I bought 292 ac of cut over timber land in 1997 for $45,000 and I've had a few timber companies offer me 145,000 for it now.I figue thats about 18% return on investment.Not bad I'd say.So if anyone is thinking about growing trees for and investment I would say its better the the stock market.So in another 7 years the timber and land should be worth about $456,000. :)
Yeah, or the trees worth 200 thousand and still keep the land. ;D
This is really sorta off the subject mark, but reminded me of this. My brother-in-law was telling me the woman he works with is closing on a pruchase of over 1000 acres in the U.P. How are they paying for it? With the money received from the govenrment for NOT farming thier extensive amount of lower penninsula farm land. They quit farming it intentionally to put in a put-n-take pheasant ranch. They are still allowed to plant food plots and habitat.
That REALLY REALLY grinds me.
Rod, I was thinking on the same lines when I bought a cutover tract in 97. No way to do exact math til it is cut or sold, but enough margin that it will have to work. Course we had an ice storm two years ago that really worked on my IRA, oh well will still come out ahead.
How come I can't get paid to not farm my land? Don't really pay to farm it either. ;D
We invested in land in Costa Rica - and it has been going up in value about 10 to 15% per year - not counting the trees, etc. We get an offer to buy our plantation about every few months so we seem to be doing something right.
It isn't exactly timberland - but reforestation so we are growing trees like a crop - which is a pretty long cycle - but working very well for us.
When a plantation tree fails, we then replace them with native species, creating a permanent forest that will be maintained to provide jobs and some residue for our families. After we harvest the plantation trees, we will still have the natives remaining, and they will be big enough to provide food, shelter etc. for the animals. Also, a percentage will need to be harvested to stimulate new growth - and that will provide money for maintence, etc and some revenue.
We are also working at trying to secure all the land along a river for a corridor for wildlife and to protect the water in the area.
The government is very good about encouraging this as well as working with us.
I read once that the investment funds in USA really like timberland because of many years, the standard return is about 14%. And that is not counting the increase in land value.
There are issues about investing in land in a foreign country that are not minimal - but we have really enjoyed the challenge. And the weather is wonderful.
Fred
I hear theres been a population explosion in Drury Missouri lately... Might be a good place to grab some real estate before the prices really take off :)
You'de pretty much have to live in an area where the economy would allow those prices. If you bought a 300 acre parcel in this kneck of the woods for $45,000 you'de never get 100,000 in 10 years, be lucky to get $60,000, which isn't bad, but the $45,000 invested will bring higher returns. There have been alot of speculators trying to follow the same path as you describe and end up losing money. It all depends on location and how much demand there is on buying up land. Most land here gets eatin up by large companies or other farmers exanding their acreage who aquire it from bankruptcies, unpaid taxes, and pensioners that have to sell the land to pay the province for nursing home care. In the latter case the land usually goes real cheap.
Horselogger,
I'd be real dubious about doing any business with some of those more recent Drury inhabitants ;)
Johnny come latelies do pour in Drury .......NEWS AT 11:00)) (10:00 central)
Just my luck Buzz and I had my sack packed just been looking for a stick put it on over my shoulder ;D :D :D
Jim
Thats a unside down carpet bagger..... :o
Here is a study on tumpage prices here in West Virginia in region 2 from 1989 -2004 http://www.wvforestry.com/Stumpage%20Prices.PDF.It says that in 1989 stumpage avrage price was $97 and in 2003 it was $259. I have a lot of yellow poplar and in 89 it was selling for $53,and in 2003 it was going for $161.White Oak goes for about the same price as poplar.Ash $158.Poplar grows fast.They take cucumber-trees around here and sale them as poplar.If you haul 18' poplars over to the veneer plant they pay $400M 8'' MIN inside the bark nd 30'' max.
Rod,
I really think ya need to add inflation into your figures. It don't do much good to compare those prices otherwise.
true,I didn't add in inflation but neither does anyones 401k plan add in inflation..I'd say most retirment plans are down for the last 5 years so if you added in inflation on those retrimenet accounts they would really look bad... >:( :)
Oh,maybe you mean add inflation in on the timber price..Well the timber price alone has averaged 25% returen from 1989-2004 in my region and inflation has been about 3% per year in the US over the last 5 years so its net 22%.
Not sure what I meant now. ::)
$97 was a lot more in 1989 then now, don't matter what your talking about.
