Despite optics, the quiet allure of farmland investment performed better than stocks, bonds and gold.
By Andrew Joseph, Farms.com, Photo by Federico Respini on Unsplash
We’ve been telling you for a while now—farmland real estate investment is not just a thing, it’s a real thing with steady promise.
Unlike the volatile urban home real estate market or even the commercial real estate market, where both bubbles can burst, and meme and blockchain investments that you can’t see?—farmland real estate has one solid plus in its favour—people gotta eat.
Farmland investment is akin to commercial real estate, in that it can provide a steady income, is relatively low maintenance, and with long-term leases there’s less risk of vacancies. However… that was before COVID-19.
As anyone can observe walking through a commercial real estate development, pandemic rules have caused many a business to shutter as tenants have no paying clients.
Restaurants, hair salons, gyms, heck even offices—more and more people are working from home.
And, even if companies allow some of its employees to continue working from home, less office space is required and may downsize their rental options.
It’s been a sad reality for the past two years in Canada.
Residential real estate—and here, it’s mostly about city properties—if you have the money and the love of risk to play along, have at it.
But… through it all, farmland is what it is.
Decades ago, some long-play investors snapped up rural real estate in the hopes that one day, one year, it would realize its high investment potential when the nearby city expanded its urban footprint. And some have done quite well with such long-term thinking.
Then again, provinces have taken the smart step of protecting its farmland, and will not allow urban sprawl to impinge upon its agricultural brethren.
Regardless of how the farmland is being used in agriculture, it is creating food (fruits, veggies, grains, meat) or beverages (dairy, juices, alcohol, et al). And regardless of the hyper intensity of people inflating urban home prices across Canada, farmland is a necessity and will hold its value.
In fact, it has been performing better than commercial real estate. Numbers from the US indicate that since the onset of the 21st century, commercial real estate provided a 9.5 percent annual return on average—per the National Council of Real Estate Investment Fiduciaries.
Farmland provided 11-percent.
Still not convinced? Consider that since 2000, looking only at stocks, bonds, gold and real estate—farmland is the only asset to average double-digit returns.
No one is saying you are going to strike it rich with farmland—ask a farmer if they think they are rich, what with the drought, the flooding, COVID-related labour issues, razor thin margins, etc.
However, for the patient investor, farmland real estate is the smart investment and certainly worthy of adding to one’s diversity in the portfolio. Just rent the land—a farmer will know what to do with it.