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Help with analyzing a TIMBER investment opportunity

Started by JWillis, February 06, 2018, 08:31:47 PM

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JWillis

Am a rookie to investing in timber.  Done the best I can to research,  but know I am duck out of water.  Could use insight from more experienced people on this board.  Can you help me assess this situation?

There's a 34 acre parcel of land I would like to own.  No structures on the land,  100% planted in Loblolly. Western North Carolina  Current owner gives me this info about the stand:

2008 Assessment (18 yrs old - planted in 1990).  BA 140-190.  DBH 4"-6".  SI 75-85
2013 Valuation (23 years old). SawTimber 14.4 MBF - $2,017.  PulpWood 1,036 Cords - $16,675.   So,  total value of stand estimated at $18,593
Never been thinned !

Tell me if you think I'm doing this right.   

Like a final exam in Forestry Finance ... Using this 2008 and 2013 info,  I need to figure out what this stand is worth today, in 2018.   So, this is my back of the envelope method. 

2013 tonnage
SawTimber 14.4 MBF x 7.75 conversion factor = 108 tons 
PulpWood 1,036 Cords x 2.68 conversation factor = 2776 tons
108 + 2776 = 2,884 tons/34 acres = 84.8 tons per acre for 18 year old un-thinned stand (am told this is reasonable)
so,  5% SawTimber to 95% Pulpwood ratio.

To get from 2013 to 2018,  assume that stand adds about 3 tons of wood a year (am told this to be good rule of thumb).  So,  3 tons per year x 34 acres x 5 years (from 2013 to 2018) = 510 additional tons + 2884 in 2013 = 3394 tons in 2018.
Don't have a clue as to breakdown between Pulp, ChipNSaw, SawTimber for this now 28 yr old never been thinned stand.   Assume 20% SawTimber,  80% Pulp?
If so ... SawTimber 679 tons + Pulp 2715 tons = 3394 tons in 2018

Then,  applying current market rates ...
SawTimber 679 tons x $23.99 per ton = $16,265
Pulp 2715 tons x $10.77 per ton = $29,240

So,  if I clear-cut this,  it would be reasonable to think I might be able to get $45.5 K for this 28 year old stand?

Appreciate any insight you fine folks can provide.

WDH

You are making a lot of assumptions and guesses.  Why don't you just get the tract cruised by a Forester and you will have your answer and it will be accurate.
Woodmizer LT40HDD35, John Deere 2155, Kubota M5-111, Kubota L2501, Nyle L53 Dehumidification Kiln, and a passion for all things with leafs, twigs, and bark.  hamsleyhardwood.com

JWillis

Absolutely.  Eventually. 

But, no sense in doing that yet,  if the gap between the seller and me in terms of value expectations is unrealistic.   So,  would like to make an educated,  back of the envelope pass at the TIMBER valuations first.   

Am I in the ballpark?  Is there a better way to approach making a valuation estimate using the info I've been given? ... before having to hire an expert.

Southside

I agree with WDH on having it cruised, that having been said I find it difficult to assume the increase in saw timber % given the lack of any management, I could be wrong here but I have seen some old, stunted wood. 

What jumps out at me is that assuming your numbers are right then this stand generated an average of $47.80 / acre / year in GROSS revenue.  Just assuming $1K / acre, 6% interest, over the 28 year period "costs" $38 / acre / year in interest (think cost of the money to own it even if it was clear) alone, add in $10 for taxes and it's under water. 

Unless it has some serious value to you for another reason then as a timber investment opportunity it does not seem to pencil out very well. 
Franklin buncher and skidder
JD Processor
Woodmizer LT Super 70 and LT35 sawmill, KD250 kiln, BMS 250 sharpener and setter
Riehl Edger
Woodmaster 725 and 4000 planner and moulder
Enough cows to ensure there is no spare time.
White Oak Meadows

mike_belben

 short of a nuclear plant going in next door property value only rises long term, as the printing press belches out benjamins.  Realistically the land holds its value while the dollar loses it. 