Sure stumpage price has gone up since 1989, right along with everything else, including cost of living.
Maybe I'm just looking at it the wrong way.
Rod, are you saying that timber price went up 25% PER YEAR between 1989-2004 ? If it was over the whole time, and inflation was 3% per year over that time , then the inflation was 45% compared to a growth in price of 25% - which means you moved backwards in price roughly 20%.
The numbers are slightly different because I did a very simple calculation.
Fred
Fred,how did you figure?''
Furby ,I'd guess the price of my 1997 truck is down from the price I paid for it in 97 :) :)
Tom,I thought about that but I would have to pay 33% capital gains
Jebff B,thats our goverment tax dollars at work :D :D
A touch too simple - and perhaps we are getting into to things beyond my expertese, but I think this is how you figure it - it isn't exactly 45%, because the value of the money drops every year. If you say that prices increased 25% between 1989 to 2004, then you have to figure the inflation over the same time period, or you are acting like there was no inflation between 1989-1999 - or ten years.
True Value Yearly 3% Inflation Loss
1989 $10,000.00 $300.00
1990 $9,700.00 $291.00
1991 $9,409.00 $282.27
1992 $9,126.73 $273.80
1993 $8,852.93 $265.59
1994 $8,587.34 $257.62
1995 $8,329.72 $249.89
1996 $8,079.83 $242.39
1997 $7,837.43 $235.12
1998 $7,602.31 $228.07
1998 $7,374.24 $221.23
1999 $7,153.01 $214.59
2000 $6,938.42 $208.15
2001 $6,730.27 $201.91
2002 $6,528.36 $195.85
2003 $6,332.51 $189.98
2004 $6,142.54 $184.28
Value of 10,000 at 1989 valuation at the year 2004 $6,142.54
25% increase in value of wood during the same time $7,678.17 ( = 6,142.54 * 1.25)
Change in dollars, adjusted for inflation -$2,321.83 LOSS (10,000 - $7,678.17)
Unless the yearly increase in lumber is keeping up with inflation, you are falling behind - of course, this does not reflect the growth of the timber - that makes the calculation a little harder. However, you can figure your cubic meter per acre growth rate (pretty well known) and apply that to your number. These numbers don't reflect things like taxes, expenses, whether the money you are using is a loan (i.e. interest) or money you could have invested in something else. (Since bonds run at about 6% over the long haul, you figure that as a good baseline)
On the positive side, you can add in the increase in land value - if it is increasing in that area.
OK Fred,now in 1997 when I bought the place it had no saw logs on it and in 2004 it has at lest 600,000 feet of saw logs 16'' DBH.now maybe that might make a difference in your figures.The taxes are $332 a year,expenses are $0.And Bonds you have to have cash for those.I got a loan for the whole amount at about 5%.So their are some figures to figure in.Also the place came with a gas well and you can have free gas for the home but I don't think I would count that in tho.
So what your saying is even if you have Bonds at 6% your still coming out in the hole? :D
Nope, you probably are doing fine, but you would have to look at the numbers.
1. How much will you get for those saw logs?
2. How much will the remove of those logs drop the value of the land from the original purchase price?
3. You net loss per year would have been 8% on your money you borrowed (loan amount + inflation), how did land value increase compare? You would use your loan amount instead of the bond amount.
4. Unless you were using the gas, you wouldn't count it - but if you were... Then by all means count it.
5. If you really want to get accurate - you have to figure the amount of the principle that you have paid over the years as tied up money - so that you should figure at 6% - unless you have a banker I want to talk to, you have been paying on the principle all the time, so that money needs to be reflected. It is probably easier just to apply 5.5 to the whole purchase price of the land, every year, as though you were only paying that in interest.
If the saw logs are now worth X, what was their value when you bought the land? I rather doubt they were seedlings. Was that reflected in the price of the land, or did you get them for "free" because the previous owner was not aware of their current value? Even though a tree is not harvestable yet, it still have significant value because of the growth. Anyone who disagrees, I will buy an option on any oak you have that is 15" in diameter... :-)
I told you it gets complicated.... ;-) According to what I have read, the big funds figure an average return - over many years - of about 14% per year. This is better than what you can expect in the stockmarket, bonds, etc over the same period of time. It is also considered a pretty low risk investment, inspite of things like forest fires, plagues, etc.
I wish my expenses were 0 per year! Of course I have a plantation, not timberland.
