The July LANDTHINK Pulse revealed that 65.1% of respondents would be more concerned with capital appreciation than immediate cash flow, if they were to invest in timberland. Timberland has become increasingly popular among investors looking to diversify their portfolio. It’s a smart alternative to stocks and bonds, given that stocks are at record highs and the threat of an increase in interest rates could impact bond prices.
It was the general consensus of the LANDTHINK audience that capital appreciation trumps immediate cash flow when it comes to timberland investing. The majority of our audience, those indicating “capital appreciation” is most important, are likely long-term investors who recognize the safety of consistent returns and sustainability of timberland. These investors are capable of sitting tight until the conditions are right for harvesting. As the trees grow, so does the value of the asset. Savvy investors understand that timberland is a good hedge against inflation, given the fact that timberland traditionally appreciates in value as inflation rises.
The 34.9 % of respondents that indicated “immediate cash flow” was most important are probably thinking along the lines of how the investment can offset acquisition costs- if the timber stand is of commercial age at the time of purchase. They are probably looking to purchase property with a mature or mixed stand of timber that will generate a higher short-term return. Oftentimes, they are seeking investment that can also provide enjoyment as well as income; they want a hunting property or maybe just a place to build a cabin for family getaways. Immediate cash flow can go a long way in helping to cover improvement projects, such as building a cabin, fencing, adding food plots, or improving the internal road system.
As with an any investment, there are risks involved with timberland investment and no guaranteed ROI. Risks posed by the environment and nature include disease, insects, wildfires, hurricanes and tornadoes. The cost of inputs (seedlings, fertilizers, etc.) and price of outputs (sawlogs, pulpwood) pose a risk to investors. Regulatory risks (like endangered species) are another factor to consider when contemplating a timberland investment. Always seek the advice of attorneys, tax experts, foresters and land agents before purchasing an investment property.
The July Pulse asked: If you were to invest in timberland, which would be more important to you: immediate cash flow or capital appreciation?
The LANDTHINK audience strongly expressed their opinion on the most important outcome of a timberland investment. The majority of our audience, 65.1% of respondents, would be more concerned with capital appreciation. Only 34.9% who answered our survey indicated “immediate cash flow” was most important.
Here are the final results:
- 65.1% said Capital Appreciation would be most important
- 34.9% said Immediate Cash Flow would be most important
Thank you to everyone who participated and shared the Pulse with friends and connections in the land industry.
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