forestry investing

[ether]

Anyone have any experience with directly owning and operating timber land for the purpose of investing?

I'm looking for a very chill small business to invest into once I pull the trigger on retirement

Pro:
-you can get started with small amount of seed money. I'm seeing entry level plots for 120k USD for 200 acres in Maine and the deep south
-seems pretty passive since harvest times are only 7 to 10 years compared to traditional agriculture with yearly harvest
-depending on the species mix you can get your entire investment back at harvest with zero labor on your part if you sub contract out (called stumpage)
-land values always tend to keep up with inflation
-reduced property tax in most places

Cons:
-modern forestry methods suggest fertilizer and GMO plants to get best yields and there is some level of knowledge required to keep soil fertile and sustainable
-modern forestry equipment can run $1 million and 3 man crews to clear cut so not very viable to just be a traditional solo lumberjack so you generally need to subcontract the harvest
-there is always crop failure risk due to disease but I like the idea of buying land near harvest so you get your initial capital back quickly so future harvests are just pure profit
-no depreciation tax benefit like traditional real estate
-replanting takes labor and skill
-need to hire forester to advise on maximizing yields and protecting crop

Anything you think I missed in terms of risk and potentials?

[Henry]

I live in an area where people do small scale forestry to receive farm tax credit.

A few things I can think of:

(1) Physical Injury/Death - I witnessed the physical injury. It was not pleasant. I heard about the death. Tree fell on the guy and now you got widow and orphan. Trees and chain saws. It is dangerous work. I would check into insurance costs;

(2) The Koch Brothers and the hobbyists - you are in the middle competing against both;

[loutfard]

A productive forestry investment requires production forest maintenance and harvesting. Also, there's selling your production. Selling wood is not difficult. Selling wood at a good price can be trickier...

[chenda]

viewtopic.php?t=1200

[PhoneticNachos]

wish my great uncle was around. he made millions of timber land in arkansas and sold land to a fledgling company in the 70s you may have heard of, Tyson Chicken.

[Dave]

My parents own a modest parcel of timberland. It was bought primarily as a hunting and camping property with conservation as a secondary goal, but it is pretty much all forest with the age of trees ranging from 35 years to virgin, so there is meaningful value standing there. We have never cut, and have no plans to in the medium-term.

We don't do much active timber stand improvement (TSI) as it is not predominately an investment operation. My dad has worked in fields related to forestry, and has friends who do. We've watched folks around the area cut for $.

I'm not an expert and don't have a lot to add to the above discussion, but the asset class does interest me for many of the reasons you listed. I don't think you have to take action every 7-10 years unless you are wanting too - in a lot of cases you can just let it continue to grow. And while much more muted than say a public market like stocks, you still do see meaningful oscillation in land values with changes in inflation, value of lumber and general desirability of the land (the land my parents own is also fairly good whitetail deer/turkey hunting grounds, so the value of the land is really some combination of timber + hunting property). This leads me to think that timing does matter here and to be cautious about entry and exit points. I'd also be cautious about the economics of harvesting timber too much given the start-up/one-time costs every time you cut, particularly as a small-scale operator - this could severely eat into your profits. And I'd advise serious oversight of timber harvester assuming you outsource...I have heard many, many people in this part of the world (the US Midwest) discuss negative experiences dealing with these people.

[Western Red Cedar]

I have professional and personal experience with this. My family owns 75 acres of timber land, and I prepared two of the timber management plans for the county. The link @chenda provided offers some good additional insights into the op's question.

The approach to timber harvests is likely different if one is planning on living on the land, vs. owning a separate parcel passively solely for timber harvests. 7-10 years seems pretty aggressive in terms of harvests, but I suppose that is possible if you have a decent chunk of land (100+ acres) and you are harvesting different parcels on a cycle. It probably depends on the local environment, precipitation, tree species, and how quickly they are growing. The cycles I've seen with harvests on neighboring properties is typically 25-30 years - possibly 20 years for parcels owned by timber companies. I'm only familiar with the business in the PNW, so I'm assuming the dynamics are different in the south, east coast, Europe or elsewhere. I don't think most timber operations in the PNW use GMO trees or fertilizer. It is possible that some Christmas tree farms use fertilizer though (Christmas tree farms are an alternative investment that can prove lucrative, depending on the location).

