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Woodland Investments - Finding Value in the Trees

Forestry as an investment has been all the rage, coming into and out of favor periodically every few years. Often it parallels real estate in general, with values rising and falling with the overall markets. The bubble of 2005-2007 saw prices grow faster than a hybrid poplar, and decay just as quickly.

Forestry can make a great investment, with steady growth and stable value over the long-term. Like most investments, there are pitfalls to watch for, so here are some rules that apply, whether it is for 100 or 10,000 acres.

Know what you are buying.

Forestry is a specialty, and trees will affect value. Unless you are familiar with tree species and health, most people will have trouble recognizing a stand with a potential crop compared to one with no future. Usually this requires hiring expertise, e.g., a forester (see my previous blog, Know the value of your timber property: Engage a forester), which can be expensive. Expect a timber cruise to cost $2 to $10 per acre, depending on location, size, boundary configuration, etc.

You can learn the basics, like recognizing the main commercial tree species, from a variety of sources, such as the Master Forest Owners from Cooperative Extension. It takes time, but is well worth it.

It isn’t a hard-and-fast rule, but if the property was cut within the last 10 years, chances are timber value will be minimal. Not to say it wouldn’t make a good investment if the harvest was done properly, just don’t expect to buy and then get your money back by selling timber. I have seen tracts that were cut recently but under a planned schedule, and value was enhanced. Others were last cut 40 years ago, and still have no appreciable value. If the best was cut and junk was left, that is what will be there for decades to come. For any property, ask if there was a forest management plan.

Factors that matter for value include location, access, topography and soils. These are usually self-evident, except for soils. A good, free site for soils is the USDA Web Soil Survey, but it can be confusing to work with, and the results are a bit technical.

Expect to be in it for the long term.

Timber grows slow. It can take 70-100 years to grow a crop tree. That’s a lot of time for something to go wrong, with all kinds of hazards (from lightning, bears and deer, to Emerald Ash borer and timber theft) that can go wrong. That’s why starting out with the right trees in place is so important.

On the other hand, trees grow. It’s like the dividend in your stocks that compound exponentially. As trees get bigger, the growth rate increases, and the value per board foot increases, too (like an increasing stock portfolio, where the number of shares grow, and the price per share).

And realize that land values rise and fall, just like other types of assets. Time is on your side, but to be a good investment, it requires buying at the right price.

Alternate uses

Timber can form the base of value for an investment, but other uses can provide enhancements. A property can be managed for wildlife and leased for hunting (usually $5 - $15 per acre), used for agriculture, or built on. Location plays a large part in the value of these other uses. One caveat: if a property has been left to grow up into woods for the last 50 years, it is usually for a reason. Soils with poor drainage or rocky, stony conditions discourage other uses for good reason. Don’t fight Mother Nature, and try to grow hay or raise horses on unsuitable land.

Side benefits

One of the best benefits of timberland as an investment is that you can walk on it! (Try doing that with your stocks.) Many people get attached to their investments, such that they can be reluctant to sell when it is timely, but forest land has the potential to become a family legacy that is fun and rewarding. I have worked with farm families for more than 20 years, going back to the same woods to manage timber sales. They take pride in the appearance of the woods, while using them for firewood, hunting and four-wheeling. One woman, a recent widow, spoke of the love her husband had for the 150 acres they owned together for 26 years. She is considering leaving his ashes on the top of the mountain.

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