TIMBER! Discover The Unseen Value Of Timber On Your Property

TIMBER!

I got an email recently from a retired procurement forester.

This guy had been following the blog for quite some time, and he wanted to let me know about a land value proposition I had never mentioned before. Within the first few minutes of our conversation – I realized this guy was onto something big.

He started by telling me about the property he lives on – a 35-acre lakefront lot, which cost him nothing. In fact, he got PAID $5,000 to take ownership.

How did he pull this off? The answer was s

Timber

As someone in the forestry profession, he had a natural eye for seeing the value of the natural resources that land has to offer (something that rarely occurs to most property owners, appraisers, and assessors).

The Monetary Muscle of Timber

IMG_3396-2He had other stories from his career too. As someone whose services were regularly enlisted to appraise the value of trees, there were countless times when he had encountered the mind-blowing (and largely overlooked) value that timber has to offer landowners.

One such story was of an investor who was buying a large tract of land for $2 million. Unknown to the seller, this property also had timber valued at $4 million.

Do the math… after pocketing $4 million just from the trees on the property and writing a $2 million check to buy the land, the investor was left with $2 million of cash from the sale of the timber PLUS another $2 million in what was essentially free real estate equity.

This guy's net worth increased by $4 million overnight and it didn't technically “cost” him anything!

When I started putting the pieces together – I realized we were talking about some major untapped value that wasn't even hitting the radar of most real estate investors.

How Does Timber Harvesting Work?

Now… most land investors are aware of the fact that timber can be harvested from land – but since it's something the average person does so rarely (if ever), most of us don't really understand the mechanics of how it works. In this article, we're going to cover all the essential information you'll need to know in order to handle the timber harvesting process correctly.

Key Players in the Timber Industry

In order to explain this properly, we need to start with an understanding of who the key players are in the timber harvesting process. Let's take a quick look at each one:

Land Owner: This is the property owner (i.e. – real estate investor) who owns the land and all the trees growing on it. Assuming no other agreements have been made with outside parties, this person/entity is privileged to make the final decision as to whether or not the timber will be sold and who it will be sold to.

Wood Dealer / Broker: This person works as an intermediary and usually wears a few hats. Their services are often enlisted to appraise the timber (i.e. – establish how much the trees are worth) and contract with a logger to take down the trees and deliver them to a sawmill where the wood will be processed.

Logger with chainsaw in the forestLogger: This is the person/company (usually hired by the Wood Dealer or Sawmill) who works on-site to take down the trees, remove the branches, cut the logs to size and deliver them to the sawmill. Most logging jobs require the use of heavy equipment and specialized personnel to take down the trees and ship them to the location of the highest bidder.

sawmill workerSawmill: This is the final destination to where the logs are shipped and processed. At the end of the day, the sawmill is the ultimate source of funds that pay all the parties involved. In most cases, the mill will pay one lump sum to the Wood Dealer, who then pays the logger, landowner, themselves, and any other parties involved.

Professional Forestry ConsultantProfessional Forestry Consultant: A consultant can be hired to act in the best interests of the landowner (as we'll explain in more detail below). In many cases, they are hired by the landowner to do an assessment of the timber on the property and send notice of the sale to multiple Wood Dealers. The dealers then submit bids to the consultant and the consultant oversees the harvest, which would typically be done by the highest bidder. The consultant typically receives about 10% of the sale as payment for services.

How Is Timber Valued?

There are several variables that can have a big influence over the value of the standing timber on any property. Sometimes the value will be more than enough to justify a harvest, and sometimes it won't.

When a timber appraiser steps on a property to figure out what the ballpark value of the lumber is, there are a few key things they'll be looking at:

  • Size
  • Species
  • Age
  • Defects
  • Distance

Let's take a deeper look at each one…

Size

Trees vary widely in terms of their width (diameter) and length (height). Generally speaking, these variations have everything to do with the species and age of the trees.

KluppeneinsatzA timber appraiser will look specifically at the tree's Diameter at Breast Height (DBH), which is a standard measurement of the width of a tree at its trunk.

Depending on the end use of the tree, the sawmill may require that it be a minimum size of 8 inches in diameter, with the top being at least 4 inches wide (as this is the minimum size needed to cut most types of construction boards).

If you're looking at a property with a lot of small, twiggy trees, there probably won't be an abundance of value for harvesting timber. At best, the trees may be usable for paper pulp (which would typically be the least-valuable end use).

It goes without saying that larger trees are better.

Species

The tree species can have a major influence over the value of a timber harvest. Different types of trees produce different types of wood, and different types of wood have different end uses (with different market values assigned to those uses).

