Buying / Owning Timberland

[JanSvenda]

Hey,

 

I am wondering if there are people here that own timberland. I am not talking about stocks like KEWL etc., I mean physical ownership. If so, would you be able to share some sources on how you prepared for your first purchase and generally share some timber-related sources?

 

One of my long-term goals is to continuously accumulate ownership of this asset class. In my mind timberland should also present an easier way to acquire solid collateral than say buying a house etc.

 

Thanks,

 

Jan

[BG2008]

I love how you specifically mention "not KEWL"

[bizaro86]

I think buying timberland requires a bunch of specialized knowledge. You have to evaluate the trees that are there already and the growth potential. However, you also need to have an understanding of the marketing factors. How close are you to a saw/pulp mill. Are the species on your land what they need? As with most things, if you have more than one buyer you will probably do better, so maybe you need two mills.

 

I have a relative who owns a long term timberland lease with a government in Canada, which he manages for a fee and a 'cut' of the sales. It's in a remote area, so he is only able to sell from it every few years when someone is harvesting in the area.

[JanSvenda]

I love how you specifically mention "not KEWL"

 

Haha yeah, did not want to read the pitch for the tenth time. Although I hope that value is going to be created after the reshuffling.

 

I think buying timberland requires a bunch of specialized knowledge. You have to evaluate the trees that are there already and the growth potential. However, you also need to have an understanding of the marketing factors. How close are you to a saw/pulp mill. Are the species on your land what they need? As with most things, if you have more than one buyer you will probably do better, so maybe you need two mills.

 

I have a relative who owns a long term timberland lease with a government in Canada, which he manages for a fee and a 'cut' of the sales. It's in a remote area, so he is only able to sell from it every few years when someone is harvesting in the area.

 

Thanks for the note. I am fine with taking the time to learn as much as possible. I also understand that the purchase is really only the start as the maintenance is crucial. I will be buying in Europe so some factors might be slightly different.

[John Hjorth]

Jan,

 

Is your approach and are your considerations at this stage here strictly rational, from an investment angle? - Please do not consider the question here asked as sceptical or negative in any way, because it's not meant that way. There can actually be other incentives and motives for doing such an investment, which is a personal matter.

[JanSvenda]

Jan,

 

Is your approach and are your considerations at this stage here strictly rational, from an investment angle? - Please do not consider the question here asked as sceptical or negative in any way, because it's not meant that way. There can actually be other incentives and motives for doing such an investment, which is a personal matter.

 

Yeah, I view this as an investment (long-term appreciation & diversification). I am not a huge fan of gold (physical).

[oddballstocks]

Been into this off and on for ~10 years.  Bought an acre as a test for $300. 

 

I don't know where you're at, but each area grows different types of wood.  If you're in the NE then you can buy land and do hardwoods, the most valuable wood.

 

For your area look at the proceeds from a cut at market rates, then figure you might be able to cut 25-30% of an area every few years, and back into what you need to pay for the land to get an acceptable yield.  Like any investment the price you pay for the land determines your return.

 

If you're buying timberland as-in get the forestry officer to do a cruise.  Most counties/states do this for free.  They'll estimate the value. 

 

 

The hardest part is finding the land at a reasonable price.  Your best bet is going to be visiting county courthouses and looking for land in tax sales.  Next to that going door to door and making cash offers.  I know someone who does this for gas rights, it's grueling, but it works.  Timber is no different.

 

I've found plots I like, written letters, made offers, like most sales 90% of the time you'll come up empty.

 

Last year I looked into building hunting camps.  Basic math was buy 10 acres for $18k or so (1.8k/acre) and then subdivide into three plots 3.33 acres apiece at the county level.  Pay $2k for a bulldozer to clear a road, pay $1k for gravel, pay $3k for electric service, buy three Amish made cabins at $8k apiece.  You're in for $48k or so, you can sell them in an urban area for $50k cash.  So a profit of roughly $100k on that $48k investment.

 

I sourced people for all of these things, they're a pretty good estimate.  Electric varies depending on your land and how far the furthest pole is now.  Between all of this figure it might take 6-8mo to do and complete, then another 1-2mo to finish?  It closely approximates a full time job.

 

Make sure you have a solid truck, all the tools you'd need.  The more I went down this route the more I realized you need a warehouse to store things, and suddenly this little "I'll buy land..." idea turns into a "I have a full cabin development company".

 

Get the land right and things will fall into place. 

 

Where are you?

 

[rb]

Teachers has a timberland group. They're quite happy with the asset class. But it was stressed to me by one of those guys that diversification is really important otherwise it can be quite risky. They have lots of plots all over the world. I decided that it's way too much trouble for a smaller investor.

[John Hjorth]

...Where are you?

