What You Should Know About Timberland Investing Part 2
As discussed in Part 1 of this article, timberland is a prudent investment when done right. Whether you’re looking for vacant land for sale in Florida or for timberland that has already been planted, it pays to work with experienced land professionals.
There are numerous ways that timberland can prove a worthy investment, and the appreciation of the land itself is one of them.
The amount your land will appreciate depends on the rate of growth in your area(s). In areas of slower growth, land appreciation will likely only contribute 5 to 7 percent of your overall asset appreciation. However, in areas that are experiencing rapid growth, it has the potential to account for far more.
Real Timber Price Increases
Naturally, the real price of timber will have an effect on your land’s profitability. Softwood sawtimber pricing is largely dictated by the construction and housing markets. Sixty-five percent of softwood timber demand is from construction and about 66 percent of that demand is from new construction.
The housing market has been steadily improving, and timber prices have risen with it. Timber prices are forecasted to reach new heights within the next few years.
Forest Product Growth
Forest product growth comes from the trees’ biological growth and consequent change in forest product class.
Trees are considered merchantable when they are large enough to be sold to a timber buyer. Once a tree reaches a certain size, it can be sold for pulpwood, and if it is allowed to mature to a greater diameter, it can be used to manufacture plywood or large division lumber. When a tree has reached this size, it is worth significantly more.
Paper Products vs. Wood Products
If you plan on using your Florida vacant land to grow timber for paper production, your trees can be harvested by the time they are eight inches or less. For wood products such as furniture, flooring, or plywood, you will need to wait until the trees have become high-value sawtimber at about 12 inches in diameter.
An Underestimated Investment
Did you know that if you had invested $10,000 in timberland in 1971, you would have had $1.65 million by 2010?
Even though timberland is now a more popular investment than it was then, it is still largely underestimated. One of the major issues is that investors do not know enough about timberland or don’t believe in its potential. When investors don’t do research on this field, there is no way for them to see that timberland provides an average return of 14 percent. Like any investment, educating yourself on both its potential and its risks will help you make an informed purchasing decision.
Fortunately, the general lack of awareness can be your reward. Since timberland isn’t one of the most popular types of investments, there are still plenty of valuable properties for sale.