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Advantages of Investing in Timberland
· Relatively low risk
· Investment asset diversification - negative correlation with stocks and bonds
· Appreciating asset - incremental timber growth & increasing real estate values
· Hedge against inflation
· Potential for excellent rate of return - Timber has a real growth rate independent of inflation, unlike certificates of deposits.
· Favorable tax treatment - both income tax and property tax incentives available
· Recreational benefits & amenities
Disadvantages of Investing in Timberland
· Illiquidity
· Much of the expense often occurs at the beginning & most of the return is at final harvest
· Long holding period
· Government intervention - endangered species, local regulations, etc.
Risk & Uncertainty
· Environmental - drought, wind, tornadoes, ice storms, floods, etc.
· Wildfire - species, age, fuel buildup
· Insects & disease - bark beetles, fusiform rust, annosus root rot, etc.
Note: All the above are seldom greater than 2% (TFS 2001) or less than 0.03% per year for TIMO’s (Forest Landowner March/April 2005). Diversity is the key.
· Financial - projected costs and prices
· Regulatory - changing land use regulations and tax policies
· Liability - personal injury to recreational users - Prescribed burns escaping to adjacent lands · unauthorized cultivation of marijuana and manufacturing of illicit drugs
Non-industrial Private Forests Growth Rates
Natural Stands – by region West 2.4 % North 3-4% South 6% Natural - South young pine pulpwood stands 8% pine sawtimber 6% hardwood* 3.5%
Plantations – South young growth (to 15 years) 12% established growth (15-25 years) 10% mature forests (25+ years) 5-6%
(USDA – Forest Service) Pine Growth Rate 1953 6.5% 2002 9%
Intensively managed Loblolly Pine Plantation (TSAF 2000) 15-year-old (3 cords/acre/year)
*Forest Landowner July/August 2005
Rapid Value Change for Ingrowth (change from one product class to another)
Year Size Product Value of Trees 2000 10” – 40’ pine pulpwood $ 3.00/Tree 2005 12” – 2 logs pine sawtimber $16.00/Tree
FROM THIS
Characteristics of Good Timberland Investments
· high quality sites (85+ Site Index in South)
· good stocking
· commercially desirable species
· good access – internally and externally
· closeness to mills
· size (40+ acres)
SAWMILL LOCATIONS
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Investing In Timberland by Gary Allen Burns with excerpts from his ASA presentation “Timber and Timberland” (Austin, Texas – 2005) |
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Don’t forget to visit our sister companies sites for more about timber and appraisal.
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