Timberland: A sound long term investment option?

Pine Timber

Longleaf Line Timber

Timberland in our area of North Florida almost always means Pines. Since Pine is the type of timberland that is the most common, it is what I will focus on in this post. The principals of this post will apply to almost any kind of timberland or other long term crop.

What makes owning and investing in this type of property such a sound investment you ask? There are several factors that contribute to the profitability, enjoyment, and ease of maintenance of this type of land.

Lower Taxes

As opposed to how other land investments are taxed, agriculturally zoned land is treated more as land with very little value other than the crops that are grown on it, and thus it is taxed by the local authorities at a highly reduced rate.

For example, Let’s say you have 100 acres of raw land and that raw land is worth $3,000 per acre. The property appraiser values your property at market value of $300,000. Let’s say your property tax millage rate is 15% for easy math purposes. Your real estate property tax would be $4500.00.

Now, let’s suppose that same property is planted in Pine Timber and zoned Agricultural Timberlands. Because of the zoning the assessed “value” (Ag value has nothing to do with market value of land) of the land would be extremely low. Most likely less than $20,000, but let’s use that figure for this example. At the same millage rate of 15%, your taxes on the same land zoned AG would be $300.00. A savings of $4200.00 annually.

Crop Value

Pine timber in north Florida is typically grown for either pulp wood production or pole timber production. Pulp timber is grown for a much shorter time and is a smaller cash value crop. Ill focus on the longer process of growing pole timber. Typically, Long-leaf Pine is planted in rows approximately 10 feet apart and spaced about 5 feet apart as seedlings. These young trees grow very fast. Within 10 years the trees will be approximately 20-25 feet tall and will have become quite thick. It is at this time that the trees go through their first thinning process. Logging crews are hired to take out rows of trees, typically every third row, commonly called third row cutting. These trees have little value other than pulp wood. This process usually nets about about $300.00 per acre. On a 100 acre tree farm, that’s about $30,000.

Then in another 5-7 years the another section of trees are cut, usually every other tree out of the remaining two rows. This cutting generally nets around $500.00 per acre with more value from larger trees. Again this cutting would produce about $50,000 in income. It’s at this point that your farm would start to resemble the “Plantation” look that so many of us associate with Timberlands.

It’s also at this point that the timber will have value as pole timber vs pulp timber. Approximately 5-7 years from the second cutting a third cutting is performed, often called select-a-cut, as the trees that are cut are selected for their maturity and location. The goal is to thin the existing trees allowing even and mature growth out of tress left in place. Thickness is reduced by about 50%. This cut will produce approximately $1000 an acre or $100,000.

Finally, the last cutting will be performed about 5-7 years from that point and all remaining trees will be cut. This cutting generates maximum value with some locations generating upwards of $2000 per acre. $1500 per acre is a more general rule of thumb depending on the timber market prices which can fluctuate generally with the housing market. The final cutting nets $150,000.00

Over the course of 25-30 years the crop has returned $330,000 in Timber income. The land is cleaned up and replanted and the process starts again.

Low Maintenance

During the timber growing process the maintenance of your crop and of the land remains relatively low. The primary process of maintaining the crop other than mowing, is controlled burning. This process reduced underbrush and competition to your crop of growing pines. It also reduces the risk of wildfire damage to trees with too much underbrush fueling the wildfire causing your entire crop to be lost. Typically burns are performed every 2-3 years on most Timberlands, along with some mowing and roller chopping periodically. The cost for burning and mowing on property the subject size of 100 acres, varies but averages around $3,000 per year. Meaning over the 30-year life of the crop the expected expense will be around $90-100,000.  Considering our income example above, this equates to a near $230,000 net income over the life of the land.

Use and Enjoyment

One of the great benefits to Timber production is that during the process the land can be used for recreational purposes like hunting, ATV riding, horseback riding, nature watching, camping, and in general all recreational activities. Unlike other farm crops which will be damaged by recreation and must be avoided during the growth stages, Timber land provides a great place for outdoor recreation at the same time the value of the timber is continuing to grow.

Lifetime Value

Looking at our sample 100 acre timber tract, you start with land valued and purchased at $3,000 per acre. You then plant and farm that timber over 30 years during which you harvest approximately $330,000 in timber value. That income is offset by fire and mowing maintenance of $3,000 per year, and annual taxes of $300.00 per year for a 30-year net of approximately $230,000.

Subsequently the land could be replanted and the process starts again, making it an investment you can leave your loved ones to inherit and reap the timber benefits themselves. Or after the process is complete you can sell the land.

Let’s assume you sell. Now that that the land has been stripped of timber value it is no longer worth what it would be but that diminished value has probably been outpaced by appreciation over the 30 years it was in production. Over the last 30 years land has averaged appreciating over 40% total, so these numbers could be much higher. Assuming that hasn’t been the case but the land is still worth $3,000 an acre without timber on it, 30 years after you bought it, your sale of the property will bring the $300,000 original investment back coupled with the $230,000 in net profit over 30 years. Or a return on your initial investment of 76 %, roughly 2.5% annually. Not bad for a low risk investment.

Land doesn’t evaporate like stocks can, even during the worst of times the land is there providing a benefit through use and enjoyment with timber still growing on it. Because it is such a safe and user friendly long term investment, Agricultural Timberlands are some of the strongest long term investment performers, and something that we specialize in here at Waypoint Properties.

Credit: Joshua E. Brown, 2016