I dont know a thing about plantation pine but id be cautious in assuming that your sawlog percentage went from 5% of the stand to 20% of it.  Would that be realistic if there was never any thinning?  I have no idea, but theres no chance of that type of natural improvement in my hardwood lot without labor.  Apples to oranges, but worthy of consideration.
Praise The Lord

GAB

JW:
Personally I think you should be subtracting the costs associated with harvesting and getting the product to market to get a more realistic value.
Gerald

W-M LT40HDD34, SLR, JD 420, JD 950w/loader and Woods backhoe, V3507 Fransguard winch, Cordwood Saw, 18' flat bed trailer, and other toys.

Gary_C

I agree with WDH. The actual condition of a 28 year old stand is far more valuable than all the estimates and assumptions you can put together. There are a whole lot of things that estimates and projections can't tell you.
Never take life seriously. Nobody gets out alive anyway.

curdog

I'm not going to make assumptions, but I will say that I have seen tracts in WNC, that are roughly the same acreage, they have been thinned, trees are older and the tonnage is considerably higher than the numbers you have, that brought less than you are estimating. I would get a cruise done and reevaluate your stumpage price... I think your stumpage is higher than what I've seen most landowners getting.. especially on pine pulpwood.

Good luck on your purchase..

JWillis

Not many helpful comments.

Get it cruised?   Here's the brutal reality of TIMBER ... you don't make anything off Timber.  Its a hobby, not profitable.  Using the latest per ton market rates in Western NC

Pulp $10.77
ChipNSaw $18.52
SawTimber $23.99

Assume thinning at 15, 23.  Clear-cut at 35.   Acreage cost around $2 K per acre.  Normal costs for planting,  taxes,  et al.

You get a 2 to 3% IRR on your TIMBER.    That's it.  That's all.

From that standpoint,  I get pretty frustrated in reading all the posts on this board that suggest I pay to have an analysis,  or pay for a management,  or pay for this, or pay for that.   It's like telling the homeless guy standing in the soup line that he has to pay $10 to get served.

When industry customers are making squat,  you can't run around suggesting they drop all kinds of money,  when there's nothing in the cash drawer.

Raider Bill

Quote from: JWillis on February 06, 2018, 08:31:47 PM
Am a rookie to investing in timber.  Done the best I can to research,  but know I am duck out of water.  Could use insight from more experienced people on this board.  Can you help me assess this situation?
Blah blah blah...

Appreciate any insight you fine folks can provide.

Not many helpful comments.
From that standpoint,  I get pretty frustrated in reading all the posts on this board that suggest I pay to have an analysis,  or pay for a management,  or pay for this, or pay for that.   It's like telling the homeless guy standing in the soup line that he has to pay $10 to get served.

1st post you ask for help, 3rd post you insult them for trying to lead you in the right direction.
Can't wait for your 4th post

Oh and welcome to the Forestry Forum.


The First 70 years of childhood is always the hardest.

JWillis

Yeah,  thanks for your help,  there ... Raider Bill.   

Texas Ranger

2008 Assessment (18 yrs old - planted in 1990).  BA 140-190.  DBH 4"-6".  SI 75-85

Planted in 1990?  28 years old?  DBH good indicator it is a suppressed stand.  Management needed, now, not later.  Add management costs to property value, may not be a viable investment.
The Ranger, home of Texas Forestry

kenfrommaine

If no money availabe for a pro. then you can always spend a day or two walking the lot and counting trees and checking the quality of the timber. Take some measurements and come up with some averages, it really is not hard, just takes some time. Learn  to estimate the height of the timber, then do the math. Check local stumpage prices, check what the mills in the area are paying for delivered logs most will give you a price sheet. Lots of variables to factor in also, lay of the land, rocky, swampy etc those will also affect the value of the wood. If you are only looking at it for the timber value and plan on selling the stumpage then the value will be lots lower then if you cut it yourself and haul it yourself and get every dollar of value from it. Good luck with what ever way you decide to go.

Jeff

Quote from: JWillis on February 08, 2018, 02:34:02 PM
Yeah,  thanks for your help,  there ... Raider Bill.

His observations are spot on. Tred lightly. You are on the Forestry Forum. You need to understand that pronto or things can change for you here suddenly. You are getting sound advice from some industry professionals. If that is not what you wanted, then don't ask for it. Be nice or be gone.
Just call me the midget doctor.
Forestry Forum Founder and Chief Cook and Bottle Washer.