 

Nate,

 

Naturally Jan can reply for himself. But the TLD in Jan's email adress in his signature is ".ch". Jan's LinkedIn profile says Czech Republic.

[TwoCitiesCapital]

I looked into this before given timber being at what appeared to be secular lows due to the tepid rebound in U.S. housing -

 

I kind of came up the same as others here. It requires specialized knowledge to know what you're buying - how much it will yield, how healthy the trees are, are they too densely populated for proper timberland or too far apart to maximize the land yield, how to process/cut/sell the wood, how frequently you have to cut out the undergrowth to generate a small return, etc.

 

It was a bit more than I expected going in and that's all just if you want to own the timber. Redeveloping the land brings in whole new complexities.

 

I settled on a stock that owned timber where I could acquire acres/share more cheaply than I could acquire acres and have been happy with the lack of effort on my part.

[oddballstocks]

...Where are you?

 

Nate,

 

Naturally Jan can reply for himself. But the TLD in Jan's email adress in his signature is ".ch". Jan's LinkedIn profile says Czech Republic.

 

Possibly Switzerland? I believe that's .ch.

 

Anyways, I have no idea on Europe.  My impression of Europe is that there isn't much empty land like there is in North America unless you go fairly far east where the population starts to spread out.  Not to say there aren't rural areas in W Europe, but there is a LOT of the US and Canada that's just empty.  Where I was looking it has a population density of 26 per square mile, there are a lot of zip codes where it's half that or less.  And when you consider the skewedness from cities it's more stark.

 

In Europe I'd look at maybe buying land in Poland, Ukraine, maybe Russia?  Sounds crazy, but my guess is you could grab a lot of land in Siberia fairly cheap.  Logistics of getting the wood out might be tough.

 

For my math I needed an acre at $500/acre to $1k per acre.  Anything over $1k/acre wasn't worth it, unless it's hardwoods planted from scratch.

[JanSvenda]

Been into this off and on for ~10 years.  Bought an acre as a test for $300. 

 

I don't know where you're at, but each area grows different types of wood.  If you're in the NE then you can buy land and do hardwoods, the most valuable wood.

 

For your area look at the proceeds from a cut at market rates, then figure you might be able to cut 25-30% of an area every few years, and back into what you need to pay for the land to get an acceptable yield.  Like any investment the price you pay for the land determines your return.

 

If you're buying timberland as-in get the forestry officer to do a cruise.  Most counties/states do this for free.  They'll estimate the value. 

 

 

Hey Nate,

 

thanks for the detailed reply. Did you read anything before you started?

 

 

The hardest part is finding the land at a reasonable price.  Your best bet is going to be visiting county courthouses and looking for land in tax sales.  Next to that going door to door and making cash offers.  I know someone who does this for gas rights, it's grueling, but it works.  Timber is no different.

 

I've found plots I like, written letters, made offers, like most sales 90% of the time you'll come up empty.

 

 

Sure I just started to look at online listings to get a sense of the stuff, but the more hands-on the better I suppose.

 

 

Last year I looked into building hunting camps.  Basic math was buy 10 acres for $18k or so (1.8k/acre) and then subdivide into three plots 3.33 acres apiece at the county level.  Pay $2k for a bulldozer to clear a road, pay $1k for gravel, pay $3k for electric service, buy three Amish made cabins at $8k apiece.  You're in for $48k or so, you can sell them in an urban area for $50k cash.  So a profit of roughly $100k on that $48k investment.

 

I sourced people for all of these things, they're a pretty good estimate.  Electric varies depending on your land and how far the furthest pole is now.  Between all of this figure it might take 6-8mo to do and complete, then another 1-2mo to finish?  It closely approximates a full time job.

 

Make sure you have a solid truck, all the tools you'd need.  The more I went down this route the more I realized you need a warehouse to store things, and suddenly this little "I'll buy land..." idea turns into a "I have a full cabin development company".

 

Get the land right and things will fall into place.

 

 

Nice way of redeveloping. What was your biggest challenge in this plan? Also have you encountered any natural problems (damage by animals or certain plans) with your timberland? Was theft any issue at all?

 

Also, have you thought about leveraging the asset (get a loan after purchase with collateral being the asset)?

 

 

Where are you?

 

I live in the Czech Republic in Europe (i just use swiss hosted email), so I would be buying around the area instead of the US. I would be up for buying somewhere further east, but only after the first purchase.

 

[Jurgis]

In Europe I'd look at maybe buying land in Poland, Ukraine, maybe Russia?  Sounds crazy, but my guess is you could grab a lot of land in Siberia fairly cheap.  Logistics of getting the wood out might be tough.

 

Theoretically I'd guess Norway, Sweden, Finland might be timber places if you don't go eastward. But I have no clue about prices and profitability.

Anything eastward will have a large corruption issue, especially for non-locals.

