Pulse: Land Deemed A Secure Inflation Hedge

The June LANDTHINK Pulse revealed that 45% of respondents believe land is an EXCELLENT security against inflation. In a time when the global economy grapples with inflationary fallout, many investors are seeking avenues to protect their wealth from the eroding effects of inflation and mitigate risks. The current U.S. inflation rate is 3.0% for the 12-month period leading up to June 2024. A 3.0% inflation rate may not seem like a lot, or as much as the price changes you’ve noticed at the grocery store. But to put inflation in context over the last few years, consumer price inflation rose 21.78% between January 2020 and June 2024.

Last month, the June Pulse asked: How would you rate land as a hedge against inflation? (1 = Very Poor, 5 = Excellent)

Anyone driving or shopping these days understands inflation intuitively. Inflation is a decline in the value of money. When the rate of inflation rises, prices for goods and services go up. It has become a topic of constant national conversation and is a top issue for voters in the upcoming presidential election.

Investors worry about inflation because it erodes the real value of investments, as well as the value of income generated from those investments. So in times of high inflation, there tends to be more interest in investments that compensate for inflation’s effects, called inflation hedges. An inflation hedge is an investment that is made for the purpose of protecting the investor against decreased purchasing power of money due to the rising prices of goods and services (known as Consumer Price Index or CPI). Other investments, especially bonds and similar fixed-income debt instruments, typically lose value as CPI increases. The ideal investments for hedging against inflation include those that maintain their value during inflation or that increase in value over a specified period of time.

During such periods of economic ambiguity, land emerges as a tempting investment option. Historically, land has proven itself as a stable and tangible asset, offering both value preservation and safety. Land is considered a hard asset, a physical or tangible assets that holds value and is typically held for the long term. Because hard assets are illiquid and can not be quickly traded, prices of hard assets remain relatively stable compared to some stocks that may decline in value by 20% or more in a single day.

More and more households are finding land to be an incredibly lucrative addition to their portfolio. Purchasing land has been a good investment, especially in the Southeast, due to the overall market stability over the past several years. All types of land for sale have recently seen an increase in demand over the last decade. Land is one of the most stable, tax-friendly investments a person can make and there are many ways that investors can incorporate land into their portfolio.

By understanding your options and doing your homework, you can find a land investment ideal for your portfolio. Whether it’s a farm or ranch, a real estate investment trust (REIT) or a crowdfunding platform that specializes in farmland. Here are a few options and how they work.

Real Estate Investment Trusts (REITs)

Real estate investment trusts, or REITs, are companies that own and operate income-producing real estate investments. REITs can be found in multiple real estate sectors, such as farmland and timberland. REITs pool the capital of numerous investors. This makes it possible for individual investors to earn dividends from real estate investments—without having to buy, manage, or finance any properties themselves.

REIT investors can expect regular payouts, while potentially benefiting from long-term holds and taking advantage of value appreciation.

Timber REITs are historically some of the best-performing real estate investments and are excellent options for regular investment income. Most of the top timber REITs are stock market traded, meaning they can be bought and sold like common stock.

Farmland is a stable asset class attractive to investors looking to diversify and hedge against inflation. Farmland REITs hold farmland and allow investors to receive dividends from renting the land to farmers. Farmland REITs can be equity or debt REITs, with equity REITs being more volatile but offering higher potential returns.

REITs are a good option if you want to invest in farmland but don’t want to worry about the day-to-day operations of the farm.

Crowdfunding Platforms

Real estate crowdfunding has increased investment options for the average investor. This type of real estate investment platform boasts a low-maintenance form of passive investing and has a lower barrier of entry compared to traditional real estate.

In recent years, crowdfunding platforms such as Harvest Returns have emerged as a new farmland investment option. These platforms allow investors to pool their money and invest in large tracts of productive farmland. Most of the platforms promise to make investing easy by screening properties and negotiating the deal. The investor simply signs up and sends the money. One of the best parts about crowdfunding investing is that the entire transaction can be carried out online.

There is one thing to keep in mind with crowdfunding: you’ll have to work to diversify. The platforms’ investments typically are limited to one property growing one type of crop. So if you want geographic diversification and exposure to a variety of types of agricultural products, you’ll need to invest in multiple deals.

Recreational Land

Raw land can be used for recreational purposes. You can develop it into a weekend getaway spot, an outdoor family retreat, even a place for camping, hiking, riding ATVs, and much more. It is an affordably priced long-term investment, and comes with a range of both personal and financial benefits. When you invest in recreational land, you get the opportunity to optimize land usage, make money and enjoy using the land while it appreciates in value.

Commercial Development

Commercial real estate is a space that is rented or leased by a business. Raw land can be converted into a warehouse, storage facility, an office building rented by a single business, or a gas station. A strip mall with several unique businesses and leased restaurants are all examples of commercial real estate. Raw land can be converted into an array of things to generate multiple sources of income.

Accessibility, location, and necessities available on or near land are some of the many factors that you must consider.

Ranches, Crop Farmland, Livestock

Becoming a homesteader allows you to directly own your investment in a specific property. Living on and running your farm or ranch business might be your dream come true. However, raising crops and livestock is expensive and risky. To manage this type of investment, you need deep pockets and the ability to shoulder stress.

Agricultural land is typically land devoted to agriculture, but it isn’t limited to crops or livestock. The possibilities are almost endless. For instance, you could cultivate an orchard, vineyard, mineral development land, timber farm or recreational land. Generally, these investments require less up-front capital than crops and also allow you to live on the land.

You can invest in land through raw land and commercial property, or farmland. In addition, you can invest by directly purchasing a farm or ranch, buying shares of REITs, or crowdfunding platforms which give you a diversified slice of the real estate market, spreading risk across numerous assets.

Investing in land is an exceptional strategy to hedge against inflation, offering stability, growth, and wealth preservation. By understanding the impact of inflation on investments and leveraging the unique advantages of real estate, investors can safeguard their wealth during uncertain economic times.

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