Commercial circle sawmill sawyer in a past life for 25yrs.
Ezekiel 22:30

maple flats

To me it just looks like you are waiting for one "expert" to agree with you and then you will think it's gospel. Either get a cruise or jump in blindly.
A planting that has had no improvement cuttings is generally a poor investment, unless you are prepared to do the improvements and wait the time required for the improvements to generate the results.
logging small time for years but just learning how,  2012 36 HP Mahindra tractor, 3point log arch, 8000# class excavator, lifts 2500# and sets logs on mill precisely where needed, Woodland Mills HM130Max , maple syrup a hobby that consumes my time. looking to learn blacksmithing.

SwampDonkey

Don't try to make a valuation from a model of assumptions using old measurement data unless you are really experienced with the forest in your area and then be cautious. You need hard data to get a snapshot in time as close to current sales date as possible. You need a cruise and current local mill price data as was already suggested.

As an aside: Even the big players don't just rely on off the wall assumptions with their growth models. There is also hard data. They have permanent sample plots on their land base, both industry and government and on private woodlots to monitor growth from many variables. Many of their model assumptions are based on experiences of the past for that land. They do not walk blindly. ;)

In the end, you will have at least one of three responses 1) your too low, 2) so and so offered me more (now your in a bidding war if you choose to partake)  3) show me your data, I think we may be able to work something out. ;D
"No amount of belief makes something a fact." James Randi

1 Thessalonians 5:21

2020 Polaris Ranger 570 to forward firewood, Husqvarna 555 XT Pro, Stihl FS560 clearing saw and continuously thinning my ground, on the side. Grow them trees. (((o)))

JWillis

Texas Ranger ... yep.  Not viable.

2.31% IRR on the timber.
5.60% IRR if the seller cuts his asking price from $2350 to $1200 per acre,  which won't happen.   

Assumptions:
Pulp $8.35 per ton
ChipNSaw $17.06 per ton
SawTimber $23.99 per ton

Yields and Mix:
Thinning #1 ... 25 tons ... 100% Pulp
Thinning #2 ... 30 tons ...  40% Pulp, 45% ChipNSaw, 15% SawTimber
Clear-cut ... 85 tons ... 2% Pulp, 12% ChipNSaw, 86% SawTimber

This parcel doesn't need a Timber investor.  It needs a home owner who wants a forest to walk his dog in.

Jeff - Yes,  I will be gone.  Not because of your threats,  or Raider Bill's asinine comment.  I'm leaving the board after a brief presence because there's no one here with any financial modeling acumen.  I've come to learn that the entire industry is woefully lacking in talent to assess the financial returns from owning TIMBER.  Wet your finger,  stick it up in the air, and guess ... appears to be the main mode of operation in the US Timber Industry.  It's dominated by Axe Jockies and Chain Saw Bubbas.

TIMBER is a hobby,  not a viable investment.   That's what I've come to learn and understand after a couple weeks of deep dive into the economics of TIMBER.

Jeff

Just call me the midget doctor.
Forestry Forum Founder and Chief Cook and Bottle Washer.

Commercial circle sawmill sawyer in a past life for 25yrs.
Ezekiel 22:30

Jeff

Two weeks to make a timber industry Genius?  WOW!
Just call me the midget doctor.
Forestry Forum Founder and Chief Cook and Bottle Washer.

Commercial circle sawmill sawyer in a past life for 25yrs.
Ezekiel 22:30

SwampDonkey

Gee, Maritime Ranger School thought they covered it all in 1 year diploma versus a 5 year degree, now someone claims they know it in 2 weeks.  Winter is lingering on. :snowball:
"No amount of belief makes something a fact." James Randi

1 Thessalonians 5:21

2020 Polaris Ranger 570 to forward firewood, Husqvarna 555 XT Pro, Stihl FS560 clearing saw and continuously thinning my ground, on the side. Grow them trees. (((o)))

Gary_C

Quote from: Gary_C on February 07, 2018, 02:47:33 PM
I agree with WDH. The actual condition of a 28 year old stand is far more valuable than all the estimates and assumptions you can put together. There are a whole lot of things that estimates and projections can't tell you.