[Cigarbutt]

I live in the Czech Republic in Europe (i just use swiss hosted email), so I would be buying around the area instead of the US. I would be up for buying somewhere further east, but only after the first purchase.

 

Hi Jan,

 

The following is based on:

-I've looked at this investment possibility (in Canada) in the past.

-Some time ago, I helped one of my children with a school-related project that had to do with the evolving ownership profile of forest land in Europe and some potentially useful references are listed below.

 

There is a lot to like about timberland investment. It is long term in nature and truly a real asset. Jeremy Grantham (of GMO fame) has written about it and has been involved. He has described the reliable very long term return of the asset with inflation protection. I remember reading useful stuff from James Grant in the Interest Rate Observer but can't find the references now. I would say that the two critical parts are 1-price paid for property and 2-actual management of the property. It seems to me that this could become a full time job (with both feet on the ground) as you ramp up unless you can hire a competent manager. Pretty much like real estate as the market has a local flavor and personal involvement can make a huge difference on the bottom line, especially in the early phase.

 

The CAIA has produced primers which could be of interest to you.

 

In Europe, the best opportunities seem to be in Sweden and the Baltic States.

 

I don't know the specifics about the "economics" of the Czech forestry industry as an individual investor/manager and I've never seen the trees in person but "your" forests appear to be beautiful.

https://sites.ualberta.ca/~pcomeau/FOR_456/czechforests1.pdf

http://eagri.cz/public/web/file/353116/Zprava_o_stavu_lesa_2013_ENG.pdf

 

Good luck.

 

[oddballstocks]

Jan,

 

Ah, Czech, cool.

 

No, I didn't read anything.  There isn't much to read.  I love to read, but the unfortunate truth is that reading is about 15% of the knowledge, and the other 85% is obtained by doing, or talking to practitioners.  There are dense trade books, but they only make sense if you're a practitioner. 

 

The Grants piece CigarButt mentioned is awesome.  Someone scanned it for me years ago, I can't find it either.

 

 

Here's why I went the redevelopment route.  You need 30 years for this to work.  I'm 37, so I'd be 67 when I'd get my money out.  For 30 years you're working one plot of land, if something, anything happens you could lose it all.  If something happens in year five, no big deal, you're bumped back.  But what about in year 28?  A tornado rolls through and clears your land, you sunk all that time in with no gain.

 

That's why you diversify into different plots.  But then suddenly you just started a timber company.

 

I love the idea of it, love the woods, love camping, backpacking, hiking etc. Ultimately buying timber isn't the best way to merge those interests, but buying land and developing it could be.

[Saluki]

Check BiggerPockets.com  There's a poster on there (I forget his name, but he's older and very active on the boards) who used to buy timbeland in the northwest and sell the trees.

 

[JanSvenda]

First of all, I would like to thank everyone for their input much appreciated.

 

Jan,

 

Here's why I went the redevelopment route.  You need 30 years for this to work.  I'm 37, so I'd be 67 when I'd get my money out.  For 30 years you're working one plot of land, if something, anything happens you could lose it all.  If something happens in year five, no big deal, you're bumped back.  But what about in year 28?  A tornado rolls through and clears your land, you sunk all that time in with no gain.

 

That's why you diversify into different plots.  But then suddenly you just started a timber company.

 

 

Yeah, redeveloping makes more sense. I will see what I can do here in Europe where regulation is going to be a challenge to overcome.

 

 

Hi Jan,

 

I don't know the specifics about the "economics" of the Czech forestry industry as an individual investor/manager and I've never seen the trees in person but "your" forests appear to be beautiful.

https://sites.ualberta.ca/~pcomeau/FOR_456/czechforests1.pdf

http://eagri.cz/public/web/file/353116/Zprava_o_stavu_lesa_2013_ENG.pdf

 

Good luck.

 

 

Thanks for the links Cigarbutt and the other suggestions, they are useful. From a quick scan, Baltic looks cheap, Scandi looks good as well compared to Czech prices.

 

Anyway, I might update this thread once I will actually move on and buy smth.

[Spekulatius]

i don’t know about the Czech Republik lumber land prices, but it seems that Forst Land in Getmany trades at prices that can’t be justified by expected cash flows from lumber harvesting. They seem to be more trophy properties for “fun”. Most of the land (80%+) where I used to live was owned by towns and cities and scarcity of private land may increase its value. Redeveloping forest land is almost impossible, since it is almost considered sacred in Germany. Redevelopment in residential or commercial is mostly from farm or meadowlands.

[Jurgis]

I'm not sure this is useful, but anyway: http://dzukugirios.lt/dzuku-giriosen (this is supposed to be in English, but it's only half in English  ::) )

 

These guys advertise on bilboards in Lithuania that they buy forest.