I may sound like I am critical but I am not (I hope). It is just how I work on business plans. I try to figure out EVERYTHING that cuts into my profit and try to convince myself that it is a bad idea. If, after a few months, I can't kick any holes in it anymore - I go ahead and invest. No rose colored glasses when it comes to investing my money!
If you don't figure in all the expenses, you can be in a situation where you work for 15+ years at something, and at the end you would have been better off working at McDonalds.
Fred
Fred,my loan is for 15 years with paments of $357 a month.Saw logs on the stumpage average is about $250M,and cut over land when I bought the place was $150 ac,and now I see their asking $600 ac but I don't know if thats what their getting tho.Cut over timer land around here is when you can't walk though the woods because of all the tree tops and weeds,and nothing but about 8'' -12''trees every were.
So wereare these big funds with average return from 1997 to 2004 with 14% per year?
I did buy a bandmill for $3400 that has and eletric motor and I can't tell much differents in my eletric bill with it.I cut out the Hemlocks that aren't worth much ($30 a ton) around here and I used them in 2 homes which I sold 1 of the homes for $50,000 and I had & 25000 in it not counting the mill price and I didn't have to pay the 6% sales tax on my lumber from lowe's either.
And you said Bonds,ok,so I thought I'd check that out and here is a 35 year study on Bonds http://www.ncpa.org/pub/st/st244/s244b.html
Stock and Bond Returns, 1872-2000 The average for all 35-year periods was 5.1 percent.
In addition, all-stock portfolios almost always outperformed mixed portfolios containing both stocks and bonds.
Furthermore, the performance of the capital markets is much better than what the young today can expect on their Social Security payroll tax dollars.
The average annual real rate of return for an all-stock portfolio was 6.4 percent over the 95 periods, with the lowest being 2.7 percent for the period ending in 1921.
A portfolio of 60 percent stocks and 40 percent bonds produced an average annual real rate of return of 5.1 percent, with the lowest being 2.0 percent for the period ending in 1920.
By contrast, virtually all young people entering the labor market can expect a rate of return on their Social Security taxes of less than 2 percent.
Thats OK with me Fred,about being critical about stuff.I do it all the time ;D,Another ting,I've owned this land for 7 years and I have yet TO see any of the owners around me come to see their timber land.Maybe they look at their land with one of those new pictures they get from thoses satellites
Therefore, it looks like you are doing really well - nevermind the enjoyment of the land itself.
No funds have been doing 14% per year for the long haul - you better figure 10%
Looks like you are right on Bonds, I tend to figure expenses high, profit low. Then I can be pleasantly surprised - I don't like the other kind.
Currently I have nothing in the stock market - I consider it still too high and unstable. When buying stock, I look at the price, the shares and the earnings and decide if I would like to purchase the company. Do I like their management, prospects, etc. In my opinion, this buying stocks because you hope someone will someday buy it for more is crazy - it sounds like one big pyramid scheme to me.
Fred
Well, the $$ look good..
Dont forget several very High Risk factors that come with your investment....
Some nitwit comes along on a hot windy day in the dry season and tosses his cigarette butt
out the window, puff its gone in a flash...or mother nature could throw a bolt your way with the same results..
or like what happened in a large swath of woodland near here, a high wind could cut through your land and you have a bunch of pick up sticks to play with....before they rot...
or insects could invade and use your trees for the main course....
There is a lot more to it other than $$$$ and cents.....
If all goes well its a very good investment...
Of course, the nitwit doesn't happen here - not that nitwits are extinct in Costa Rica, but, my plantation is in a rainforest - and we don't have high winds either - I think there has only been one hurricane ever in Costa Rica in the last century, and it was south of us and not that big. They all seem to have an affinity for Harold's place.
Insects can be a problem, but we have native jungle areas separating each stand of trees, and full time people on the plantation every day keeping an eye on things - more expensive than your 0 percent expenses for sure.
These things are considered honestly very low risk - it happens to a very small percentage of places compared to the whole. You can die going to see the land too. Or be bit by a fer-de-lance. (it is my job to mention snakes at least once a week - I am trying to inure Jeff to them.)
