2007 Year in Review

Treat Your Timberland as an Investment, Specialist Says

If you're a savvy investor, you know your financial portfolio should include a retirement plan, some stocks, some bonds, a money market fund and that timberland you inherited from your grandfather 20 years ago.

Timberland as an investment?

"Absolutely," said Jay Hayek, an Extension forester with the University of Illinois. "Timber is a commodity, and it needs to be treated like any other investment a landowner manages."

Standing hardwood timber is a niche market, said Hayek, with traditional up and down cycles, and no one knows that market better than timber buyers, loggers and professional foresters. That's why Hayek gives every forest landowner the same advice concerning their timber.

"Don't just sell your timber to the first logger who approaches you," said Hayek. "Market your timber. The best way to do that is to contact a professional forester, either through the Illinois Department of Natural Resources or through a listing of professional consulting foresters." Multiple academic studies and personal experience have shown significantly greater net financial returns to those forest landowners who choose the services of a professional forester over selling their timber directly to a logger. That's because a professional forester works with the goals and objectives of the landowner firmly in mind, Hayek said.

"The forester commonly determines how much money the landowner would like to see from the sale and how they would like their forest to look after it's done," Hayek noted. "The forester will 'cruise' the timber and conduct a thorough forest inventory of the merchantable trees. He'll mark the saleable trees in a scientific way, paying close attention to critical details, such as species of the tree; the tree diameter; tree defect and log grade; forest growth, vigor, and regeneration; as well as biological and financial maturity."

These are all concepts that many landowners don't thoroughly understand, said Hayek, but help determine the volume of merchantable wood, including the best timber harvesting method(s) to use in that particular forest. Once that information is collected, the forester will write it up in a detailed document and mail it to the more than 400 licensed timber buyers in the state of Illinois. Those interested in the standing timber will submit a sealed bid by a set date. The landowner then opens the bids and commonly awards their timber to the highest bidder.

"Almost all timber sales in Illinois should be conducted using the sealed-bid method as directed by an experienced professional forester," said Hayek. "Avoid, at almost all costs, selling your timber 'on-shares' unless explicitly directed by a trusted professional forester."

After the timber is awarded, the landowner and timber buyer sign a detailed, legal timber sale contract reviewed by an attorney, said Hayek.

"If the timber buyer balks at this request," said Hayek, "simply tell him you are not interested in doing business with him. There is no such thing as a handshake contract in today's litigious society. Remember, according to the IRS, selling timber is a business transaction."

Details of the contract should include the price to be paid and the number of trees to be harvested, which are properly marked and identified in the woods. There should also be provisions for how much residual damage is acceptable.

Loggers use heavy equipment in the forest to remove the trees, and there is a certain amount of nominal damage and disturbance that is allowed," he explained. "Anything beyond that stated in the contract would have to be paid for or remedied by the timber buyer or logger."

Hayek said the landowner should also specify the duration of the contract. "Don't allow the loggers to take eight years to get the trees off your property. Determine a set amount of time, typically 12-18 months."

Finally, said Hayek, a landowner’s contract will have provisions for very stiff penalties if any trees are taken that were not marked or indicated in the contract.

“Illinois state conservation law awards triple stumpage value of the tree,” said Hayek, “just to protect landowners from timber theft.”

There really is a right way and a wrong way to market your timber, Hayek concluded.

“Astute forest landowners will treat their standing timber just like their 401K or their IRA,” he said. “It’s simply another long-term investment tool that can be a vital part of their financial portfolio. Therefore, manage it wisely.”

To find a list of consulting professional foresters, visit the website of the Department of Natural Resources at IDNR.

by  Editor, theCity1.com
September 20, 2007