a beginners guide to investing in timberland

How To Invest In Timberland For Beginners In 2024

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Key Points

  • Investing in timberland can be a good option for diversifying your portfolio.
  • Timberland refers to land used to grow timber, a valuable commodity in the US, with approximately 700 million acres of timberland.
  • Timberland investment offers passive income as the trees historically grow in value over time.
  • One acre of timberland is valued at around $1,500, but the value increases significantly if trees mature for several decades.
  • Besides selling mature trees, there are other ways to generate income from timberland, such as selling seeds, renting out the land, leasing to lumber farmers, or partnering with a lumber company for profit-sharing.

Land could be an excellent option if you’re starting with investing and are looking to diversify your portfolio.

We’re not discussing land for a developer to build you a new house. Instead, it might be wise to look into timberland. This land grows timber for various purposes, from paper production to construction material.

Timberland is a massive commodity in the US. But just how many acres of timberland are there across the country? According to the USDA, there are approximately 700 million acres.

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Timberland Investing Benefits

  • One of the key benefits of investing in timberland is that it’s a prime example of passive investing.
  • Passive investing means that you will not need to be involved daily in working the land or running the business.
  • As the owner of the plot of timberland, you won’t need to be out on the site slinging an axe, testing the soil, or planting new types of trees.
  • You also won’t be running the timbering business, including comparing market prices, transportation issues, or replacing used equipment.
  • However, owning timberland is not a short-term investment. With stocks, you could sell them quickly to make a fast return. That differs from timberland, as it often takes years to realize a return.

How Much Is An Acre Of Timberland Worth?

Land experts say that one acre of timberland has a value of approximately $1,500, although an acre of more mature pine trees is closer to $1,900. The value increases dramatically if landowners let the trees mature for decades.

It pays to shop around, and you can find some properties where land comes with a much smaller price tag.

What Determines The Price Of Timber Per Acre?

As with all real estate, location is a significant factor in timber prices. Other factors that come into play include:

  • Quantity and type of timber on the land
  • Surrounding mill types (sawmills, etc.)
  • Road accessibility to the mills
  • The kind of timber used in some geographic regions

The average stumpage price is $1,800 per acre. Stumpage is the price a timber buyer will offer its landowner for their trees standing on the stump.

How Can You Make Money From Timberland?

Timberland’s primary source of income is the sale of mature trees to be milled and then sold for construction and other uses.

There are many other ways to pocket some cash from your timberland investment.

The trees will produce seeds that you can sell. The land can be rented out for grazing purposes while trees mature. You can lease the land to lumber farmers for rent and a percentage of the sale profits. Or, you can hire a lumber company and take an agreed-upon share of the profits.

The quantity and type of timber on the land also play a significant role in value.

How Much Is Lumber Worth?

As you can guess, the value of the lumber is based on its type, location, and age.

Lumber from large pine logs is in very high demand, as they are used to manufacture high-quality grades of lumber. Along with the size of the tree, the quality of the wood itself also comes into play in timber prices. Trees with lower quality ratings are used to produce cheaper products.

How Weather Affects Your Earnings

These anticipated annual weather seasons will affect timber harvesting and supply, but there are also unexpected weather events that timber sellers must consider. These unforeseen weather events include floods, wildfires, droughts, and hurricanes.

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Each parcel is divided into shares, and investors can purchase shares to earn cash distributions as well as benefit from the land value appreciation.

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