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Best Farmland REITs to Buy in 2024 [And Alternatives]

CEO Khai Intela
Real estate investment trusts (REITs) have become a popular choice for investors looking to enter the lucrative real estate market without the need for large capital investments. One sector that has seen significant growth is...

Real estate investment trusts (REITs) have become a popular choice for investors looking to enter the lucrative real estate market without the need for large capital investments. One sector that has seen significant growth is farmland REITs. In this article, we will explore the most attractive farmland REITs to consider adding to your investment portfolio in 2024.

Understanding REITs

Real estate investment trusts (REITs) are investment vehicles that allow individuals to gain exposure to real estate assets without directly owning the properties. To qualify as a REIT, the entity must invest a minimum of 75% of its assets in real estate properties and distribute at least 90% of its net income to shareholders in the form of dividends. Farmland REITs specifically focus on acquiring and leasing agricultural properties.

USDA, National Agricultural Statistics Service Source: USDA, National Agricultural Statistics Service — Land Values 2022 Summary (August 2022)

Equity REITs

Equity REITs acquire properties and generate income through rental payments and property appreciation. In the case of farmland REITs, these trusts often acquire farms and lease them to operators who cultivate the land. Investors can benefit from rental income and potential appreciation of the farmland.

Debt REITs

Debt REITs specialize in providing financing for real estate developers and agricultural businesses. They can provide loans for farmland development projects or assist in the acquisition of farmland for commercial purposes. Debt REITs generate income through interest payments and fees.

Best Farmland REITs

Farmland REITs are traded like stocks on exchanges such as the New York Stock Exchange (NYSE) or the Nasdaq. Here are two of the best farmland REITs to consider for investment in 2024:

1. Gladstone Land (LAND)

Gladstone Land Corp is a farmland investment company that acquires properties and leases them to farmers through various arrangements, including straightforward lease agreements and long-term sale-leaseback agreements. As of October 2022, Gladstone owns 169 farms covering 115,000 acres across 15 states in the US, with a 100% occupancy rate. The fair value of their portfolio stands at around $1.5 billion.

Investors can gain exposure to Gladstone's farmland investments by purchasing shares of the REIT, listed on the Nasdaq Global Market Exchange under the ticker symbol LAND (NASDAQ: LAND). In the past 10 years, LAND has delivered total gains of 134.6%, with a dividend yield of 2.4%.

Google Finance LAND Source: Google Finance (NASDAQ: LAND)

What Makes Gladstone Land (LAND) Unique? Gladstone Land stands out for its tailored solutions to farmers' financing and operational needs. Their business model includes buying land from farmers, leasing land to experienced operators, and purchasing land from owners who are unable to utilize it effectively. This diversified approach provides stability and potential for income growth.

Who Is Gladstone Land (LAND) Best For? Gladstone Land suits investors looking for direct exposure to farmland investments. The monthly dividend payments are particularly appealing to those who depend on regular income. The trust focuses on regions known for producing fresh produce and permanent crops like almonds, blueberries, pistachios, and wine grapes.

2. Farmland Partners (FPI)

Farmland Partners engages in all aspects of farmland investing, from acquiring and leasing properties to running their own farms through a subsidiary called Murray Wise Associates. The REIT also provides financing for farmers looking to acquire the properties they cultivate. As of October 2022, Farmland Partners owns 185,000 acres of land across 18 states, with a 100% occupancy rate. The gross book value of their properties stands at approximately $1.1 billion.

Investors can gain exposure to Farmland Partners by purchasing shares of the REIT, listed on the New York Stock Exchange under the ticker symbol FPI (NYSE: FPI). In the past 10 years, FPI has delivered total gains of 50.8%, with a dividend yield of 1.7%.

Google Finance (FPI) Source: Google Finance (NYSE: FPI)

What Makes Farmland Partners (FPI) Unique? Farmland Partners stands out for its diversified revenue streams. In addition to leasing properties, the trust generates income from activities like auctioning and brokerage. This diversification helps mitigate risks and provides stability to the business.

Who Is Farmland Partners (FPI) Best For? Farmland Partners is an ideal choice for investors seeking exposure to the core business of farmland investing. The trust's portfolio primarily focuses on crops like corn, soybeans, wheat, rice, cotton, as well as specialty crops such as almonds, blueberries, and vegetables. If you are interested in these types of crops, consider investing in FPI.

