Investing in Farmland & Farmland REITs in Canada
Another way to invest in farmland is through private equity firms specializing in agricultural partnerships. In equity partnerships with Canadian farmers on farmland without having to farmland can invest with these funds. In addition, a real estate professional or one of the real estate company experts on your team can keep you up to date on Canadian agriculture, agricultural investment and finance.
The most obvious way to invest in farmland is to buy usable farmland or pasture land and rent it out to farmers or ranchers. Another low-cost method of agricultural investment that is attractive to retail investors is investing in agricultural REITs. Investors hoping to replicate returns from owning farmland can buy farmland through a REIT.
Farmland is a growing asset class for investors, and new opportunities to invest in the agricultural sector have emerged in recent years. Many investors donate farmland because it can be complicated, but it is worth considering farmland as a great long-term investment if you are familiar with Canada’s agricultural industry. However, it can be difficult to invest in arable land as a new investor.
The main reason more investors are using farmland as an investment opportunity is that it has long generated solid returns. By investing in an agricultural REIT, investors can benefit from the high returns it offers. Instead of buying farmland from a farmer, they can rent it out to a REIT to generate their own income.
By investing in farmland, you will help farmers expand their holdings so that they are flexible and easy for farmers. In addition, farmland REITs reduce the need for capital to invest in farmland because there is no minimum investment price for a REIT share. As a result, the level of liquidity found in an agricultural REIT is more than investors see in traditional agricultural investments.
More investors are investing in farmland because it has a high barrier to entry. Investments in arable land are limited to a handful of institutional investors and wealthy individuals due to high entry barriers, including an opaque market and a high minimum investment. One of the most common risks of investing in farmland is overpaying for the land.
The rise of crowdfunding platforms for farmland and other low-cost methods of agricultural investment has opened the door for everyday investors. For example, crowdfunding platform platforms permit accredited investors to own a portion of farmland for a minimum of $15,000. In addition, real estate investment trusts (REITs) such as Farmland Partners and Ag Commodity ETFs expose investors to some of the benefits of farmland but are tied to the stock market and its unpredictable swings.
There are very few agricultural real estate mutual funds ( F-REITs ) in the world that offer the liquidity and marketability of a bond REIT in the stock market. Still, when they are available, the average investor needs to know whether they are a good mix for his investment portfolio. For current arable land investors, including farmers, this could mean that they should own REITs, stocks or bonds to supplement their arable landholdings, such as gold if they want a high-risk portfolio – but most farmers do not. So instead, farmland REITs lend to farmers to expand their operations and buy more land.
For many investors, farmland was an asset class that was only under the radar earlier this year when reports revealed that the biggest owner of US farmland is none other than Bill and Melinda Gates. But this small part of agricultural land is growing as more and more investors buy productive farmland as part of their investment portfolio. This article explains the key features of a class of new agricultural real estate investments: Farmland Real Estate Investment Trusts (REITs) are investments holding different types of real estate and allow shareholders to share the revenues of these assets in the form of profits and losses.
When the Canadian Pension Plan Investment Board (CPPIB) acquired a land portfolio from Agricultural Company of America (AGCOA) in 2013, it was one of the largest institutional investors in row farmland in the United States. First, given expected global population growth, food demand, and current constraints on land, investments in agricultural land will continue to yield lucrative returns. Second, if a publicly traded farmland REIT can increase the value of its portfolio to at least $1 billion in assets, say, it is likely to attract more attention from institutional investors and encourage the creation of counterfeit farmland REITS, note Green Street analysts.
Scenario 2 allows investors to choose between debt and REITs on the stock exchange, not between arable land and gold, representing many non-agricultural investors. Given this distribution, non-agricultural investors own a relatively small share of the country’s agricultural land. For example, Stephen Johnston, founder of Calgary-based AgCapita Partners, L.P., has a Farm Land Fund that owns land and charges farmers in spring to protect investors from operational risks such as droughts, floods and crop failures.
The investor in the medium-risk category can improve the financial performance of his portfolio by including arable land, real estate investment funds (F-REITs) and investments in gold.
The REIT pays investors a monthly dividend, and the current dividend yield of 2.56% is comparable to other arable land investment options. Investors seeking a low-risk portfolio will not benefit from an agricultural real estate trust (F-REIT) or a gold investment. I have a condo in Vancouver and although the property prices have not been stable, investing in farmland allows me to diversify my real estate portfolio.