Timberland as an asset has become a very lucrative means of profit for many, especially in Southwest regions of the U.S. such as Florida. Timberland holders have a great opportunity to create profit.
- Timberland appreciates in value, just for the fact that its land, but the added value of the timber increases the price per square foot.
- Timberland is a continuously appreciating asset that proves to be profitable despite national economic activity.
- Timberland can also be leased to sportsmen enthusiasts as hunting property. Hunting leases are a rare commodity and can be negotiated for a profitable cash flow.
- Timberland provides profit through its timber value; timber can be cut and sold to sawmills and different companies to produce a number of forest products, such as lumber, plywood, pulp, and paper products.
- The risks associated with timberland are minimal (mostly physical risks due to lack of control over the environment i.e. fires, natural disasters, pest, disease outbreaks, etc.)
There is no doubt that timberland is a valuable asset. However, before you invest in timberland, it’s important to be aware of the factors affecting forestland valuation. Despite its abundance, timberland has proven to be a complex asset to valuate on a short-term scale. Many underwriters have a difficult time analyzing income taxes and finding an annual value of timberland that accurately depicts the landowner’s true financial status.
The key to understanding and underwriting forestland assets is to understand the strategic way forest landowners and their management teams approach the preparation of their income taxes. The most important factors include: the way in which the property was obtained, the purpose and actual use of the property, and the way in which expenses and income are perceived. This planning strategy is complex and at times can make it difficult to recognize actual and real profits, losses, and expenses over a short period of time. There are tax considerations, cost considerations, and income considerations to determine before the true value of timberland can be assessed.
All these considerations must be reviewed before timberland loans can be approved.
If you have any questions or need additional information on timberland loans and financing, please contact us at BankersSouth@BankersSouth.com.
Based on a whitepaper by Carolina Hernandez, a Land South analyst.