Alternatives to Farmland REITs

Aside from farmland REITs, there are other platforms that offer investment opportunities in farmland for both accredited and non-accredited investors. These platforms facilitate investment in farmland through various structures. Here are two notable alternatives:

AcreTrader

AcreTrader is a farmland investing platform that pools money from investors to purchase farms. Investors receive shares of a legally incorporated entity that owns the farmland. Investors earn income from rental payments and potential appreciation of the property. AcreTrader carefully selects investment-grade properties, and annualized returns are expected to range between 3% to 5% for low-risk properties.

AcreTrader's investment opportunities are currently available for accredited investors, with a minimum investment ranging from $15,000 to $40,000.

AcreTrader screenshot Source: AcreTrader

FarmTogether

FarmTogether offers individuals and businesses the opportunity to invest in farmland by purchasing fractional ownership or investing in the firm's funds. The platform's crowdfunded farmland offerings require a minimum investment of $15,000, with a holding period typically ranging from five to 12 years. FarmTogether also offers the Sustainable Farmland Fund for diversification, targeting annualized returns of 8% to 10%.

Additionally, FarmTogether acts as a broker and facilitates the purchase of farmland by sole proprietors and facilitates 1031 Exchanges.

FarmTogether Past Offerings Source: FarmTogether

Steward

Steward is a crowdfunded farmland lending platform that provides financing for farmers through capital pooled from individual investors. Investors earn income through interest payments on the loans. Steward offers various project offerings, with minimum investments as low as $100. Interest rates may vary between 5% to over 10%.

Steward Marketplace Source: Steward

Taxation and Farmland REITs

When investing in farmland REITs, it's important to consider the taxation of the income generated. Dividends paid by REITs are typically taxed as ordinary income. Capital gains resulting from the appreciation of the REIT's shares or the value of the underlying farmland are taxed differently, depending on the holding period.

Pros and Cons of Farmland REITs

Before investing in farmland REITs, it's crucial to understand the pros and cons associated with these investments.

Pros of Farmland REITs

  • Access to the real estate market without large capital investments.
  • Low cost of trading REITs, with many brokerage firms offering zero commission.
  • Potential for fixed income through dividends and capital appreciation.
  • Historically, farmland prices have been rising.
  • Easy and fast trading of REIT shares.
  • Farmland REITs may serve as a hedge against inflation.
  • REITs are generally less volatile than individual stocks.

Cons of Farmland REITs

  • Some farmland REITs may have underperformed compared to stock market indexes.
  • Dividends received from REITs are taxed as ordinary income.
  • REITs can be affected by macroeconomic instability and rising interest rates.

How to Choose the Best Farmland REIT

When selecting a farmland REIT for investment, several key factors should be considered:

Quality of the Properties

Assess the revenue-generating capacity of the REIT's property portfolio. Look for properties with strong net operating income and demand for the crops being produced.

Occupancy Rates

Higher occupancy rates indicate more efficient utilization of properties. Look for REITs with occupancy rates above 95% or even 100%.

Business Model

Consider the diversity of the REIT's revenue streams. Those that offer additional services like auctioning and financing can provide stability and potentially higher income.

Dividend Yield

Review the dividend yield offered by the REIT. While a higher yield may be appealing, investigate the reason behind it. Ensure the yield is sustainable and not a result of declining property values.

Historical Performance

Examine the REIT's historical performance, focusing on total returns and dividends. Benchmark the performance against industry standards and consider how well the REIT has performed relative to its peers.

Management's Track Record

Evaluate the experience and track record of the REIT's management team. Ideally, they should have extensive experience in the real estate or agricultural sectors.

FAQs About Farmland REITs

Here are answers to some frequently asked questions about farmland REITs:

  1. Are farmland REITs a good investment?

    • Farmland REITs can be a good investment for those seeking exposure to the real estate market without large capital investments. However, careful analysis of each REIT's specific characteristics is crucial.
  2. Can I invest in farmland if I'm not an accredited investor?

    • Yes, platforms like AcreTrader and FarmTogether offer opportunities for both accredited and non-accredited investors to invest in farmland.
  3. How are farmland REIT dividends taxed?

    • Dividends paid by farmland REITs are typically taxed as ordinary income.

Final Thoughts

Farmland REITs provide an attractive opportunity to invest in the agricultural sector without direct ownership of properties. Companies like Gladstone Land and Farmland Partners offer exposure to farmland investments through their REITs. Additionally, platforms like AcreTrader, FarmTogether, and Steward provide alternative investment options in farmland.

When considering farmland REITs, analyze key parameters such as property quality, occupancy rates, business models, dividend yields, historical performance, and management's track record to make informed investment decisions.

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