Oh wow. You are certainly coming here bound and determined to insult everyone. Normally I would just wave goodby but I will add this in hope that I can help in some way to help you see what you are missing.

If you notice I did not suggest you get a cruise. I am not a forester and never do cruises though I may have the ability to do a half fast one. I am a buyer and cutter of timber sales. One of the last things I would do is buy a timber sale until I put my boots on and took a walk thru the stand to see what it looked like. Yes, I can go to Google Earth and see what it looks like from above, and most of the sales I look at have been cruised by a state forester. Doesn't make any difference who cruised it, the most important thing is what I see on the ground and in the stand.

So what we are all telling you is your numbers don't mean much to any of us without actually seeing the conditions in the stand.

But if you want to buy a "pig in a poke," feel free to do so. Just don't complain later if you get the short end of a IRR.
Never take life seriously. Nobody gets out alive anyway.

mills

Dang it boys, I didn't realize that we were indebted to him. Maybe the next bunch he talks to will tell him what he wants to hear. :D

Back last summer I walked a guys woods with him. Told him a guesstimate on what I thought his part would be. Come to find out that he knew quite a bit more about it than I did, and I wasn't no where near correct on the value of his timber. I laughed and drove off. Then found out that the next guy he had come in basically told him the same thing. But that logger told me he wasn't laughing when he left. Think it got pretty heated. The landowner eventually got it cut by someone a couple of counties over. Haven't heard how he came out yet. Wanna bet on who was closer?  :)

mike_belben

I hear theres some really good returns to be had in speculating bitcoin right now.   Oh wait, thats crashing.  Maybe stocks..  ?    No, those are crashing too. 

Timber is a slow and steady living for a lot of people.  A hard one, but a living.  It is not a get rich quick scheme.  But it is a return backed in the tangible physical asset of real property.  Can you get a 10% return with a guarantee somewhere?  If AAPL and FANG price crashes, you have an account full of air.  If timber price crashes you still have trees and dirt.  Hire some amish to saw you a cabin and sell it as a rustic homestead.  Hunting camp.  Cattle pen.  Hay field.  Parking lot.  Or just sit on it.  Inflation guarantees you get your money back on land eventually.   

Whats the return on a Certificate of deposit these days.. Quarter percent?
Praise The Lord

47sawdust

Ah, he probably wouldn't have liked yooper night,anyway.
Mick
1997 WM Lt30 1999 WM twin blade edger Kubota L3750 Tajfun winchGood Health Work is my hobby.

Jeff

I havn't banned him yet. Was still hoping he would come back with some civility. Odds are, an issue with incapability.
Just call me the midget doctor.
Forestry Forum Founder and Chief Cook and Bottle Washer.

Commercial circle sawmill sawyer in a past life for 25yrs.
Ezekiel 22:30

Southside

Quote from: JWillis on February 08, 2018, 04:49:43 PM
Texas Ranger ... yep.  Not viable.

2.31% IRR on the timber.
5.60% IRR if the seller cuts his asking price from $2350 to $1200 per acre,  which won't happen.   

Assumptions:
Pulp $8.35 per ton
ChipNSaw $17.06 per ton
SawTimber $23.99 per ton

Yields and Mix:
Thinning #1 ... 25 tons ... 100% Pulp
Thinning #2 ... 30 tons ...  40% Pulp, 45% ChipNSaw, 15% SawTimber
Clear-cut ... 85 tons ... 2% Pulp, 12% ChipNSaw, 86% SawTimber

This parcel doesn't need a Timber investor.  It needs a home owner who wants a forest to walk his dog in.

Jeff - Yes,  I will be gone.  Not because of your threats,  or Raider Bill's asinine comment.  I'm leaving the board after a brief presence because there's no one here with any financial modeling acumenI've come to learn that the entire industry is woefully lacking in talent to assess the financial returns from owning TIMBER.  Wet your finger,  stick it up in the air, and guess ... appears to be the main mode of operation in the US Timber Industry.  It's dominated by Axe Jockies and Chain Saw Bubbas.

