right place. In this guide, we'll explore the nuances of farmland REITs and highlight two industry frontrunners that could be worthy of your consideration. But before we dive in, let's establish a trusted platform to start your investment journey – Interactive Brokers (IBKR).
What are REITs?
REITs, or real estate investment trusts, are investment vehicles that allow individuals to invest in large-scale real estate portfolios without directly owning or managing properties. These investment vehicles offer the potential for income generation, price appreciation, and diversification.
What are farm REITs?
Farm REITs are specialized REITs that acquire and manage agricultural land. They generate revenue by leasing the land to farmers. The portfolios of farmland REITs can include various assets, such as annual row crops, permanent crops, and commodity crops like soybeans, cattle, wheat, corn, cotton, rice, and sugar. Some REITs even provide loans to farmers secured by agricultural real estate.
By investing in farm REITs, you can gain exposure to the agricultural real estate market without the need to directly buy or manage farmland. This unique opportunity allows you to benefit from the steady appreciation and rental income potential of agricultural land while diversifying your investment portfolio beyond traditional real estate assets.
Best farmland REITs to invest in
Now that you have a basic understanding of farmland REITs, let's explore two leading options that deserve your attention:
1. Gladstone Land (LAND)
Gladstone Land is a publicly listed REIT that acquires and owns farmland and farm-related properties across key agricultural regions in the United States. With a portfolio estimated at around $1.6 billion, their footprint spans 15 states and encompasses approximately 116,000 acres across 169 farms as of 2024.
While Gladstone Land holds farms suitable for cultivating fresh produce like berries and vegetables, they also invest in land that yields permanent crops such as almonds, apples, cherries, figs, lemons, olives, pistachios, and wine grapes. The company prioritizes fresh produce farms due to their lower risk compared to commodity crops. These farms tend to have superior water accessibility, are less affected by crop price fluctuations, rely less on governmental subsidies, and command higher rental rates.
Gladstone Land is listed on the Nasdaq Exchange under the ticker LAND.
2. Farmland Partners (FPI)
Farmland Partners Inc. is a publicly traded REIT focused on acquiring, leasing, and managing farmland across North America. As of 2024, the company oversees 178,216 acres across 20 states and boasts a portfolio comprising approximately 26 crop types.
Approximately 70% of Farmland Partners' portfolio value consists of farms cultivating commodity crops like corn, soybeans, wheat, rice, and cotton – providing investors with an opportunity to capitalize on the rising global food demand. The remaining 30% features farms producing specialty crops like citrus and other fruits. Beyond owning farmland, Farmland Partners offers services such as auctioning, brokerage, third-party farm and asset management, solar and wind energy revenue, recreational leasing, crop sales, and crop insurance.
Farmland Partners shares trade on the New York Stock Exchange under the stock ticker FPI.
It's important to conduct further research and potentially consult with a financial advisor to determine which farmland REIT aligns best with your investment goals.
How to invest in farmland REITs: A step-by-step guide
Investing in farmland REITs is a smart way to tap into the agricultural real estate sector without directly purchasing land. Here's a concise guide on how to buy farmland REITs:
Step 1: Open a brokerage account
Start by opening an online brokerage account that allows you to trade securities, including REITs. Interactive Brokers (IBKR) is an excellent choice due to its extensive features and services. IBKR offers commission-free stock trading, access to global stock markets, fractional shares, low financing rates, and no account minimum requirement.
Step 2: Research farmland REITs
Before diving into specific farmland REITs, it's crucial to understand the broader agricultural landscape. Stay informed about current farming trends, crop pricing, demand patterns, and challenges such as climate change and water access. Familiarize yourself with major crop types and their market dynamics. Resources like USDA reports, agricultural publications, and industry news outlets can help you build this foundational knowledge.
Once you have a solid grasp of the agricultural sector, delve into the specifics of potential farmland REITs. Analyze key financial metrics, portfolio composition, growth strategies, and the geographic diversity of their holdings. Understanding these factors will enable you to make informed investment decisions.
Step 3: Place your order
Once you've chosen the farmland REIT you want to invest in, follow these steps:
- Access the trading or order section on your brokerage platform.
- Locate the REIT using its ticker symbol.
- Indicate the quantity of shares or the monetary value you wish to invest.
- Select the order type (e.g., market order, limit order).
- Review all details and confirm your transaction.
Step 4: Monitor your investment
Effectively monitoring your farmland REIT investment is essential for long-term success. Here are some strategies to consider:
- Check financial statements: Review quarterly and annual reports to assess the company's financial health and operational performance.
- Visit the REIT's website: Many REITs have dedicated sections for investor relations, offering presentations, press releases, and other relevant updates.
- Track performance metrics: Understand key performance indicators such as Funds from Operations (FFO), dividend yield, and occupancy rates.
- Stay updated with industry news: Keep an eye on the broader agricultural industry to identify trends, challenges, and opportunities that may impact your investment.
- Use brokerage account tools: Leverage your broker's resources, including performance graphs and analyst ratings.
- Engage with analyst reports: Read financial analysts' reports to gauge market sentiment and potential future performance.
- Monitor dividend distributions: Ensure you receive expected dividends and stay informed about changes in dividend amounts or frequency.
- Conduct periodic diversification checks: Review your entire investment portfolio to ensure diversification.
- Join online communities: Participate in investment forums and communities to gauge sentiment and learn from others' research, but always exercise caution when acting on information from these sources.
Remember, making well-informed decisions and seeking advice from a financial advisor are crucial for successful long-term investments.
Pros and cons of investing in farmland REITs
Before investing in farmland REITs, it's essential to consider the advantages and disadvantages:
Pros:
- Exposure to agricultural real estate without directly purchasing land.
- Potential for income generation and price appreciation.
- Diversification beyond traditional real estate assets.
- Opportunity to capitalize on the rising global food demand.
Cons:
- Exposure to market fluctuations and macroeconomic factors.
- Dependency on crop performance and farming conditions.
- Regulatory and environmental risks.
- Limited influence on property management decisions.
Please note that the content provided in this article should not be considered investment advice. Investing always carries risks, and your capital is at risk.
FAQs about investing in farmland REITs
Q: Are farmland REITs suitable for all investors? A: Farmland REITs can be suitable for a wide range of investors, but it's vital to assess your risk tolerance, investment goals, and time horizon before investing.
Q: Do farmland REITs pay dividends? A: Yes, many farmland REITs distribute dividends to their shareholders based on the rental income generated from the farmland they own.
Q: Can I invest in farmland REITs through a retirement account? A: Yes, depending on your specific retirement account, you may be able to invest in farmland REITs. Consult with your account custodian or financial advisor for guidance.
Q: How do farmland REITs generate revenue? A: Farmland REITs generate revenue through leasing agricultural land to farmers, as well as other services like auctioning, brokerage, and third-party farm and asset management.
Q: What are the tax implications of investing in farmland REITs? A: The tax implications of investing in farmland REITs may vary depending on your jurisdiction. Consult with a tax advisor for personalized advice.
Q: Can farmland REITs protect against inflation? A: Farmland, as an asset class, has historically demonstrated resilience against inflation. Farmland REITs can provide a hedge against inflation due to the potential for increasing rental income and land value appreciation.
By following this guide and conducting thorough research, you'll be better equipped to navigate the world of farmland REITs and make well-informed investment decisions. Remember, investing is speculative, and it's important to carefully consider your own circumstances and seek professional advice when necessary.