 

No idea who they are/etc.

 

As I said before IMO the corruption/grease is going to be significant in the East.

[SmallCap]

Thousands of Southerners Planted Trees for Retirement. It Didn’t Work.

 

https://www.wsj.com/articles/thousands-of-southerners-planted-trees-for-retirement-it-didnt-work-1539095250?mod=cx_immersive&cx_navSource=cx_immersive&cx_tag=collabctx&cx_artPos=1#cxrecs_s

[BG2008]

Jan,

 

Is your approach and are your considerations at this stage here strictly rational, from an investment angle? - Please do not consider the question here asked as sceptical or negative in any way, because it's not meant that way. There can actually be other incentives and motives for doing such an investment, which is a personal matter.

 

Yeah, I view this as an investment (long-term appreciation & diversification). I am not a huge fan of gold (physical).

 

For people who are fans of gold, why not just own some real estate and put some 30 year mortgage on it.  Not a house that you live in, but a decent property that you can rent out to someone else.  Utilize a barbell approach and buy some guns as hedges.  I mean, if sh$t really hits the fan, wouldn't you want to own guns than gold?

[Spekulatius]

Jan,

 

Is your approach and are your considerations at this stage here strictly rational, from an investment angle? - Please do not consider the question here asked as sceptical or negative in any way, because it's not meant that way. There can actually be other incentives and motives for doing such an investment, which is a personal matter.

 

Yeah, I view this as an investment (long-term appreciation & diversification). I am not a huge fan of gold (physical).

 

For people who are fans of gold, why not just own some real estate and put some 30 year mortgage on it.  Not a house that you live in, but a decent property that you can rent out to someone else.  Utilize a barbell approach and buy some guns as hedges.  I mean, if sh$t really hits the fan, wouldn't you want to own guns than gold?

 

Agreed. A House with a 30 year mortgage had a nice hedge against rising interest rates build in. if interest rise, the value of thr house may go down (higher cap rate), but if mostly financed with any 30 year mortgage, it wouldn’t matter, since the cost to carry would remain the same or in a market to market world, the value of the mortgage  would decline, possibly faster then the value of the house, because the house would benefit from higher inflation ( via Rent increases presumably).

 

If interest go down, one can refinance.

 

What would worry me about trees is if wood is even a construction material any more 50 years from now? If not, wood prices may be much much lower.

[rb]

What would worry me about trees is if wood is even a construction material any more 50 years from now? If not, wood prices may be much much lower.

 

What would you build with?

[Cigarbutt]

Jan,

 

Is your approach and are your considerations at this stage here strictly rational, from an investment angle? - Please do not consider the question here asked as sceptical or negative in any way, because it's not meant that way. There can actually be other incentives and motives for doing such an investment, which is a personal matter.

 

Yeah, I view this as an investment (long-term appreciation & diversification). I am not a huge fan of gold (physical).

For people who are fans of gold, why not just own some real estate and put some 30 year mortgage on it.  Not a house that you live in, but a decent property that you can rent out to someone else.  Utilize a barbell approach and buy some guns as hedges.  I mean, if sh$t really hits the fan, wouldn't you want to own guns than gold?

If you're like Kyle Bass, you want guns and gold.

https://www.theamericanconservative.com/dreher/get-guns-judgment-day-coming/

I held physical gold from 2003 to 2008. I put that investment in the good outcome/poor process file. Will never do it again.

 

The idea of long term investmnent in income producing real estate makes sense.

 

But what if 1-the sellers around you expect further price appreciation away from fundamentals (ie price to rent), 2-the price paid incorporates a view that interest rates will continue to stay low in a booming economy and 3-you need to reset the mortgage rate every 5 years, what is the reasonable investor to do?

 

Doesn't a barbell approach mean that one not only survives but also thrives?

[DTEJD1997]

Jan,

 

Is your approach and are your considerations at this stage here strictly rational, from an investment angle? - Please do not consider the question here asked as sceptical or negative in any way, because it's not meant that way. There can actually be other incentives and motives for doing such an investment, which is a personal matter.

I've often thought about this and discussed it with many people...

 

What so many people don't get, and frequently argue about is that you can do everything, OR more precisely, you are NOT limited to one thing.  You can own a tremendous amount of stock, real estate, business interests, etc...but you can also own a bit of precious metal. 

 

I have heard it said that "in order to own gold, you must also own lead.  For without lead, you can not keep gold". 

 

Real estate can be great...but it is not anonymous, it is not mobile, it is not concealable, it is not liquid.

 

I am of very limited means...but I've still got a little bit of gold.

 

I think it would be incredibly foolish NOT to have a few percent of your wealth in gold/precious metals.

 

This is ESPECIALLY the case today, as the situation in the USA has probably become the most dangerous/volatile in my life time.