While skyrocketing home prices across the country aggravate the majority of the populous there are a couple groups of peoples that start smiling.
You already know the likely suspects, those people who get off like crazy on the schadenfreude of expensive housing. Real Estate agents (if they’re good) Builders, Contractors etc.
But we don’t often think about the raw materials providers. Think cement, think concrete. They know that when housing prices soar, builders will build as quickly as they can to supply that demand. And you know what house builders need?
Hint Beavers love to eat it.
Wood! Or more specifically Timber, what's the difference between timber and wood? Well wood is the stuff trees are made of, and lumber is what a tree becomes once it has been cut down. Bonus points, lumber? Know what that is? Well it’s what you call timber once it’s been sawed down into boards.
Great! Now you know more about the timber industry than just about every person you have ever met! Feels good doesn't it Mr/Ms Bigbrain?
Cool, so Timberland. Again, get ready for an even bigger brain dear reader! When most people hear timberland they start to think about the preferred boots of 90s rappers. Or that one music producer from years back, remember him?
But when we talk about timberland we mean land that is treed. Think of it as a farm, but much slower and it grows wood instead of heart healthy greens.
So why invest in timberland?
Well first off, trees and forests are pretty. Who wouldn’t like to have a piece of land with a mature forest? Especially when you consider that the normal appreciation in value of your real estate will be bumped up even further as your wonderful wood farm grows and is able to produce even more board feet of sweet sweet wood!
Timberland is a real investment that you can use and enjoy for years before selling.
You’d probably be interested to hear that over the last 20 years returns from timberland have been almost equal to returns from the S&P 500! AND it’s less volatile. Pretty neat huh?
Timber is neat, because when demand for wood is down, you can just kick back and watch your investment grow (literally, trees love to grow) and wait for the market to get better, and have even more wood on hand when it is. Can’t say that for nearly any other asset right?
I mean compare that to silver or gold. You can make like Black Beard and hide your precious metals under an X and come back years later and, if you’re lucky, it’ll still be right there the same amount of metal you left originally. But with a tree, or damn an acorn even, if you walk away from that for a year or two it would have grown and become more valuable!
So everything about Timberland is great right? Totally the best asset class to be invested in the way I’m talking right? Well here’s the thing. At AcreGator we want to help you find your dream property, and some of our fantastic sellers happen to flog natural forests
so I’m incentivized to talk it up.
What’s the downside of timber?
Well it’s not a super liquid asset. That means it’s not like a stock or bond in that it’s super easy to sell it to the next guy for cash. In fact selling a piece of timberland can take months if not years.
Bear in mind that timber is a long term investment. Think if you buy a piece of land with little baby trees on it for 50,000 chances are if you tried to sell it again the next year the harvestable lumber on the property wouldn’t have increased that much, so there isn’t a ton of upside in the short term. Of course you’ll be able to enjoy the property in the meantime, but hey. It’s worth mentioning I think.
Then there’s always the chance that the demand for new housing drops, and alongside that lumber prices drop. So keep in mind that!
How do you make money on timberland?
Plenty of ways, but let’s just bang out the easy ones here first.
Maybe your land becomes more valuable? Does the property you want to buy border a place with a growing population? Well, maybe then you’ve got a piece of land that a real estate developer would love to sell lovely single family homes on? So in that regard timberland is basically like normal real estate.
Timber prices increase: Again like I was saying at the beginning of this article, more people want to buy houses, so builders buy more wood to make them. BAM. Econ 101 right there buddy! Right now Timber prices are doing well here in the US because China keeps buying our wood to build their cities, and our traditional competitor Canada has been ravaged by the dreaded pine beetle, and next to half of timberland in western Canada is caput.
Just Letting it grow. Wood, even of the same species, is not all the same. Larger trees can be turned into more valuable products. Pulpwood, which comes from the smallest trees sells for a much lower per ton price than does the wood we use for general construction. So just by “hanging out in the woods” you can see your trees morph from being $7/ton trees to becoming $30/ton trees! It’s kind of crazy. So the rate of appreciation actually ticks up the longer you leave it there on the stump. It’s basically nature’s compounding interest!
Oh and let’s not discount the possibility of carbon credits in the future, when companies will pay you to ‘sequester’ carbon so they can go ahead and put more into the atmosphere. I don’t know it’ll ever actually go through, but maybe?
How much timberland do I need to make it ‘real’?
First off, great question. Scale does matter in the timber industry. But it’s not as draconian as you might think. There are many investors who pick up properties as small as 10 acres and are able to make a go of it. But as with so many things in life bigger is better.
What makes a good timber property?
Who will buy your timber? Well this is an easy answer. Beavers don’t have money, so you’re going to want to purchase your land in a place that has at least 1 mill nearby that already purchase the types of trees that grow on the property.
Your solid should be good. What makes good soil? Well it really depends on the type of tree you’re looking to grow. Oaks have different requirements than pine trees. Do some more research, and maybe talk to some forest managers for a better idea of it all.
You need to be able to harvest or log the timber when it’s the right size. That seems obvious, but really this means don’t expect to run a huge timber operation on the side of a cliff as it’s very hard to drive a giant chainsaw tractor up a cliff. Trust me, I’ve tried. I’m typing this with just 8 fingers. Jk.
It should have a good price! Compare yields and profit of timber operations in the area you’re looking at to other asset classes. Does the timeline and rate of return work for you and your financial goals?
In summary, timberland offers a unique long term investment opportunity that can be enjoyed while you watch your balance sheet literally grow. Maybe you end up subdividing and selling wooded lots, or maybe you just sell the building material to some other developers? Either way, it’s pretty cool and you can camp, hunt, hike, and fish on a property like this. You can’t do that with your precious metals and you certainly can’t do it with your index funds.
I’ll leave you with a terrible pun. Who WOODn’t want to buy timberland?