If you have followed financial headlines, you will know that investing in farmland and agriculture is becoming the latest investment trend. As an intelligent investor, you will appreciate that the demand for food and arable land will only increase as our global population expands. Perhaps you have heard about farmland REITs as an option for investing in agriculture. As it has been historically difficult to get into an agricultural investment, this may seem like an appealing opportunity. Let’s delve into farmland REITs and compare them with our investment model at Invest4Land to determine which best fits your portfolio.
What are REITs?
Firstly, we need to get to the root of what a REIT is and how it operates. Established in 1960 in the U.S., the abbreviation ‘REIT’ stands for real estate investment trust. This signifies a company that owns, operates, or finances income-generating real estate. They usually work by one of two primary methods. The first is by buying up land and leasing it out, and these types of REITs are known as Equity REITs. The second is buying mortgages and earning on the interest; these REIT types are called Debt REITs.
Many REITs issue shares that trade on the stock exchange and are bought and sold like ordinary stocks. So, investors can easily purchase REITs via a reliable trading app and for a nominal sum. Thus, REITs offer access to real estate assets without the high transaction fees or management costs associated with direct purchases.
How about Farmland REITs?
Unsurprisingly farmland REITs are the offspring of classic REITs. Also referred to as F-REITs, farmland-focused REITs are a comparatively new development, with the first created by Gladstone Land (LAND), which began trading in 2013. LAND was succeeded by Farmland Partners (FPI) in 2014, and these remain the only two public F-REITs trading to date. Farmland REITs work the same way as traditional REITs but specifically focus on the agricultural sector.
Farmland REITs serve two purposes: first, to provide farmers capital and bring farmland as an asset class to investors. Second, LAND and FPI fall into the ‘Equity REIT’ category, meaning they own the land and rent it to farmers for income. In turn, investors receive periodic dividend payments.
Farmland-REIT Investment Pros and Cons
So, why are farmland REITs considered to be an attractive investment opportunity? Firstly, they have a high level of liquidity, meaning they can be bought and sold quickly. Secondly, they offer a passive investment type, where investors merely invest their money, and the REIT deals with all management and logistics. Thirdly, they have a diversified portfolio with multiple farms and crop types which provides some security against failures within specific areas or crops.
Of course, there are disadvantages to consider, too; we mentioned above that the high liquidity of farmland REITs gives rise to appeal, but it also comes with a risk. Liquidity can work against investors in a market sell-off as REITs strongly correlate with the stock market. Furthermore, this agricultural investment offers the lowest returns compared to total farmland or crop ownership. Plus, there is the insecurity of the farmer-tenant relationship to consider- if the farmer falls into difficulty, they may not pay rent. Finally, there is the matter of tax; dividends from REITs are taxed as ordinary income.
A Distinctive Approach
At Invest4Land, we propose an alternative model to the one available with farmland REITs, offering unlimited farmland ownership instead of shares in a trust. Invest4Land is an agricultural real estate consultancy company with a strong background in real estate, investment brokerage, and farming. The ownership package includes unlimited ownership and all belongings about the land, such as certified trees. Our management company provides water supply, irrigation systems, fences, solar panels, labor houses, equipment, machinery, and electricity connections.
Our investors benefit from having the land as an asset. There is also an exciting opportunity to earn a secondary income from production on the ground and crop yield. We provide complete, professional management of the farmland and its operations, from soil prep to harvesting, and even have dedicated factories for processing crops. By investing with us, you get the full benefits of the farmland potential both in appreciation and in annual income from the agricultural activities on the land.
Our Speciality Crops
We specialize in hardy crops, in particular walnuts, but also almonds, and olives which are agricultural commodities in very high demand. These agrarian products create oils, milk, skincare products, and more. In addition, these crops are diverse commodities that can serve various sectors. As such, the demand for these crops will inevitably be high, and returns will be profitable.
On review, we have explored the workings of farmland REITs and outlined our model at Invest4Land. So, how do the two tally up in the eyes of an investor?
Farmland REIT’s key points:
- Good choice if you want to invest smaller amounts
- High liquidity so you can sell easily
- Low growth
- Passive investment model
Invest4Land key points:
- Favourable option if you are looking to make a substantial investment
- High growth through land appreciation
- Own the land and crops outright
- Active investment model
To summarise, investors looking to make farmland investments may purchase shares in REITs as the stable cash flow from dividends, and high liquidity provides an easy and passive investment. Our offer at Invest4Land is robust for investors looking for a more involved and impactful way to invest in agricultural lands. The opportunity to follow the growth of the crops and earn a secondary income from their yield will appeal to investors who are passionate about investing in farmland.
Want to Learn More?
If you’ve been considering ways to enhance your portfolio, now is the time to look at Invest4Land’s investment offers to ensure your portfolio is truly diversified. Our dedicated team of consultants is on hand to advise on your queries and guide you through the onboarding process so get in touch to uncover this investment potential today.
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