True Woodhog,comes with no guarantees..Also fred,you have expents on funds.When you buy them they charge something like 5% then they charge you for mangaing them every year even if your losing money on thier funds.Then when you go and sale the funds you have to pay tax if you made a profit ...Now if I would of bought Google a few months ago for $95 and sale it today for about $200 I'd have a party :D
GOOGLE (NasdaqNM:GOOG) Delayed quote data
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Bid: 198.74 x 100
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Yep - and that is exactly how people lose money really badly at times. For example, everyone sees that Google is going up like a rocket, so everyone piles on, pushing the price up because everyone wants it. Eventually it gets so high that everyone starts to take their profits, and then it drops.
However, has the VALUE of the company really gone up like this? I don't think so. Therefore, what is different between this and me telling you to buy something because if you buy it I make money, and then you can make money because others buy it from you, at a profit. Eventually the poor sucker on the bottom gets hosed. This is okay if the final sale still has value - but what if it has almost no profit to begin with - or at least not as much as it is being sold for? This is called a pyramid scheme.
The same thing has been happening in stocks in my not so humble opinion. Too much speculation, not enough earnings - and it feels like financial chicken. I keep buying stocks hoping that there is one more person out there that will think it has value after me, and oh please, don't let there be any bad news while I have it.
Perhaps it is more like hot potatoe... The people who are really raking it in are the brokers. Buy or sell, they make money.,
Thanks but no thanks. I can pull up roots, move to a foreign country, grow trees I have never seen before, climb trees and rock climb. Moutain bike and enjoy kayaks - but I am no risk taker! :D
Fred
wal now seeing that this here thead has sorta rolled around just a tad. :D
when we moved to tenn back in the early 90s i had a freind that was one of dem hoss trading loud mouthed auctioning types. one of them loud shirt cowboy hat pants half tucked in one boot fer real hosetrader.
well about that time them long legged google eyed ostrich where in demand
well now he said i'm going to fence in my grand pa's pasture and gets me some breader pr and raise um. yup he done took of for texas and pd 45000.00
for a pr of them things. done told eavryone would listen he'd retire in 5yrs off
just them 2 birds. :D :D :D 3yrs later the price done bottomed out and him with about 60 of dem things couldn't give em away. Wal now i heres dem things is good eating but this ol boy shore gona try it dont think i could catch one to wring it DanG neck. :D :D :D :D gene
I remember those days tnlogger :)
I am no risk taker either :D,I buy stocks...I sold a bunch of them in 2000 and 2001.I said to myself I better sale some cause they can't keep going up for ever. :o :o I started buying stocks in 1992 and I have and average return on about 10%.Not to bad for someone who didn't know what they were doing when I started. :D.
Tha is like around here everyone thinks that the farmland should be saved but when the farmer has the choice between 5 dollar a bushel beans and 5-10,000 dollar a acre it is easier to see more houses.
farmerdoug ,not much building going on in these parts.Nothing but timber and digging for coal...alot of mud right now too.
Fred,I was sitting here thinking about poplar trees.So I went to the West Virginia Forestry site http://www.wvforestry.com/Stumpage%20Prices.PDF.It ,and looked up what poplar was going for back in 89,and what they go for in 2005,and it looks like the price of poplar's has increced in price at a return of 7%.In think the mony in poplar around here but I'm not real sure tho.
The coal company is growing red oaks on some of thier reclamined land..
This looks like a good web site
LINK (//http://)
It talks about poplars,which I'm starting to get really interested in now,maybe it cause I keep seeing $$$ sigins :D and also other stuff like Oaks.
Yeah, it is always nice to have a cash crop. 8) One thing that people have learned the hard way in investment is to diversify - make sure you have some other trees, one, because pure plantations run some pretty big risk from disease, but also, you don't want to put all of your eggs in one basket.
I have to admit, I grow 4 types of trees now - but want to get up to between 20 to 50 types in the future. Most of the trees planted in our area is either teak or gmelina. This means woods like mahogany, spanish Cedar, almendro, laurel, corteza, tempisque, etc. are becoming more and more scarce. Bad for the trees, but very good for future value.
Fred
WOW Fred,sounds like you have some big $$ trees when their grown.Fred,back in 97 when I bought this brier pach :D this place was nothing but a brier patch,but all the tree tops and briers are gone now.And the forest has alot of diferent trees.But after doing some reading I think I'll go out today and cut down a bunch of those Hemlocks that are keeping those poplars from $$$ growing and then I'll cut those Hemlocks up on my sawmill.