Wood is used for all sorts of different things – here are just a few examples:

  • Construction Lumber
  • Telephone Poles
  • Furniture
  • Musical Instruments
  • Paper
  • Tools
  • Cooking
  • Barrels
  • Fuel
  • Charcoal
  • Toothpicks

When determining what kinds of wood gets used for these things, the decision has everything to do with the size and species of the tree. For simplicity's sake – it's easiest to separate trees types into two basic categories. Hardwoods and Softwoods.

Hardwoods

Generally speaking, hardwood is considered the “cream of the crop” in terms of value.

In most cases, “hardwood” trees have wood that is literally harder than that of a softwood. This isn't always necessarily the case, but it usually is. As such, hardwoods tend to be more durable than softwood, which means they are ideal for certain uses that softwoods aren't well suited for.

How can you tell what type of wood is on your property? Let's cover some examples of both hardwood and softwood trees…

Acer_saccharum

Examples of Hardwood Trees:

Oak Leaves

Generally speaking, hardwood trees have broad leaves and oftentimes produce flowers. Most hardwood trees are “deciduous” (meaning, they shed their leaves annually). These trees have a more complex structure and as a result, they tend to grow much slower than softwoods do.

Hardwoods have a lot of important uses. This type of wood goes into things like fuel, tools, construction, boat building, furniture, musical instruments, flooring, cooking, barrels, and manufacture of charcoal.

Softwoods

Fir Trees (Abies Fabri) are common all over the world

Examples of Softwood Trees:

Softwood trees account for nearly 80% of the world's production of timber. Most softwood trees have needles and/or do not have broad leaves. Softwood trees tend to grow much faster than hardwood trees, which makes them a very plentiful source of timber. Softwood is typically used for things like structural framing, flooring, decking, beams, poles and paper pulp.

This video gives a good overview of the differences between hardwood and softwood trees:

Note: I realize this video was made a long time ago, but that's okay! Trees haven't changed much over the past umpteen years either… so this kind of information doesn't need to be revised very often.

Age and Defects

In many ways, the age of a tree is closely correlated with its size and species. Certain types of trees grow faster than others – but it's usually a safe bet that when a tree is really big it's also really old.

Since the European colonization of North America, many of the largest and oldest trees in the continental United States have been logged – leaving the present day forests with many trees that are still sizable, but smaller in size than the original, virgin timber.

This map below gives a good portrayal of where most of the “above ground woody biomass” can be found in the U.S. today.

Aboveground_Woody_Biomass_in_the_United_States_2011

As you can see, most of the prime areas for logging are in the Northwestern, Northeastern and Southeastern United States.

Though the irresponsible practice of deforestation has taken its toll in North America and other parts of the world, there are still plenty of opportunities for responsible timber harvesting in these prime areas of the country. With the vastly improved forest management practices required of today's loggers, the harvesting of timber (while not necessarily “good” for the environment) doesn't have nearly the negative environmental impact it once did.

Distance from the Sawmill

Another hugely important variable in determining the potential profit from a timber harvest is the proximity (distance) of the site from the final destination of the trees – the sawmill.

So you have a property that is densely packed with massive hardwood trees that would sell for top dollar? That's great – but if it's located a thousand miles from the nearest sawmill, it doesn't matter.

Truck_load_of_ponderosa_pine,_Edward_Hines_Lumber_Co,_operations_in_Malheur_National_Forest,_Grant_County,_Oregon,_July_1942Trees are heavy things, and the typical harvest requires significant amounts of machinery and manpower to transport them to the nearest sawmill. This is typically the biggest human bottleneck and obstacle to a successful (and profitable) timber harvest.

One way to find out if there's a sawmill near your property is to search for one on a sawmill locating services like Wood-Mizer or PortableSawmill.info. Granted, knowing the location of the nearest sawmill won't give you any conclusive answers as to the cost of harvesting your timber – but it's at least worth checking to get a ballpark idea on where the nearest sawmill is located.

If you choose to hire a forestry consultant, this is something they'll be able to offer significant help with.

Does Your Property Have Valuable Timber?

Ultimately, regardless of how large your property is, where it's located, what kinds of trees are situated on it and how big they are – the only way to know with certainty what the timber on your land is worth – ask a specialist.

