Is it a good idea to invest in timberland? While the answer to this question rests solely on one’s risk tolerance, time horizons, and overall investment objectives, timberland and forests are one of the most versatile and robust investments you can own, and it is a great addition to almost any portfolio. Here are the Top 10 reasons why:
1. Cash Literally Grows on Trees
We’ve all heard the old adage that money doesn’t grow on trees. Well, actually, it does! Most people think of trees as extremely slow-growing, so growing trees for timber or firewood production doesn’t cross the minds of many when they think of making money, but trees grow incredibly predictably and consistently. Well-managed, a forest can produce predictable and sustainable cash flows every year. Take an example of a 100 acre woodlot. Assume each acre grows .5 cords/acre/year. Now assume each cord could sell as firewood for $100/cord. That means each year the woodlot produces $5,000 in firewood!
2. It’s an Investment You Can Use and Enjoy.
When you own Timberland, you own a beautiful piece of forest land that you can walk through, hunt, fish, snowshoe, and use for many other outdoor activities. Money in a 401k or brokerage account can certainly be profitable, but it can take decades, and you can’t enjoy it in the meantime. Owning Timberland allows you to benefit directly from these long-term investments while it appreciates.
3. It’s Real Estate
While timberland can produce revenues from the timber it produces, leases, and other streams, it is ultimately a plot of land, and simply owning timberland can give you beneficial exposure to general appreciation of real estate markets, though this is more speculative.
4. Camp Leases
Provided your timberland parcel is big enough, you can lease out favorable acres for people who wish to build camps. This gives you yearly lease income without any liability of owning a building. It’s a great way to build passive income!
5. Hunting Leases.
In some states where deer are plentiful but public land is not (or rather, public land that is not a crowded circus), hunters will pay you to be able to hunt your forest land. Like the previous reason, it is a great way to derive a revenue stream without any upkeep or liability (although the specific liability may vary from state to state.)
6. Maple Sugaring and Christmas Trees
While timber is the biggest and most obvious benefit of owning timberland, there are regional products that can potentially be more profitable than the timber that would otherwise grow there, such as maple sugaring (maple syrup) and growing christmas trees. Be warned though, that these businesses are not as passive as simply letting trees grow. They take planning, investment, time, and maybe marketing.
7. Tax Benefits
While you should always consult a qualified accountant over anything tax related, many states do offer tax breaks for timberland. In Maine, where I live, there is the “Tree Growth Tax Law,” that massively subsidized property taxes due, and if done properly, sale of standing timber should qualify for capital gains tax.
8. Campsite and Cabin Rentals
If you own a piece of timberland that is particularly unique or beautiful, or if your forest land is located close to a metropolitan area, it could be quite profitable to build some small campsites or a small cabin/tiny home to rent out. While, once again, this can be less passive than simply growing timber, with some creativity, it can be more passive than you think.
9. Build a Wildlife Sanctuary
Believe it or not, a forest is not necessarily a great place for animals to live. If trees are too mature, there can be a lack of food, if trees are too young, there can be a lack of cover or too much cover. Every species is different, and when you own timberland, you can turn your parcel into an oasis for your favorite species, or all species, if you choose. While some people simply love wildlife, optimizing your property for moose, deer, or elk is a great way to improve a hunt or make your property more valuable for hunting leases.
10. Nothing Gives You Satisfaction Quite Like Owning Timberland.
At the end of the day, your parcel of forest is yours. You own it. You grow it. You manage it. You harvest it. There are few other investments where your portfolio can be seen from Google Earth. Owning timberland can therefore give you a feeling of satisfaction and meaning unlike anything else. Ask anyone who took the plunge!