Even if you’re new to timberland investing, you’ve probably guessed that buying a tract of land is somewhat different from buying other types of real estate investments. On the surface, buying timberland may seem far less complicated than buying most other types of real estate. And in many ways, it is. The lack of structures, alone, greatly reduces the potential risks and problems associated with the investment. At the most basic level, the only things to consider when investing in timberland are the value of the land and the value of the timber (if any) that’s on it.
Just as land transactions differ from residential ones, so do the agents that handle them. Land agents and residential agents are not interchangeable. There are certain challenges and aspects of timberland properties that residential agents are not familiar with. Things such as access (or lack thereof), timber deeds or leases, hunting leases, mineral rights, standing timber values, conservation easements… The list goes on and on.
So, before you begin your search for the ideal tract, the first thing you need to do is make sure you are represented by a qualified land professional that is knowledgeable in all aspects of timberland transactions. Your agent should have extensive knowledge on timber growth, stocking and harvesting. They should also have a reasonable understanding of the local timber markets, such as what mills are in your area, what kind of timber they buy and what types of products they produce.
In most cases, buyer representation doesn’t add anything to the cost of a land purchase. It truly serves as a helpful and valuable source for information. A good buyer’s agent will use his knowledge and experience to help you ask the right questions, select the right property and negotiate the best purchase price. They also have a fiduciary responsibility to you, which means it’s their duty to protect your interests.
In many cases – such as mine – your agent may also be a consulting forester. If they are not, your next step should be to talk to and engage the services of a consulting forester alongside your agent to help evaluate potential properties. Working with a consulting forester is important because they can help you set your ownership goals and develop a management strategy for your future property. This will further help you to identify which properties you should be interested in.
A forester can also provide valuable insight into the true value of a property by assessing the market value of the timber standing on the property, evaluating the land’s capacity for future growth, and recognizing potential limitations and challenges to harvesting timber. Even after making a purchase, you’ll want to keep working with your consulting forester to establish your timber basis. Your forester will also make sure that you are following your management plan and doing everything possible to meet your goals and maximize the return on your investment.
After you determine your goals for property ownership, you’ll need to decide how much you want to invest and how to invest it. Are you planning to pay cash or will you be financing your investment? Do you want to buy one big tract or several smaller ones? Do you want to continue to invest over time or is this a one-time purchase? Are there external factors or limitations such as 1031 exchange or an estate issue that might influence your purchase? These are questions that your agent and forester can help you answer.
You should also consult with your CPA or financial advisor to ensure that you are taking the proper steps to maximize the financial benefits of land ownership while minimizing your tax burden on any revenue generated from it.
Once you have your team in place, have determined your goals and identified a strategy to achieve them, you can begin to evaluate what’s on the market, what’s available. And with the help of a land professional, you can find your perfect property.
At National Land Realty (NLR), when you work with a land professional, you not only get an experienced and knowledgeable land agent, but you also get the benefit of our GIS technology and Targeted Acquisition Platform (TAP) that work to identify tracts that meet your specific needs. Our GIS team consistently works on collecting all the data from our markets. So, if you want a timber tract with some open fields on it or a pond on it, we can find the ideal property for you and your goals.
Ultimately, your team of professionals will help ensure you make money on every purchase. There’s a saying in the land business that says, “You don’t make money when you sell a tract of land, you make money when you buy a tract of land.”
The last step – and the most crucial one – in the timber investing process is the actual purchase. But, we’ll save that important topic for discussion in the next several installments of this series, where we’ll examine in greater detail the important qualities of a tract of land and how they can affect its value.
If you have any questions or comments on timberland investing, don’t hesitate to reach out to me directly at firstname.lastname@example.org.