Investors who don’t want to put all their eggs in one basket might consider diversifying their portfolio by investing in farmland.
You can own farmland by investing in a real estate investment trust (REIT) or through a crowdfunding platform. Both are vehicles for ordinary people and accredited investors to own a piece of Americana – and potentially reap the benefits of what they have sown.
Farmland assets have outperformed the stock market for decades, with an average annual return of 12.6%, compared to an average of 11.1% for the S&P 500.
Of the roughly 911 million acres of farmland in the United States, about 283 million acres, or 30%, is owned by non-farming landowners looking to take advantage of the investment opportunity without actually farming, according to the US Department of Agriculture.
Rising food prices could make farmland an attractive investment if you’re looking for diversity in your portfolio.
Over time, returns on farmland investment have been consistently positive since 1991 relative to the value of gold or the stock market, which can go up or down by as much as 50% in a single year.
Outsource the work to REITs
Real Estate Investment Trusts (REITs) are created to own and operate real estate. As the name suggests, a farmland REIT invests in farms. As with any other type of REIT, a farmland REIT takes care of the management and investors receive dividends.
Gladstone Land Corporation (EARTH -1.78%) owns 164 farms in 15 states, totaling approximately 113,000 acres. The REIT’s farms are 100% leased to 85 tenants and grow over 60 different types of crops.
Gladstone, which has a history of steadily increasing its dividend, is focused on buying high-value farmland that generates above-average income and profits. He looks for properties with a clean and adequate water supply; fertile, nutrient-rich soil; and good weather with long growing seasons in established markets.
Since its IPO in 2013, Gladstone has made 108 consecutive monthly cash distributions, multiplying the rate by 25 times for a total of 51%.
While Gladstone’s share price has fallen 0.53% over the past month, it has risen 81.96% over the past year.
Based in Denver Agricultural partners (REITs -2.67%), the largest farmland REIT, buys high-quality farmland across North America. It owns approximately 160,000 acres in 17 states that are operated by more than 100 tenants who grow 26 major cash crops. Farmland Partners also manages 26,000 acres.
Although the REIT has a troubled past, its high-quality farmland portfolio and strong balance sheet with 60% equity and 40% debt – a good mix for quality farmland – could make it ripe for the picking. .
Farmland Partners’ stock rose about 12% last month and about 27% last year. The REIT’s operating revenue rose to $13.89 million in the first quarter from $11.58 million in the same period a year ago.
Farmland Crowdfunding Platforms
AcreTrader gives accredited investors access to farmland. Most of the crowdfunding platform’s offerings require an investor to purchase 10 shares, which equals 1 acre of land, which typically costs between $3,000 and $10,000 per acre.
AcreTrader distributes excess annual income to its investors and generally expects a return of up to 5% for low-risk properties, in addition to the expected annual appreciation of the property.
Factoring in value appreciation, AcreTrader targets an internal rate of return of 7% to 9%, versus a historical IRR of 12% due to lower commodity prices and the platform’s cautious underwriting .
AcreTrader investors typically sell their property in five to ten years. When the property is sold, they get their principal and any capital gains realized during the holding period.
If you had invested $10,000 in 1991, it would be worth $215,800 today.
According to AcreTrader, “With a growing world population and shrinking US farmland acreage, the laws of supply and demand are clearly in favor of farmland investment.” If you are looking for a new form of property investment that does not involve excessive property maintenance or manual labor, investing in farmland can be an attractive and lucrative option.