Timberland

Why Should I Invest in Pine-Producing Timberlands?

Why should I Invest in Pine-Producing Timberlands?

With the condition of today’s economy, many people are very cautious about where they invest their money, and rightfully so. They want to make sure the assets they hold are stable in value and hopefully appreciate, produce a return, and remain relevant in an ever-changing future. They are looking for assets with a proven track-record to do this with. Time-tested if you will. If that’s you, then lets talk about investing in pine lands, that is land that produces wood fiber from the pine tree plantations growing on it. If that sounds sort of old-school to you, it’s because it is. It’s not the next big thing, the newest investment fad, or even the swelling bubble that could bust at anytime. Savy investors have been putting their money in pine lands for several generations. Indeed generational wealth is built on ownership of commodity-producing land, and has been down through the ages.

The mechanics of the pine land investment are not complicated. You buy land to grow trees on. The trees grow, and then you sell them. Then replant and restart the process again. In the mean time, the value of the land those trees are growing on goes up. Production and appreciation built into one investment. Plus you can use the land for recreational activities like hunting, hiking, camping, and other outdoor pursuits. Many timberland investors have a weekend cabin on their timberland investment. Try doing that on your electronically-traded stock. If the outdoor pursuits don’t float your boat, then simply lease the recreational rights to the property out to someone who values them…BAM! Another good return on investment opportunity associated with owning timberland.

Land holds real worth. It’s substantial, and it will be there. Land holds its capacity to produce, which is the measure of true value, no matter what the economy is doing. Land is a requirement for humankind. We all live on it and survive on the things it produces. It’s necessity is not going away. Simple supply and demand forces appreciation in land. Everyday the world gains population. Land is in limited supply. A greater demand on a limited supply of any good results in a higher price for that good.

The uses for wood fiber are constantly increasing. Our ability to utilize portions of the tree traditionally considered refuse has improved in the last decade. Indeed wood will figure prominently into our renewable energy equation for a “greener” future. All of this makes the wood fiber growing on pine lands more valuable in our world economy.

So why would you invest in pine lands over other agricultural lands or other timberlands? Pine lands have easy ownership, and professional management of this asset is easily attainable, and relatively inexpensive as compared to the more labor-intensive lands involved in agricultural production. The commodity that is produced, pine wood fiber, can be harvested in conjunction with optimal market times, instead of the “harvest season” that other ag production lands are limited by. The pine lands owner can simply wait for a good market to sell their timber, and the timber will continue to grow in the interim. Most of today’s investors prefer a more hands-off approach to their investments. They prefer to allow the investment to work for them, rather than the other way around. Investing in row-crop and pastureland involves some management of the land on an on-going basis…even if you rent the land to a farmer. Pine plantations do require management, but not nearly on the same level or frequency. Pine lands produce wood fiber at a rate greater than lands growing other types of trees. More fiber in less time = better investment. Because of the uniformity of pine lands, management practices can be applied more consistently and more economically. There is greater competition to buy your product than with other commodities who likely only have one or two potential buyers in a market area. Anywhere that timber is grown you will find multiple buyers of that commodity that are accustomed to “bidding” to buy your commodity. Capitalism at work!

Don’t take my word on this, do a little research on your own. Look into what the value of timber-producing land has done in the last 30 years, which is the length of a typical growth cycle. Find out the types of returns you can expect during that growth cycle. (It’s been around 15% annual return on investment during that time frame) If you will do that, I am convinced that you will understand the necessity of holding timberland as part of your investment plan. You will find out that those that invested in pine production land 30 years ago have outperformed those that made the same investment in the stock market for the same period of time. Look at the appreciation, the returns from timber sales during that time, the returns from hunting leases, and the recreational value that they have received from it. Investing in pine lands is a longer-term investment than others that you can put your money in, but the wise and patient investor will understand that a safe investment in growing trees, one that you can have confidence in it’s ability to positively affect your portfolio year in, year out, will trump shorter-term, more risky investments.

