Timberland as an Investment
Jay Hayek, University of Illinois Extension Forester
to Farm Direct
you're a savvy
investor, you know your
financial portfolio should include a retirement plan, some stocks, some
bonds, a money market fund -- and that timberland you
inherited from your grandfather 20 years ago.
Timberland as an investment?
"Absolutely," says University of Illinois Extension Forester Jay Hayek.
"Timber is a commodity, and it needs to be treated like any other
investment a landowner manages."
Standing hardwood timber is a niche market, with traditional up and
down cycles, and no one knows that market better than timber buyers,
loggers and professional foresters. That's why Hayek gives every forest
landowner the same advice concerning their timber.
Multiple academic studies and personal experience have shown
significantly greater net financial returns to those forest landowners
who choose the services of a professional forester over selling their
timber directly to a logger.
- Don't just sell
your timber to the first logger
who approaches you. Market your timber. The best way to do that is to
contact a professional forester.
- The forester
commonly determines how much money
the landowner would
like to see from the sale and how they would like their forest to look
after it's done.
- The forester
will 'cruise' the timber
and conduct a thorough forest inventory of the merchantable trees.
He'll mark the saleable trees in a scientific way, paying close
attention to critical details, such as species of the tree; the tree
diameter; tree defect and log grade; forest growth, vigor, and
regeneration; as well as biological and financial
that information is collected, the forester will write it up in a
detailed document and mail it to licensed timber
buyers. Those interested in the standing
timber will submit a sealed bid by a set date. The landowner then opens
the bids and commonly awards their timber to the highest bidder.
- Avoid, at almost
all costs, selling your timber
'on-shares' unless explicitly directed by a trusted professional
- After the timber
is awarded, the landowner and
timber buyer sign a
detailed, legal timber sale contract reviewed by an attorney, If the
timber buyer balks at this request, simply tell him you are not
interested in doing business with
him. There is no such thing as a handshake contract in today's
litigious society. Remember, according to the IRS, selling timber is a
- Details of the
contract should include the
price to be paid and the
number of trees to be harvested, which are properly marked and
identified in the woods. There should also be provisions for how much
residual damage is acceptable. Loggers use heavy equipment in
the forest to remove the trees, and there is a certain amount of
nominal damage and disturbance that is allowed. Anything beyond that
stated in the contract would have to be paid for
or remedied by the timber buyer or logger.
- Specify the
duration of the
contract. Don't allow the loggers to take eight years to get
off your property. Determine a set amount of time, typically 12-18
- Aa landowner's
contract will have provisions
very stiff penalties if any trees are taken that were not marked or
indicated in the contract.
There really is a right way and a wrong way to market your timber,
according to Hayek. "Astute forest landowners will treat their standing
timber just like their 401K or their IRA. It's simply another
long-term investment tool that can be a vital part of their financial
portfolio. Therefore, manage it wisely."
On Private Property
Years of Business
Show Your Timber! poster