need an opinion on this great idea i added to my agenda to save forests. i will try to get a loan to buy a timberland and have a timberland management company on a contract basis manage the land. when the loan is paid off from the timber sale money and recreational leases i will get another loan to buy another forest but this time the loan can be paid off faster because there are two forests and the previous timber land and new timberland will act as double collateral for the loan and it will triple and quadruple and so on. basically a massive conservation machine lol. does anyone see this as a great way to save the forests from development and things like fracking and other stuff? i will put working forest conservation easements on every land i would buy immediately.
Well, if by "forests" you mean "any old trees" and by "conservation" you mean "don't care what condition the soil and forest ecosystem is in", then I guess it could sorta work.
Potential problems I see:
1) Economics. Existing stands will be priced into the land using the standard unsustainable harvest rates. Either you'll have to cut too much too soon, or your timber income won't sustain your mortgage.
2) Environmental. Not all forest is created equal. Normal commercial forestry practice is to establish fast-growing monocrops that support poor species diversity on the land. If you want healthy forest ecosystems, you have to manage for that, reducing forestry yields and driving up your management costs. Harvest is also an issue; loggers hate best management practices and need to be closely managed. Your management company cannot be relied upon to maintain the forest and its soils as you would want, unless its managers and employees and contactors share your conservation ethic (they don't and won't).
Sustainable forestry is possible. Sustainable forestry that's profitable enough to pay for third-party management while ALSO paying off its own initial land-puchase capital costs? That sounds unlikely to me.
For what it is worth I have experience in this sort of realm, and the simple answer is that if it were that easy it would already be done.
I agree with most of what Dan said. The one caveat would be that where you are wanting to do this project will determine what commercial forestry looks like. There are many many parts of this country where plantations and forestry mono crops are not the norm and do not bring enough return on investment for them to ever become the norm. Nearly everything else he said is spot on, right down to the difficulty in finding foresters and contractors who would be willing to give your project/management philosophy the time of day. When working with timber you usually pay your bills with the quantity of wood and make your money on the quality. In many locations you must have more than 40 acres to be harvested to justify a loggers fixed costs in moving machinery to a site. With that small of a tract you will have to cut it pretty hard to get enough dollars out of the woods to attract a consulting forester on a % basis. The more acres you own the more options you have and the better your management can be. I was chief forester for a 160,000 acre landowner and I could manage much differently that most foresters because of the resource base at my disposal. I literally had enough land to keep loggers in work for their entire lives, if you only own a few hundred acres it is much more difficult.
The real trouble with timberland investing is the long term nature of the beast. It is nearly impossible for an average joe to get a raw land loan on speculative timber ground, even with a solid business plan, you must build a house or run cattle for most banks to even look at the application. Even though forest economists will show long term returns of 10% or so on timber those calculations have to be grown out over 50-100 years and it is very difficult to assume prices at that sort of a time range, those rates include increase in land prices as well, and that is not usable income if you plan on keeping the land. An average annualized return on hardwood timber ground managed conservatively using single tree selection methods (not clear cutting, doing commercial thins every 15-20 years and always leaving the best quality trees for future harvest) will only be 1-2% for the first 30+ years. Of course those numbers really depend on what the tract of timber you find is, but it is not easy to find quality timber ground in small enough acreages to afford with good enough timber standing to pay off the land costs in a life time. Those tracts have been bought long ago. If you find one BUY IT! I still work in the industry and the only folks buying timber ground commercially right now are paying top dollar, clear cutting it then splitting it up into 20-40 acre "hunting" tracts. They are making their money off the real estate more than the timber. With current timber/land prices in the areas I work (currently the mid-west and upper mid-west) I have yet to find a piece of ground that I could buy and pay off with just timber dollars without having to rape and pillage, and I am looking. If you look at most of the large timber companies in the U.S, think Plum Creek, Potlatch, Weyerhauser, they are now REIT (real estate investment trusts) not technically timber companies, this has specific tax benefits, but it also allows for land speculation as well as timber production.
So...is your plan possible? Sure, the gentleman I worked for paid cash for 160,000 acres of mostly cut over land in the 1950's. He hired a forestry staff, began light thinning harvests, and within a few decades was breaking even on the operation. Fast forward 60 years, the forest is worth 250 million dollars with over a billion board feet of standing hardwood timber and the annual income from timber sales exceeds the initial invested amount for the land in 1950. If you talk to the company accountants they want to sell the land and invest in ANYTHING else because the annual rate of return is less than 1% of total land valuation...forest economics require a long term approach or it doesn't make sense. You could replicate this model but you must have enough money to pay cash upfront, if not the numbers become very hard to make work considering the sporadic nature of timber harvest income (at best 1 out of 10 years on any individual tract) the best case scenario annual rate of return and the reality of making payments every month on the land. You are totally right that once you get that first piece paid off you could begin a slow snowballing effect and expand the operation, but I will warn you that you MUST buy the right pieces of land every time to make that work. Not all trees nor timber ground are created equal. Discounted land is usually cheap for a reason and quality land is usually expensive for a reason. Also, consulting foresters are generally expensive and grumpy folks that can be tough to work with and bring on board for out of the box ideas.
Good luck on the project, I'm not trying to put it down, but there are some long term planning and financing issues that will be important to figure out to make this work.
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