Advantages and disadvantages

When deciding if forested land is the right type of investment for you, you should be aware of the advantages and disadvantages.

Advantages

Many opportunities exist to advance the quality of timber stands with active management.

Forest investments are long-term propositions.

Timber production can be timed to provide periodic returns.

 The risk is real in the form of fire, insects, disease and environmental/social constraints.

This income can be a means of paying taxes on land held for future use for heirs under an estate plan.

Often there is a heavy front-end capital investment required for stand initiation and loans for forestry investments can be difficult to acquire.

Timber income qualifies for capital gains tax treatment, which is considerably lower than taxes on ordinary income.

Timber buyers are not attracted to small tracts and the costs of additional land purchases may be prohibitive for forestry investments.

Reforestation investments are often eligible for cost-share programs and can be amortized as well as provide immediate tax credits up to 10 percent of costs.

Fluctuations in price may be on a longer time-scale.

Timber adds diversification to investment portfolios.

Management returns are usually correlated to the intensity of management applied.

Timber prices have historically increased at a rate of 2 to 4 percent above inflation, while the annual physical growth of timber increases 4 to 8 percent.