How can you find a specialist to help you out? There are a few ways to do this:

  • Option 1: Contact a professional forestry consultant. These are experts who can provide a wide variety of services (for a fee), including timber appraising and assisting with the preparation and supervision over the timber selling process. To find one of these professionals, simply do a Google search for “Foresters Consulting”, “Forestry Consultants”, “Foresters”, or even “Timberland Companies” in your area.
  • Option 2: Contact your nearest State University (this is usually free, or very inexpensive). In some states, you can also contact a state forester with the Department of Natural Resources (DNR), Division of Forestry, or Forestry Commission. Visit the USDA Cooperative Extension System, which contains links to every state's free services, often including forestry assistance by a professional forester.
  • Option 3: For a rough idea of the timber prices in your surrounding area, examine the prices for timber in your state or surrounding states through this page from the USDA.gov website. This page will show you how to reach a state forestry specialist near you who knows about timber prices in your market (just click on your state to find the appropriate contact information).
  • Option 4: If you decide not to work with a professional forester, you can also request offers directly from local sawmills (and if you go this route, you should obtain as many offers as possible). Whichever company you hire, make sure they are bonded, they know your property boundaries, follow all existing laws, know exactly which of your trees you want to be harvested and understand your objectives for the land after the timber is harvested. Be sure to get a written timber sale contract; which is essential to all timber sales (check out this example from Michigan State University's Forestry Extension).

Keep in mind – many (but not all) local mills and/or loggers may very well have a vested interest in screwing you over. If you choose to work without a professional forestry consultant, there is a very real chance that you'll get taken advantage of. When a professional forestry consultant helps organize the sale, they can take an unbiased stance on the value of your timber and as a such, there is a much higher chance that you'll make profits that are in line with your local market (even after subtracting out their consulting fee).

It's also worth noting that when you hire the services of a professional, the harvesting of the timber is more likely to be managed well while leaving the remaining land and forest to be more productive in the future.

How Much Timber Justifies Logging?

This is a complex question to answer – because it depends greatly on the size of the property, how densely it is populated with trees, the size of the trees, the types of the trees, and how closely it is situated to the mill that would be willing to harvest the timber (among other things).

In most cases, properties 20 acres and larger are an ideal size for logging timber (again, depending also on the quantity, size, and types of the trees on the property). This is of course, just a ballpark number. There are still plenty of cases where it's possible and worthwhile to harvest timber from smaller parcels of land – but the smaller a property gets, the more it will need to deliver in terms of its cost-to-value ratio.

Untitled design

Here's one way to look at it… a smaller property should have at least one of the following attributes:

  • Densely packed with mature trees.
  • Tree species that offer an abundance of value.
  • Situated in a close proximity to the sawmill.

Again, less acreage is certainly doable, but without one or more of these attributes, smaller parcels will be limited in how much value can be extracted.

What Happens to the Trees?

To those who are concerned about the environmental impact of logging, it should be noted that cutting down trees DOES have an impact on the environment. However, it should also be noted that over the past century, logging tactics have become much more environmentally responsible than they were when the early settlers first came to North America.

In areas where an ongoing forest is still desired, timber is now harvested in such a way that leaves plenty of smaller trees and growth on the land, allowing the forest to regrow and repopulate in a much shorter span of time.

These two videos from Vaagen Brother's Lumber give a fascinating look at the timber harvesting process from start-to-finish.

As you may have noticed from this first video, the loggers don't butcher every living thing from the land. It's a process known as “selective harvesting”, where only the most substantial and valuable trees are harvested, while the smaller trees are left to repopulate the forest over the coming decades.

And in case you were curious what happens once they get to the mill, check out this video…

I found it interesting that every last part of these trees is put to good use, with the goal of 0% waste. As you can probably tell from all the heavy machinery involved, it's not a cheap operation.

The process of harvesting timber, transporting it to a sawmill and turning it into the final product is an expensive undertaking! Given the costs involved, it only makes sense for a sawmill to utilize every last part of each tree that comes through their doors (and that's exactly what they'll do).

The Big Idea

If you take away nothing else from this article, my hope is that you'll understand one simple thing.

Land has MANY potential uses. Many of us are stuck with the idea that the only real value is in living on the property, but it can go so much further beyond that. When you fully understand what the natural resources of a property have to offer (e.g. – trees growing on it, or minerals buried beneath the surface), you could strike gold – even when the rest of the world has no idea what they're looking at.

If you can think outside the box, you may find that these natural resources hold a TON of hidden value – in some cases, it could be enough to pay for your holding costs, other times, it may be even enough to multiply the value of your investment many times over.

Even if you choose not to harvest the natural resources on your property, simply being aware of what's there can be a tremendous selling incentive that makes your property appear FAR more valuable to potential buyers. When you understand what your property really has to offer, your selling efforts will be MUCH easier than they are for other property sellers who didn't understand the facts.

