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Forestry investors tend to focus their money on standard investment categories such as stocks, bonds, residential real estate, and, on rare occasions, commercial or industrial real estate. Developing a diverse, hedged portfolio requires acquiring an appropriate mix of these investment classes. However, the most successful investors recognize that a bit of imagination is one of their most valuable assets when investing in forest land.
Identifying and acquiring unusual investment items can assist clever investors in diversifying their portfolios even further. Forestry—areas utilized to generate timber—is an often neglected but increasingly valued form of an investment asset.
Of course, before we dive into the benefits of investing in forest land, it is important to note that these properties can be notoriously hard to finance because they do not hold a lot of value to the lender if you were to default. So, that is why whenever you are investing in forest land, it is essential that you are working with a mortgage broker that is well-connected so that you can find the financing you need.
Fortunately for you, at LendCity we are connected to a variety of commercial lenders that can help you begin investing in forest land. All you need to do is click the link below to book a free strategy call with us today.
Why You Should Consider Investing in Forest Land?
Timberland is a highly reliable and profitable investment. Timberland has previously been used as an investment vehicle by many significant pensions and trust funds in Canada. This is because, while it may not yield the highest possible rate of return, it is a long-term investment that offers investors a consistent and steady income stream.
Timber demand is expanding across North America as a result of national and international market considerations. Timberland investments are presently more profitable than they have ever been. However, before investing in forestry, it’s critical to comprehend the market dynamics that influence timberland investments and the fundamentals of timberland investing.
Then you can assess whether timberland is a good fit for your portfolio.
Earning Profits from Investing in Forest Land
An investor who invests in timber buys forestry lands to produce timber. As a result, it’s a form of real estate investment! The way the land is used determines how much money the investment will make:
As trees mature, their weight and volume increase. This means that your timberland investment is increasing in value as it grows in weight and volume simultaneously. Companies will begin harvesting the timber itself to realize the worth of your timberland as biological growth raises its value.
Appreciation of land
Forestry lands, like any real estate, gain value over time. As you produce and collect your forest products, the value of the land is likely to rise. If the ground is close to a populated region, it will most likely value significantly faster. After the timber harvest, it may be turned into a golf course, shopping center, or residential development. It might be turned to a golf course, business center, or residential development following timber collection—or even replanted!
As trees get older, they are exploited to make increasingly valuable timber products. Your timber’s per-volume worth, as well as its volume, will rise as it grows and changes. The magnitude and value of the timber increase dramatically over time.
When the real estate market is active, the price of timber will skyrocket. Timber is used widely in the manufacture of most single-family homes, as well as modest multi-family dwellings. Because of its sustainability and renewability, several developers and architects have begun to incorporate structural timber into enormous skyscraper-style structures.
While timberland can provide a steady stream of income, there are hazards involved in acquiring forestry property. Wildfires and other natural disasters, for example, might reduce the value of timberlands. Furthermore, there’s a good chance your trees may become infected with a disease, wiping off years of growth and making harvesting difficult.
Furthermore, trade conflicts and economic situations may reduce the value of your timber goods. Recent trade disputes between the USA and Canada, for example, have resulted in higher taxes on Canadian lumber goods entering the US. Subsequently, there was a shorter demand for Canadian lumber both at home and in the United States, decreasing pricing for wood products.
Discover How To Develop Real Estate With This Step By Step Guide
Investing in Forest Land Directly
Purchasing a forestry property altogether is the most direct and rewarding way to invest in forests. A forested land can usually be bought for less money than a developed asset of comparable size.
Purchasing timberland directly has many advantages. The most important is that once you’ve finished harvesting the timber, you can plant new trees, develop the asset, or sell it. Purchasing investment in a populated location opens up profitable opportunities for you to pursue in the future.
You won’t get regular lending products to buy timberland because it isn’t developed real estate. This means you may require enough cash on hand to make a transaction without taking out a loan. Compared to most residential and even some commercial complexes, this poses a far more significant barrier to entry.
You’ll need to engage a forest management company if you own timberland outright (TMO). The TMO will essentially farm your forestry land’s trees. The TMO may also assist you with harvesting the trees and processing them into ready-to-sell timber products.
Peripheral Investing in Forest Land
If you don’t have the resources to buy timberland outright, or if you want to make a smaller investment in forestry land, you could invest in a timberland-focused real estate investment trust (REIT) or exchange-traded fund (ETF).
When you buy timberland through a REIT or ETF, you’re buying a piece of land that the trust fund owns and manages. There are timber-only ETFs and REITs, but others may have a broader portfolio of natural resources, including timber.
While careful diligence is required during the investment process, buying an ETF or REIT allows you to sit back and collect dividends effectively. When you invest in a REIT or ETF, you rarely have to worry about managing or maintaining your timberland investment.
Money does grow on trees
Whether you choose to invest in forestry lands, a timberland investment can help you achieve financial independence and create passive income with no work. You can take advantage of the investment opportunity given by a sustainable, renewable natural resource by owning forestry properties outright or a share in a REIT or ETF.
One of the essential things to remember when investing in forestry is to keep an eye on macroeconomic trends and comprehend timberland’s life cycle. Recognize that the trees on the land are as valuable as, if not more valuable than, the land itself! Forestry can be a good business, but it requires a lengthy time horizon to see a profit.
So, if you are ready to begin investing in forest land and building your forestry investments, click the link below to book a free strategy call with us to begin financing your investment strategy.