The only thing I hate about those Hemlocks is they are so many branches on them.Well anyway, it looks like I have just created some more work for myself :) :) :D :D
Oh,and I ment to say that maybe you can grow poplars down your way.I don't know tho if they will or not,I do know they like alot of sun and water.I read some were they drink 30 gallons of water a day :o :o That sounds like alot of water.But anyway here is a site that figures out how much the poplars will be worth in the futuer.
http://www.fs.fed.us/ne/newtown_square/publications/research_papers/pdfs/scanned/OCR/ne_rp140.pdf
So far, so good - in fact better than expected. We currently have about 16,000 trees planted and will be planting more every year - until we have somewhere between 35 to 40 thousand trees on the finca. And then we purchase more land - if not before.
First harvest is in 2 to 3 more years. 8)
If you want to see what they are looking like now - here is a link to our latest newsletter. If you click on the thumbnails, the pictures get bigger:
http://www.fincaleola.com/vol3issue1.htm
The picture of the trees in the left column at the top is teak that is 18 months old - they are doing fantastic - normal growth rate for teak in our area is 1 to 1.5 meters per year. Those trees are pretty close to 30 feet tall and 4 inches in diameter - I figure we are going at about 4 + meters per year growth rate - it really is amazing. I guess I did something wrong ;) I bought the best land I could find and we spend money on really good care. I think we can live with growth rates 3 times better than normal. :D When we first started, the people who were here before us doing plantations told my Costa Rican business partner Hector that I was stupid for buying such expensive land just to grow trees. Now they want to buy us. (Not selling)
Pretty strange to see a tree grow at an 1/2 an inch - per day! :o
Fred,nice looking trees you have there.Looks like logging them would be easy too.
A tree growing a 1/2'' a day is fast.
I went out Sunday and cut down a bunch of Hemlocks,the smaller Hemlocks ended up getting hung up in the poplars,so I just left them there.I cut one that was about 20'' dim and I thought I better cut it were it would fall fast,and it did.It look like it jumped off the stump and didn't hit the ground tell it was about 50 feet down the mountain,then it slide down the mountain about another 200 feet. :D.
Thanks, we are pretty proud of them. With a plantation you get to choose where the trees are and build roads, etc. It can make them pretty profitable if you do it right.
It also can create a high percentage of good trees. However, it sure isn't - "Ignore trees until they get big enough" Lot's of work pruning, etc.
I was out Sunday riding the finca on a horse. Hector my partner showed me how to open and close the gates (barbed wire) while still mounted on a horse. I was very pleased that I could actually learn to do it. The success was due to an excellent horse and teacher - and I managed to following the instructions from both of them. :D
Hector normally handles the fences but yesterday he was riding a green horse, just broken. :o It didn't know how to do it . Hector says I am the first Gringo he knows who can do it. ;D
Got to keep my partner proud of me. ;)
Fred,he just hasn't meet any of us who can ride horses. ;DI can remember when my girl was little.Someone came by and asked me if I could take their hay burning ponies off their hands,and I said I would.Well come to fine out these ponies were mean,but my little girl some how tamed them were she could ride them.Anyway to make a long story short with her being able to break ponies and horses I ended up,or should I say,she ended up with 10 horses by the time she was 12 years old.Some of those horses wouldn't let me ride them but when someone would come by looking for a riding horse I'd call her to show them that the horse was so tame that a little girl could ride it..
Here, a mean horse is a dead horse - in fact, you are likely to meet him as meat in the local butcher shop. ;)
Since these are horses that work, no one keeps a horse that is ill-tempered.
When people come to Costa Rica - I generally advise them to undersell how well they ride. Telling a person whose has ridden horses since they could barely walk that you are a good rider can be hazardous to your health. For example, our business partner used to ride in rodeos. A cattleman who was nearly born in the saddle is a wonder to see.
Because Hector is so good with horses, we actually get green horses pretty often for him to train. Since he is riding the fields, looking at the trees, he might as well train a horse at the same time.
Fred
Well you see Fred,the reason I wanted those mean ponies was I bought some farm gound that was farmed to death and wouldn't grow anything,so I thought the ponies would help build the ground back up and I wouldn't have to do any mowing.Well after I got rid of the horses that fild would really grow some corn and beans,but the last time I drove but that fild it had houses on it with alot of nice green grass.
And the little girl has grown up and has a bunch of kids of her own and maybe she can show them a thing or two about horses : ;D