According to the article “Timber Investing: The Inflation Hedge That Pays Off in Every Type of Market” by Larry Spears in Money Morning, during the period from 1973 to 1981 when inflation was over 9% per year, timberland values increased an average of 22% per year and that on average, over the last 100 years, saw-timber prices have increased almost 5 % per year. The article also states that during the Great Depression, when stocks dropped 70%, timber gained 233%. During the period of 1987 through the present, timber has outperformed the S&P 500 15% to 9.6%. He goes on to state that the world’s supply of timber-producing lands are contracting. This means that the ever-increasing population will have to make do with less of a necessary resource, which makes timberland a great investment for the future.

So there you have it. Every reason that you need to invest in pine-producing timberland. The investment produces good returns with minimal management. If the market is bad when the timber becomes merchantable, you can simply wait for a better market, while the trees continue to grow. The forces of supply and demand work in favor of the land investment. The land holds the real value of production capacity no matter the economic times. The uses and demand for wood fiber are increasing. Timberland investments consistently outperform other long-term investments. You can use your investment for your own enjoyment. Pine trees grow faster than other types of trees. Smart rich people do it, have done it for a long time, and will continue to do so. You can start on your way to becoming one of those people with your investment in pine lands.

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About the author

Robert King

Robert is a Land Agent with Southeastern Land Group. He specializes in helping buyers and sellers of farms, poultry operations, and timberland throughout Alabama and Georgia. Robert is a regular contributor on The Land Show radio program and the Southeastern Land Group Blog.

8 Comments

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  • I recently purchased a timberland tract for income and recreational purposes using a self directed IRA. I grew tired on stock market volatility and wanted a more stable return. I will harvest part of the tract and replant in loblolly pine. The real return for this investment is 6% (9% considering inflation). Since housing will recover and exports will continue to grow, I consider this a good long term investment that will perform especially well in inflationary times.

  • I am in the process of purchasing a timber tract for the same reason Mike R. did. I also have a sentimental attachment as I grew up in the north woods of Minnesota and my Dad taught me the value of having land. A stand of healthy trees is a beautiful sight to behold!

    It is good to purchase a plantation that has a variety of maturities so that all of your income will not be long-term. I say a plantation, as natural timber or regeneration will not give you the volume you need. Also, don’t overpay for the recreational value of the land. Make sure it is the timber potential that you are paying for. Make sure you have easement rights if you are not on a public road. And, finally, get yourself a trustworthy forest management team to look after it. If you are not on site yourself, you need someone to guard against natural hazzards as well as possible poaching or inadvertant cutting across your boundary.

    An excellent article, Robert. It will be interesting to see the “green” economy aspects of timber in addition to the traditional uses.

  • Thanks for your comments Mike and Kurt. Timberland just seems like a no-brainer to me. One of the problems in the real estate market today was the vast move away from sound principals. Timberland investments are as sound and sure-footed as you can get though.

  • Thank all of you for you comments.

    Ram, I’m not sure that I would put geographic limitations on where I would own the properties. It is greatly dependent on your goals for the property though. If the recreational component of owning timberland is important to you, you will want the property to be within an easily accessible distance. If growing timber over the very long-term is your most important goal, I would simply compare values and site indexes in cooperation with your investment goals. Personally, right now, I would be looking for opportunistic pine-lands investments. First on that list would be current timberlands that have the correct soils, slopes, and surrounding infrastructure to support row-crop farming. I would buy the property, then immediately re-market as farmland. It’s fetching gold right now, but I am afraid it will have a bit of a bubble quality in that market. That’s why I would buy timberland instead. Position yourself to take advantage of the run-up in farmland values while insulating yourself from the bubble-burst. Second on my list would be timberland that has potential to be divided into smaller tracts. Think properties that would make good mini-farms, hunting properties, cabin-sites, and recreational properties. Properties with paved road frontage and utilities…Buy now, at timberland prices, and position yourself to take advantage of the market for these types of properties when that market returns…it will, it’s just a matter of when.

    I am a bit prejudiced toward southern timberlands, but honestly do not know enough about timberlands in other regions to give your question an honest answer. I know what works here.

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