The major con from my perspective is the process of contracting out with a logging company. It is a fairly high stakes transaction for the landowner that they may only engage in once or twice in their lifetime. In my region, they typically take half of the value of the sale. If you are living on the land, they can tear things up pretty significantly. The tax hit can be substantial at the point of sale, and this is one of the ways the county and/or state recoups some of the cost of the tax deferral on the land.

On a positive note, someone from an ERE background could probably get creative about timing that tax hit. They can also likely hold off until lumber prices are quite high. One other pro not mentioned upthread is the ability to subdivide the property and sell it for residential uses after a harvest. There are laws in some state and counties limiting this on designated timber land, but there are often loopholes if one knows the regulations well enough. I personally wouldn't employ that tactic for moral/philosophical reasons.

Another con in addition to disease is wildfire. As we are seeing this year, other areas in the US and Canada that haven't burned in recently history are starting to burn. That variable alone would make me a bit weary about this approach as an investment vehicle.

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My parents never logged the original 10 acres they used for their homestead. It probably hasn't been logged in almost 100 years, and the trees and landscape are pretty impressive. My dad and I have been actively managing the land, thinning certain stands, for both fire protection and the promotion of tree health. They acquired a 20 acre parcel that was owned by a timber company and heavily logged over the last 50 years, and the difference is pretty stark.

My ERE approach based on my own circumstances would be to make use of a portable sawmill to make small harvests to get lumber for either personal projects, bartering, or sale to a local hardware store. You could either purchase one, or pay a sawyer to come out periodically for a small harvest. This allows one to generate smaller amounts of income, while still complying with the tax exemption programs, and potentially staying under the threshold for paying any taxes at all (depends on the locality). It is also a good way to manage the land and build cool stuff.

[Jim]

@WRC I'm also in the PNW, and here in King County we have the "Loop Biosolids" program, which is a kind of fertilizing program which takes biosolids from wastewater treatment in Seattle and trucks them out to the forest service land and sprays the shitslurry, (tampons, flushable wipes, mood stabilizers?) all over the place with a hose or some such thing. It's not uncommon to encounter signage warning foragers and the like to not harvest anything in a specific area for a specific time frame because it's been covered in sewage. Not really what you want to see when you're out looking for chantrelles. I don't know of any other industrial forestry fertilizer practices. I have mixed (mostly negative feelings) about the loop program, because while I'm sure it's great for the wastewater treatment plants to reduce their emissions, I'm also sure it helps reestablish the soil in our overharvested forests, but, uhh, is there possibly greater value in letting the trees grow for more than 20 years at a stretch?

Our state has also started using it's forests for carbon sequestration. I'm not sure how the incentive works, whether it's state or federal, and how compensation works, but it's good to know there's a land management strategy that's not dependent on over harvesting of doug fir and jack pine from very immature ecosystems. Maybe someday, in some better world, a landowner could receive income for their well managed old growth stands.

My family back east also owns several hundred acres of forested land which they gain some small income from selectively logging. My family is pretty picky about what timber they sell and don't clear cut, but they're all very ecologically minded, mostly retired, and spend most of their time nitpicking the land.

My ERE approach based on my own circumstances would be to make use of a portable sawmill to make small harvests to get lumber for either personal projects, bartering, or sale to a local hardware store. You could either purchase one, or pay a sawyer to come out periodically for a small harvest. This allows one to generate smaller amounts of income, while still complying with the tax exemption programs, and potentially staying under the threshold for paying any taxes at all (depends on the locality). It is also a good way to manage the land and build cool stuff.

This would also be my inclination. Offering milling services to your local community and also being able to selectively manage and generate income/value from your own land. There are a few outfits in our local area which seem to do well milling bigleaf maple into slabs, but also make dimensional lumber for landowners who fall timber on their own land. One of the problems, thanks to our ridiculous permitting processes, is that you can only use dimensional lumber for construction if a labor and industries employee is present while the lumber is being milled and signs off on it. This could be avoided by living probably anywhere else in the world country/world.

[suomalainen]

mostly retired, and spend most of their time nitpicking the land.

This sounds wonderful.

[Western Red Cedar]

This would also be my inclination. Offering milling services to your local community and also being able to selectively manage and generate income/value from your own land. There are a few outfits in our local area which seem to do well milling bigleaf maple into slabs, but also make dimensional lumber for landowners who fall timber on their own land. One of the problems, thanks to our ridiculous permitting processes, is that you can only use dimensional lumber for construction if a labor and industries employee is present while the lumber is being milled and signs off on it. This could be avoided by living probably anywhere else in the world country/world.