About the author

Seth Williams is a land investor and residential income property owner, with hundreds of closed transactions and nearly a decade of experience in the commercial real estate banking industry. He is also the Founder of REtipster.com - a real estate investing blog that offers real world guidance for part-time real estate investors.

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  1. Austin Hughes says:

    This article is refreshing and great material!
    I’d love to post it on my blog and backlink it to you, if you don’t mind?

    1. Seth Williams says:

      Thanks Austin! If you can cite that the content was originally posted here and link back to it, I’m fine with that.

      Thanks for asking!

  2. Mark Berthiaume says:

    Great Article. Another source of income on raw land.

  3. Lisa Dunn says:

    Thanks for these great reminders! I am in the process of getting 160 wooded acres appraised. I am hoping for some good news in regard to the timber! Great article!

    1. Seth Williams says:

      Wow – that’s a big parcel of wooded land! I hope you get some great news back on that. 🙂

  4. Per Loseth says:

    I would just add that if you employ a forester to take inventory of the timber, go one step farther and have him be in charge of the sale of the timber. He will have a list of the buyers, and will conduct an informal auction. If you sell the timber yourself, as you say in the article there are a million ways to get screwed, as there are many unscrupulous folks in the business.

    1. Seth Williams says:

      That’s a GREAT tip. Thanks so much for sharing Per!

  5. Tim Bishop says:

    One downside to harvesting timber is that it negatively impacts market valuep dramatically at first and only recovers with proper management. You may be able to net more in the end but at the expense of limiting your buyer pool and increasing holding time. If the harvest covers the purchase price its hard to go wrong either way. I’ve got one under contract, just got the timber appraisal done and it looks like it will cover my cost so I can confirm that these deals are out there! This also can be a way to make properties with no road access/utilities/failed perc test/flooding risk work btw!

    1. Per Loseth says:

      It’s true that cut-over timber lands are less valuable. Especially in the case of clear cut lands, it can take decades before the timber value recovers. However– there is a market for cut-over lands. It turns out that when the trees are cut, small trees and brush flourish, making a perfect cover for deer and other animals, and it can be sold or leased out as a hunting tract. Other creative uses: paint ball course, mountain bike trails, cross country ski trails, etc.

      1. Tim Bishop says:

        I think the point you make, that cut land has uses other than future timber harvests is excellent! I would only add that: often leaving some of the larger trees, while reducing the amount that you generate from harvest, in general, maintains some of the visual attractiveness of a parcel which is good for most buyers with other uses.

        This article is definitely my favorite so far on the blog.

        1. Seth Williams says:

          That’s a great point Tim – thanks for sharing (and I’m glad you enjoyed it)! Sometimes the visual quality of a property is something that can’t necessarily be quantified in dollars, but it still goes a LONG way.

      2. Seth Williams says:

        I hadn’t even thought about the alternative uses aspect of it – but that’s a great tip. Thanks for sharing Per!

  6. Richard Morrison says:

    It’s always great to read about “unusual” methods of making money in the real estate biz! Although I’d have to admit, I would feel kind of bad buying land specifically so I could cut down and sell all the trees on it. But I can’t deny it would be a great way to make money.

    1. Seth Williams says:

      Yeah – I kind of would too. However, even though I probably wouldn’t get into a deal just to destroy all the trees on it – it’s still good to know about another “back door” option, just in case push ever comes to shove.

  7. Laurie says:

    Great in depth article regarding the value of natural resources. It is interesting what you can do with your land. Thanks for sharing!

    1. Seth Williams says:

      No problem! Thanks for your comment Laurie. 🙂

  8. Carol Darby says:

    I have been “on the fence” for a year now trying to decide how to proceed. I have had a dozen connections with family, friends of family, sawmills, loggers and foresters during the past 12 months and am still worried about making the wrong decision regarding the 50 acres of timberland I own. So grateful for the information you provided about the whole timbering process.

    1. Seth Williams says:

      Glad to hear that Carol! I wish you the best as you’re coming to a decision. 🙂

  9. Manfred M Gassama says:

    Today Sierra Leone is richly endowed with natural resources. The country forest areas contain all type of African red wood trees for mahogany timbers . i will be interested to work with your organisation to established timber company for exportation .

    We have thousands acre of forest land that will produce huge quantity of African red wood and other tree timbers for the international market .

    I am urgently waiting to hear from you on how best we can implement this program to extract this woods in sierra Leone

    Sincerely
    Manfred M Gassama
    14 Dadly Street , Freetown
    Sierra Leone

  10. Thomas says:

    You definitely wrote a great in depth article on the process. After all of this the trees end up getting cut down to lumber by using custom saws that I actually manufacture. It is quite the process in a whole. Well written!

