Verifying the claims of sellers and estimating future cash flows are essential aspects of buying land well. Reducing uncertainty is the basis of a successful investment and provides buyers with greater confidence.
Is forestland a good investment?
Land investments are not guaranteed by FDIC, and come with some unusual risks/costs, including weather, pests, and property taxes. However, it also offers growth opportunities with three variables: physical growth, product improvement, and selling price. And for many owners, it often includes privacy, recreational opportunities, and inspiring views. But from a strictly financial basis, buying pulpwood-size timber, managing its growth well, and selling sawtimber-sized timber in a rising market, to the next guy, is pretty great. We can help assess your opportunities.
What makes a good forestland investment?
One’s ability to wisely manage it in order to earn acceptable periodic returns and/or sell the land for sufficiently more than was paid. Such opportunities can be found on lands all sizes and locations, with due-diligence, to reduce uncertainty, an appreciation of risk, and good fortune.
What do I need to know?
As much as you need to feel comfortable. Sales materials for small lots rarely include information about timber volumes, terrain, harvest history, or even boundary evidence, whereas materials for larger lots often contain information about all of the above. A buyer’s job is to determine the relationship between those values and a price they are willing to pay – and buyer beware. Verify numbers presented and determine those that are not to your level of confidence. Reconnaissance and formal/informal timber inventories are important. We can help.
How do I verify a seller’s timber inventory claims and predict future cash flows?
We may verify a seller’s inventory by revisiting their inventory plots, though we may recruise a property to independently calculate timber volumes.
Can I pay for land by cutting its timber?
Occassionally. Buyers generally recoup their initial investment and profit at the end of their ownership tenure. However, timber sale income may cover operating costs, capital improvements, and more.
Is there a minimum of timber required for land to be a good investment?
No. You only need to sell timber land for more than you invested in it. You may profit by growing the timber, and thus selling more than you bought. You may profit more by growing timber into larger product classes, and thus selling more than you bought and at a higher product price.
How much do due-diligence service cost?
Do not spend more than necessary to achieve your risk tolerance. A simple walk-through and boundary reconnaissance may be sufficient on small lots, though on larger tracts we generally recommend quantitative sampling to review inventories and predict cash flows.