@Jim - Interesting stuff - thanks for the response. I wasn't aware of the King County looping program, but I can understand the approach considering that human waste is one of the oldest fertilizers. I can also understand the concerns considering all of the chemicals we are ingesting and flushing back into the sewage systems.

My family hasn't actually built much with rough cut lumber, but there is a local Mennonite community that does quite a bit with it in my neck of the woods. I just did a quick search and it looks like the permitting requirements results from the International Building Code, so it may not just be a Washington issue - but there are potential workarounds:

https://barngeek.com/how-to-build-anyth ... ut-lumber/

I suspect building a single family home or some smaller outbuildings in a rural area is much easier than trying to do something in a larger city or commercially with rough cut.

*ETA - Here is an inspiring video that someone shared on the forum about a landowner in Mendocino County, CA who was actively managing his land, using timber for creative construction, and producing beautiful art with his wood.

https://www.youtube.com/watch?v=2qcsWajivnI

[Jim]

My dad buys rough cut lumber from his Amish neighbors (who have a mill) to construct outbuildings. He told me the cost of buying hardwood rough cut lumber from his neighbor is significantly cheaper, and obviously higher quality, than dimensional lumber at home depot or any local hardware store.

That barngeeks guide is awesome, and that faircompanies youtube channel is a gem. I'll defintely be digging into those.

[SouthernAlchemy]

@ether since you are in Jacksonville and you mentioned the deep south these are some observations on pine forestry in the Southeast which may or may not be applicable to other areas:

Anyone selling timberland knows the value of the timber on it, so the cheapest parcels are ones that have just been cut. This means, for land planted to pines, 25 - 30 years until you realize maximum value again. It is typical to replant after a clearcut but it is also common for someone to cut to get that value and then turn around and sell the land. Since replanting is a significant expense, it may not have been done on land that otherwise seems to be a bargain. For mixed stands, natural regeneration could be a fine, although long(er) term, strategy. Any land that is best suited to pines needs to have been replanted immediately or you will be paying a lot to correct that (think herbicides to remove undesirables, seedlings, labor to plant, etc.). Cheap land may also indicate some sort of easement or restriction that prevents harvest on some or all of it (like a wetland). This may not be a bad thing depending on your goals, but does affect long term investment potential. Also, pine growth, both speed and total height, are heavily influenced by soil type and this may influence land price and will certainly influence overall return. All this is to say, don't just look at the land price, but do your due diligence on any land purchase.

Timber sale is about timing. Of course the nature of it means you could hold it for a good market, but growth of the (pine) timber does slow markedly in that 25-30 year range so this is analogous to market returns going down and inflation etc. has to be factored in if you are really thinking of this as an investment. It may be possible to sell the slash from thinning twice over this time frame. In the South, this mostly goes to pellet makers. The pellets mostly go to Europe for power generation. Recently, this has meant a pretty decent market for slash and you may be getting paid for it. Other times the market is terrible and you are paying to have it thinned. This market also depends a lot on proximity to the pellet processor. It is just not worth it to transport low value wood over a long distance and there is no shortage of low value wood in the SE. Again do your due diligence. as always YMMV

In the Southeast, hazards are hurricanes/other severe weather, insects, disease and to some extent fire, though that is also a management technique. My granddad didn't get upset often, but I vividly remember his rant when he had (was required by forest service) to cut 40-50 acres of pines before their time due to a pine beetle infestation. Depending on location, these hazards are non-trivial and can seriously affect investment returns.

Other opportunities with a pine forest are pine straw (for mulch) production or some sort of agroforestry. Commercial pine straw mulch is from longleaf pines (which are not normally planted due to slower growth rate) and requires more active management, but from what I have heard can provide a pretty good annual return. Also, forage can be grown easily under pines planted at the appropriate density. This is not common in my area, but I have seen more lately about people grazing cows under pines to get an annual return while the timber matures. If you don't want to be a cow farmer you could just lease the land for that purpose. Obviously, lower density timber will have less long term value so you have to think about how you'd like to realize the overall value of the land's production over time. You can also do hunting leases, but to get the best rates, the hunters would probably expect some sort of management for wildlife, such as a food plot or two. My family has always just let (known) hunters on the land and received a portion of their take.

In upland, and possibly bottomland, areas of the South there may also be opportunities for small scale/high value hardwood timber production, similar to what Jim and WRC are talking about. I just wanted to share some thoughts on pine forestry since it dominates the Southeast.