    1. Seth Williams says:

      That’s awesome Thomas! Thanks for checking out the article – I’m glad you appreciated it (this one took a ton of work to write, but it was also a lot of fun to compile the information). 🙂

  11. Barbara McLean says:

    Dear Seth,
    My mother recently passed away and one of her assets is 8 acres of undeveloped timberland. My brother who is the executor of her will had a lawyer draw up a agreement to distribute this land from the estate to him. The assessed value of the property is $62,000. The lawyer also stated that the value includes both the land and the timber because the timber does not have significant value as it has been logged in the past. I was told by my mother that it has never been logged. It is so thick with trees that I do not believe it has ever been touched. Is this true if per say it has been logged in the past that the timber that is on it now has no value? And is there a way to check with any records that it had been truly logged in the past. My brother wants this property distributed from the estate now before the estate is settled. I am wondering what the hurry is for. No, I can not ask my brother himself since we are estranged.

    1. Seth Williams says:

      Hi Barbara – that’s an interesting situation. I’m not aware of any records that would indicate whether it has been logged in the past, but I would think it might be beneficial to find a local forestry consultant to take a look at the trees on the property and give their opinion on whether or not there is any value. Especially if you’re enlisting them to act as your advocate, I would think they could give you an honest opinion on whether or not this is worth pursuing any further.

      From what I’ve heard, this is an industry where many people take advantage of each other – so it’s important to find someone you can trust to act in your best interests.

      Good luck!

    2. Per Loseth says:

      Hello Barbara,
      That the tract is “thick with trees” could be significant, but it depends on what species of trees, and what the size is. Thicker trees are worth many times the value of thinner trees. The best way to find out it to hire a professional forester, who will do a timber “cruise”, thereby taking an inventory. He will tell you what kind of timber you have, what sizes, how many board feet, and what the approximate value is. If you contact your county or state forestry department, they can give you a list of professional foresters.
      Per Loseth
      (773) 684-5021

  12. Zequek Estrada says:

    I can believe that most people rarely know anything about timber harvesting. The people I’ve asked about it don’t know much about the process. I didn’t realize there were so many key players that were involved in this process.

    1. Seth Williams says:

      Yeah, I’d have to agree. I think it’s one of those subjects that most people assume they understand (because after all… how complicated could it be?) – but once they get immersed in it, they realize just how much is going on in the process.

  13. David says:

    I wish I was paid to live on a 35 acre lakefront lot. Like how does one even put themselves out there to be selected for that, other than having a natural gift for finding the best timbers?

    1. Seth Williams says:

      It’s probably a combination of knowing what to look for along with a little bit of luck. 🙂

  14. Jordan says:

    I’m glad that you talked about some softwood trees, and that you mentioned cedar lumber falls into this category. I’ve been thinking about getting some cedar lumber to do a project at home, and I think that due to its softness, it’d be easier to work with. I’m going to have to see if we can find a good cedar lumber supplier, and see how this project turns out! Thanks!

    1. Seth Williams says:

      Thanks for reading Jordan!

  15. Jordan says:

    I’ve been curious about logging, and I stumbled upon your article! I’m glad you talked about how there are custom saws used for logging. I’m going to have to look for some different strategies for logging and see what else is out there! Thanks for sharing!

    1. Thanks for checking out the article Jordan! Glad you got something out of it.

  16. Dan says:

    Hi Seth,

    Great article, are some parts of the U.S. better for harvesting than others? I know you mentioned the difference between soft and hard woods. Is there a region which is better than most?

  17. I’ve been wanting to learn about landscaping timber, and I think that getting some tips would be great. I like that you talked about how landscaping timber is harvested, which I think is interesting. I’m going to have to look for a few places where timber is harvested leaving smaller trees like you mentioned, and see what it’s like!

    1. Good luck Jordan! Let us know how it goes.

  18. Hi Seth Williams,
    You are a right this was a great solution of cutting the trees by tree trimming services offers by different tree removal companies from a garden easily within a short period of a time But if you want to save a trees of garden then the best solution for it to get the suggestions of different gardeners and given a proper water daily according to the required period of a time because according to my thinking the health problems of different trees in a garden are starting from the trees due to the issue of water can’t observe by roots on time and you stemps of trees are thin day day and problem are increase so must contact daily with the Gardner and greeting information about the health of trees so the save of trees from the attack of insects in a garden.
    Thanks.

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