« Precious Metals vs. Land | Main | The Teacher »
Timber
By John | July 14, 2011
Vacant land is never vacant. The “vacant” term is used to indicate there are no buildings on it, or, in some cases, to indicate there are no man-made improvements. However, nature has a way of providing its own improvements.
In much of the U.S. and Canada, where I invest in vacant land, the natural state of this land is usually wooded, unless it is too wet or too rocky to support trees. Too often, the value of those trees is overlooked.
If you are, or intend to be, an investor in wooded land, I suggest you establish a relationship with a forester. The demand for, and consequent value of, different species of trees varies considerably over time. You will need the advice of someone who keeps current on timber values in your area. Then, when you are contemplating making an offer for a tract of wooded land, ask the forester to give you an estimate of value. If you want a timber cruise (a detailed estimate of value), you will probably be charged for it. However, if you are working with a forester on a regular basis, he or she should be willing to give you a rough estimate of value for no charge.
You may have heard of people buying a tract of timbered land, selling off the timber, and owning the land free and clear. That is possible, and has happened. However, it is rare today. What is not so rare is buying a tract of land, selling off timber, and owning that land with a very low cost basis. You might then sell that land at a nice profit.
When valuing timber, most people think of saw logs – the trees that can be cut down and converted to lumber. That is where the most value is. However, don’t overlook the value of pulpwood.
Pulpwood can come from any size tree. The tree is chipped up into small pieces and blown into the back of an enclosed semi-trailer and hauled to a pulp mill (which might convert it to paper), co-generation plant (which might burn it to generate heat and/or electricity) or an ethanol plant (which uses wood chips instead of corn to create a fuel additive).
Because pulpwood has lower value than saw logs, it typically is difficult to justify the economics of transporting it great distances, so most pulpwood markets are localized.
Let me give you an example from my experience of the value of foresters. We purchased a tract of forested land we intended to develop. We hired a forester to mark and measure selected trees that we intended to sell. The forester put the trees out for bid as standing timber. (That means the buyer has the responsibility to cut and remove the trees.) We received about a half dozen bids. They varied from about $45,000 to $128,000. Guess which bid we accepted? See how much less we could have received had we sold to the first guy who came along and offered to buy our trees? Foresters charge a modest percentage of the sale price for their services. Foresters know trees, wood, markets and buyers and keep themselves abreast of industry trends and developments. They are well worth what they charge. And, they can advise you on how to manage woodlands over time to produce the best return and/or achieve other objectives you might have for your land.
Another comment on timbering land: Yes, a mature woods is attractive and has aesthetic value. But in many cases, economics dictate that you should timber your property. And, no, you are not destroying the environment – you are harvesting a crop. Deciduous trees will quickly grow back without additional seeding. In a few years, you will have a forest again, even if you clear-cut.
Just make sure you carefully remove the tree hugger before cutting down the tree.
Topics: Rural Land Investment | 2 Comments »
October 3rd, 2011 at 1:20 pm
John,
I’m reading that Wausau Paper Corp., based in Mosinee, Wisconsin may be looking to liquidate some of their timberland holdings. I thought this may be of some interest to you.
Best, PCM
October 10th, 2011 at 10:36 pm
Thanks.
Timberland can be a good investment. I have also found that just because a timber company is selling land does not mean that there isn’t marketable timber on the property. It may be that the seller just doesn’t need that type of timber at this time.
I have also found institutional sellers to offer better deals than individual sellers.
Thanks for the information.