If you ask the average real estate investor what comes to mind when they think about real estate investment trusts (REITs), the most likely answer will probably be residential real estate. Other, more experienced REIT investors may mention other sectors such as commercial, industrial or even healthcare. But there is another REIT sector that doesn’t get as much attention in spite of the fact that it plays a vital role in everyone’s life.
That sector is farmland. Almost everyone depends on farmland to provide the food on their tables. Much like residential or commercial real estate, farming is a capital-intensive pursuit that has the potential to generate ongoing passive returns for investors. Keep reading to find out whether a farmland REIT would be a good addition to your portfolio.
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 different 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
The most obvious potential benefit of farmland REIT investing is the fact that farms are a necessity for everyone. By investing in farmland, you are getting a share of a business that has proven itself to be profitable since the dawn of human civilization. There is a reason that the original basis of wealth is owning land.
Long before there were multifamily apartment buildings or commercial properties, kings and noblemen’s wealth was contingent on how much land they had. Holding land allowed the society or its nobles to produce food that fed their people. The most developed societies historically were also the ones with a strong agrarian base.
The fact that farmland is such a vital necessity makes it a great hedge against inflation in today’s investment world. Even if the price of consumer products goes up, farms produce so many of those products that farmland investors have some shield against lost profits.
When the economy goes south, people can pull back from discretionary spending. Even apartment renters can choose cheaper apartments at the end of their lease terms. But they have to buy food and farm products no matter what. That’s also why farmland investments have the potential to generate such solid and reliable returns for investors who want passive income.
Property appreciation is another strong point for farmland investments because the law of supply and demand plays strongly in the favor of farmland investors. The world has a limited supply of farmland. An even smaller supply of land is capable of producing crops. As the world’s population increases, so does the necessity for farm products ensuring farmland has strong appreciation potential.
Risks With Farmland REITs
All investments carry risk, and farmland REITs are no different. First among those risks is that the agricultural products farmland produces depend on cooperation from mother nature. A number of natural risk factors that investors have no control over can pose threats to farmland. Those risks include:
- Drought
- Invasive species such as beetles and locusts
- Flooding
- Freezes — few if any crops prosper in extreme cold conditions
- Diseases
- Mismanagement
In addition to these risks, the lifecycle of a farmland investment can be long. Some crops take years to grow and mature before they can be brought to market and generate profit for investors. Unlike an apartment building or a commercial property where investors can build a set number of units and have some idea of revenue, predicting the size of a crop yield is not such an exact science.
The environmental risk factors listed at the opening of this section all play a huge role in crop yield. There can be situations where the crop yield is lower than expected, which will lead to reduced profits. At the same time, an overabundance of crops can also threaten farming profits. It can be a little bit of a fine line for farmland investors when it comes to this aspect of their investment.
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
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
Farmland Partners’ $605.831 million market cap makes it the largest farmland REIT in the country and its current dividend yield is 2.09 % as of 8/2/2023.
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 3.31%, with a market cap of $599.844 million as of 8/2/2023.
Farmland REIT ETFs
Exchange-traded funds (ETFs) are funds that have diversified holdings across some or all of the REITs in a given sector. Doing this allows investors to get a fully diversified slice of multiple REITs while making only one investment. Because only two farmland REITs exist, there isn’t a sufficient number of them to have a proper farmland ETF.
Although no farmland ETFs exist, investors have a variety of options in agricultural ETFs. Agricultural ETFs invest in a number of different agricultural sectors such as corn, soybeans and sugar at the same time.
Industry Overview
| Number of REITs | 2 |
| Average Dividend Yield | 2.7% |
| Total Market Cap ($) | $1.205B |
REIT Alternatives
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Must be accredited investing a minimum of $25,000.
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
Are farmland REITs a good investment?
Staple foods like grains, fruits, vegetables and dairy are all brought to markets courtesy of farming. Farmland REITs invest across a spectrum of these products all at one time. Because of this, they have the potential to be solid performers for investors. This comes with the caveat that all investments have risks. Agricultural products are subject to environmental risks and price pressures, which fluctuate from year to year.
How do farmland REITs perform in downturns?
Historically, farmland and agricultural products have shown an ability to perform independently of what is happening in traditional investment markets. This is because farms produce products that are essential to everyone’s lives. The necessity of agricultural products also makes farmland REITs a solid hedge against inflation. These two factors combine to give farmland REITs the potential to perform for investors even in market downturns.
Is there an ETF that invests in farmland?
Yes, there are ETFs that invest in farmland. One example is the iShares MSCI Global Agriculture Producers ETF (VEGI), which includes companies involved in various aspects of agriculture, including farming and agricultural equipment. While this ETF does not directly invest in farmland itself, it provides exposure to the agriculture sector, which includes companies that own and operate farmland.