TIMBER is a hobby,  not a viable investment.   That's what I've come to learn and understand after a couple weeks of deep dive into the economics of TIMBER.


First bold  - I told you that based on the data you had posted, and a couple of us explained that your assumptions on improvement were not reasonable given the history of the lot.

Second sentence - Seriously lack of financial modeling acumen?  It would be quite interesting to know the net worth and total timber land holdings of the members of this Forum, many of which were earned - not inherited.  More than a few write a check each week for logs, fuel, payroll, etc that exceeds the "investment" you have spent a whole two weeks pondering. 

The bold with italics well, somehow an industry which built a country has been lucky for the past couple of hundred years - so glad you are here to clear things up for everyone. 

You came here and said you know nothing about timber and were treated with kid gloves, several of the posters who answered your questions could write a novel just giving you an answer to your question.  Did you act this way to the landowner?  If so you still wondering why he won't come down to the price you think is right?  So many things in life are about attitude. 

Franklin buncher and skidder
JD Processor
Woodmizer LT Super 70 and LT35 sawmill, KD250 kiln, BMS 250 sharpener and setter
Riehl Edger
Woodmaster 725 and 4000 planner and moulder
Enough cows to ensure there is no spare time.
White Oak Meadows

ohiowoodchuck

I'm no genius or know it all but it's hatd to make a 1000 a acre off hardwood here in Ohio unless you find that piece of land that hasn't been touched in 150 years. These kinda tracks are getting few and far between. I know your lucky to get 200.00 a acre of there chipping around here. Just my experience but I'm not a logger or a forester, just a landowner putting out more then I'll ever see back.
Education is the best defense against the media.

SwampDonkey

Bare minimum stumpage for most landowners has always been $500-600/acre here for a long time, at least 25 years. But some regions of the province seem to sell when markets are down instead of waiting for better prices. We have advantages here because of marketing boards, everyone can find out quick what the current situation is. Woodlot owner groups do have advantages.  In this region, landowners are a lot closer to there land, half the population is rural. Cities are small and not growing too fast, a lot of them with one main industry, making pulp products. Most of the sawmills are in villages and towns with small populations. :)
"No amount of belief makes something a fact." James Randi

1 Thessalonians 5:21

2020 Polaris Ranger 570 to forward firewood, Husqvarna 555 XT Pro, Stihl FS560 clearing saw and continuously thinning my ground, on the side. Grow them trees. (((o)))

PA_Walnut

Van Gogh once said, "If you hear a voice within you say 'you cannot paint,' then by all means paint, and that voice will be silenced."  :o :D
I own my own small piece of the world on an 8 acre plot on the side of a mountain with walnut, hickory, ash and spruce.
LT40HD Wide 35HP Diesel
Peterson Dedicated Wide Slabber
Kubota M62 Tractor/Backhoe
WoodMizer KD250 Kiln
Northland 800 Kiln

coxy


47sawdust

I sure do like to see a good guard dog in action.This place has several,very entertaining. 8)
Mick
1997 WM Lt30 1999 WM twin blade edger Kubota L3750 Tajfun winchGood Health Work is my hobby.

DMcCoy

Quote from: JWillis on February 08, 2018, 04:49:43 PM
This parcel doesn't need a Timber investor.  It needs a home owner who wants a forest to walk his dog in.

Jeff - Yes,  I will be gone.  Not because of your threats,  or Raider Bill's asinine comment.  I'm leaving the board after a brief presence because there's no one here with any financial modeling acumen.  I've come to learn that the entire industry is woefully lacking in talent to assess the financial returns from owning TIMBER.  Wet your finger,  stick it up in the air, and guess ... appears to be the main mode of operation in the US Timber Industry.  It's dominated by Axe Jockies and Chain Saw Bubbas.

TIMBER is a hobby,  not a viable investment.   That's what I've come to learn and understand after a couple weeks of deep dive into the economics of TIMBER.

Wow!  :)

mike_belben

Out of curiousity, i used the huntstand app to measure a chunk of remaining backyard parcel i cut last year in a trade for dirtwork. 

