The debate of property versus shares has been done to death, I won’t be boring you with another article on which is better. In this article, I’ll focus on Rural Funds Group (ASX: RFF), which a Real Estate Investment Trust (REIT).
A REIT is a closed-end investment company that owns assets related to real estate, such as buildings or land. You can buy or sell REITs like any other stock.
Rural Funds, A Property Owner
Rural Funds operates as a landlord to corporate agriculture and farming but has no exposure to the operations of farms directly, this puts the managerial and climate risk entirely on the tenant.
Long term growth will come from the expansion of their current property portfolio as well as the improvements in farming practices that technology is bringing to the sector. Due to its size, Rural Funds is perfectly positioned to benefit from any technology advances its customers employ.
One of the main reasons I’m bullish on Rural Funds Group is the gigantic tailwinds it’s currently experiencing. Since it’s focused purely on the agriculture sector it can benefit from the growing social shift towards healthier eating as well as the growing demand from Asian countries of fresh produce.
Risks
As everyone knows farming is a tough way to make a living, I have enormous respect to those men and women who choose to make a living this way.
One of the biggest risks is that Rural Funds’ tenants are exposed to adverse weather conditions. The onset of drought will impact the farmers, which would have a flow-on impact to Rural Funds and their current distribution plan.
Conclusion
Rural Funds is currently on my watch list as I’m waiting for a price drop before taking a position. Like any good portfolio it’s important to diversify your holdings to collect income from a range of sources. The great thing about Rural Funds is that it gives everyday investors the opportunity to add agriculture to their share basket.
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At the time of publishing, Anthony does not own shares in Rural Funds Group.