Primarily white oak, and a few "big" hickory with the usual bulk of pulp and tie junk.  A 10:1 ratio of pulp/firewood per load of stave grade.  Most loads were tie at an avg of about 30cents/bf.  All wood total avg 57cents.  Zero management, whole neighborhood was a former single commercial timber site, subdivided to trailer trash housing in the 1970s or 80s, and just became a backyard.  The commercial site was high graded to the max prior to subdivide,  and the trees i cut were passed over during the homeowners own logging because that corner was filled with too much junk for the logger to bother.  Biggest small end diameter i cut was probably 18 inch.. Maybe 20.  Most logs were 12" to 14"

The patch was only 1.3 acres and i have receipts for a hair under $3,600 in sawlogs.  I sold one load of pulp and decided the rate i could get just didnt warrant the hauling distance and brought it home for firewood.  This was my first winter in firewood here which i messed up.  Just didnt have enough dry wood on hand, sold it all in the first cold snap, delivered it too far for too cheap and was out when the real cold came and everyone was out of dry wood.  I did $1,010 in firewood. 

Im still bringing home firewood from that lot, he is a friend/neighbor.  Also much of the small, sellable tie grade stayed here for timbers to frame my first barn.  Maybe 40 logs. 

Sadly, this leftover junk was some of the fattest timber in a dense forest patch that ive seen here.  Avg diameter is shrinking fast.  To get a 20" white oak buttlog a tree needs to be passed over in the last TWO harvests.  Thats rare.

I woulda done the pond for $500 cash. 
Praise The Lord

starmac

Mike, I am curious. You stated you would have done the pond for 500 cash, what is the going rate for a dozer the size of yours in your area.

Around here 500 bucks will not get folks interested in doing much of anything.
Old LT40HD, old log truck, old MM forklift, and several huskies.

mike_belben

Maybe $75 an hour for a 450 size?  But everyone has a dozer in the rural south, theyre parked all over the place.   I have advertised for all sorts of services and had no calls on anything.  Im not saying i woulda made a profit at $500, just that i was desperate and fool enough to do it.  I drove the dozer from here to his house down the road and it was a come and go as i please, with my kids most days, kind of a job.   Only other thing with those kinda terms so far has been splitting wood on farms.   That mom life is kickin my butt.
Praise The Lord

47sawdust

Mike there certainly is no shame in being Mr.Mom.I was a single parent for 12 years,yes,it was a lot of work but you know who is raising your kids.You have my respect,good for you and your family......besides you seem like the kinda of guy that shouldn't have too much time on his hands. ;D ;D ;D
Mick
1997 WM Lt30 1999 WM twin blade edger Kubota L3750 Tajfun winchGood Health Work is my hobby.

mike_belben

Praise The Lord

PA_Walnut

Whoa!! $75/hr for dozer work!?  :o

Round here it's $225 or so.  :-X :-\

I have a big backhoe/loader and have been thinking about doing small(ish) jobs locally, but by the time I get a trailer to move it, DOT license to be legal, insurance to cover me/them/it on gigs, etc. I calculate I'd just be entertaining myself. (not that playing on a tractor all day isn't kinda great!  :D ;D)
I own my own small piece of the world on an 8 acre plot on the side of a mountain with walnut, hickory, ash and spruce.
LT40HD Wide 35HP Diesel
Peterson Dedicated Wide Slabber
Kubota M62 Tractor/Backhoe
WoodMizer KD250 Kiln
Northland 800 Kiln

longtime lurker

I did a Mr mom stint for 10 years before I remarried. Its hard but worth it. Mine are pretty much grown now - 20 and 17 - but I can remember how frustrating it was to be turning good work away because of the dad stuff that made it impracticable when they were little. i had to throw a pretty good business that I loved away for it ... cant say i havent regretted it at times but if it all played out the same I'd do it again tomorrow if I had to.

You're doing the right thing Mike. Be proud of it.
The quickest way to make a million dollars with a sawmill is to start with two million.

mike_belben

Thanks.  I do have a great wife, but she has the stable career and i have the floating life.  I have a few more years of relocating equipment to go and thats sporadic so i cant go looking for a job.  No one hires a guy who is randomly available.  We make it work pretty well.
Praise The Lord

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