For those that have had timber cut on your land

[Tennessee Todd]

I am considering purchasing a tract of land with very mature hardwoods on it. Pending the final valuation from the timber management company, believe it or not, the timber proceeds almost pay for the land in it's entirety.

I really thought these days were over, so I'm asking those of you that have done this before, are there any "gotcha's" that I need to be aware of when buying land and then turning around and logging it out? It will be clear-cut, not select cut, and the timber valuation company guarantees the value to plus or minus 10 percent. (or that's what they say) They get 10% of the value of the timber.

Thanks in advance!

 

[8 POINTS OR BETTER]

You will probably have to pay income tax on what the timber brings.

 

[pass-thru]

You will probably have to pay income tax on what the timber brings.

Unless you wait a year and get long term capital gains treatment, consult a tax pro to make sure it's done right.

 

[Boll Weevil]

I've seen some good timber crews that are as "gentle" with the land as if it were thier own; contract language can help with this. Consider things like haul roads, loading decks, creek/ditch crossings, avoiding timber that's too small to harvest, and slash/brushpiles.

From gouging impassable ruts to negatively affecting erosion control to damaging young trees (that are your future harvest)...some crews can really leave your place a total wreck if you don't set expectations and do your homework up front.

 

[kholmes]

I believe when our timber was cut we qualified the proceeds as farm income. I don't know how much that helps. My dad got all the $$$$$$

 

[Jarred525]

I've seen some good timber crews that are as "gentle" with the land as if it were thier own; contract language can help with this. Consider things like haul roads, loading decks, creek/ditch crossings, avoiding timber that's too small to harvest, and slash/brushpiles.

From gouging impassable ruts to negatively affecting erosion control to damaging young trees (that are your future harvest)...some crews can really leave your place a total wreck if you don't set expectations and do your homework up front.

Good post. The key is finding a good reputable logger with good references. They can be extremely hard to find.

 

[BSK]

Just remember the bank (or whoever loans the money) owns the timber until the note is paid.

 

[catman529]

hmm I don't know hardly anything about it, but all I can say is that I love mature hardwoods, and would hate to have it all clear cut. Although a small clear cut area in 5 years will be the biggest source of deer cover around...

 

[Football Hunter]

Its a good way to acquire land,and ,it will grow back!

 

[AlabamaSwamper]

Our's was cut with mules hauling the trees out. Skidders were forbidden except in a couple of places.

Everything over 18" was left. It got thick in places but man what a sanctuary. Cover, water and food to boot. It still allowed us to hunt parts of those woods as some didn't get thick.

 

[Tennessee Todd]

Our's was cut with mules hauling the trees out. Skidders were forbidden except in a couple of places.

Everything over 18" was left. It got thick in places but man what a sanctuary. Cover, water and food to boot. It still allowed us to hunt parts of those woods as some didn't get thick.

Everything over or under?

 

[landman]

You will probably have to pay income tax on what the timber brings.

Unless you wait a year and get long term capital gains treatment, consult a tax pro to make sure it's done right.

You can even not pay taxes on the timber then, tell your account you want to take it off your "bases" but if you ever sell the land
you will have to pay capital gains on everything.
And yes I have done this in the past, all with approval from my CPA, better yet, plant pines on 80% of it to cut in the future

 

[PickettSFHunter]

See a tax person about timber basis. You dont want to pay short term capital gains at I believe 25%, thats for sure. Im seeing alot more deals lately that timber will pay for or get close.

 

[tnmtnman]

First, I have paid for land this way but not in one cutting. We usually do a select cut of 20" and larger, and then again in five or six years.

Secondly, if I read your post right the timber "valuation" company is getting 10%? If you have lots of mature white oaks, you are getting hosed! Also, you did not mention what the logger is getting out of the deal. Watch out for "charges" like building roads, haul bill and a million other things that some try to expense out from the owners share. Been there - didn't do that!!

 

[SelphLogging]

Im in the timber business myself, and I don't know your location, but if you have hardwoods, and I assume you do for it to pay for the land, but the landowner generally ends up with near 40% +/- 4% or so. If the cruiser is getting 10% of total just to evaluate, that's obsurd.

Usually the logger and l/o agree to 50/50 on logs, and the l/o usually gets about 10% of the pulpwood. Which is why on a clear cut, the l/o gets less than logger. But if you give up 10%, that's really around 25% of your part. So you can expect to receive around 28-31% of total proceeds.

This will help you figure if it will pay for the land, or backfire on you. I hope this helps. Even if you can end up with around $300 an acre or less, your getting it at half of its expected value when its done cleared. Cause bare land is generally at a bare bottom of no less than $600 an acre anymore.

 

[Hawk]

What if the value the timber management company puts on the timber is more than what timber buyers are willing to bid.

 

[bigtex]

Im in the timber business myself, and I don't know your location, but if you have hardwoods, and I assume you do for it to pay for the land, but the landowner generally ends up with near 40% +/- 4% or so.

That is exactly what my Forrester told me the other day when he was out looking at my property. He said he "hoped" we could get 50% but would probably get 40%. My land is comprised of mostly Oak, and Hickory, and hasn't been logged in over 60 years, some of the trees looked to be 100 years old, according to the Forrester.

 

[Tennessee Todd]

Thanks for all of the feedback guys, that's why I asked!

I should have made this a little clearer. The timber evaluation dude is charging a reasonable fee to evaluate the timber. If I choose to let him log it (or sub it out I assume), he charges 10% and gives me the valuation fee back.

 

[BSK]

What you make off the timber is so dependent on log prices at the time as well as by which process you sell the timber; on a total bid or a percentage by load. I hesitate to recommend either process! Most recommend the total bid process because you get the money up front. That certainly has its advantages. However, I've never gotten the true value of the timber on a bid process. I've occassionally gotten the true value on the per-load basis.

In the summer of 2010, I had sections of some of my best timber (70 years old) cut while prices were high. The cut was 'take anything except white and red oak 12" DBH and under.' The logs sold averaged $5000/acre at the mill. In the summer of 2011, I had timber cut--using the same rules--from an area that had been heavily high-graded 30-35 years ago, and with much less quality timber and prices down, the fewer logs and lower prices produced only $2,000/acre paid by the mill.

 

[PickettSFHunter]

I certainly think you can get more on a percentage deal...if you can trust the logger. BUT, one thing I learned recently is that if you do a percentage deal, the logs are yours and the loggers until they reach the mill. So when Johhny logger is driving that log truck down the road, guess what, you the landowner are partly liable for anything that could happen. And the only way to keep current with prices is through the Hardwood Market Report, but the subscription is $200 a year. It comes out once a week because timber fluctuates so much. I just go to a friends mill and look at his when I need to.

 

[ROUGH COUNTRY HUNTER]

why clear cut,do a 50/50 clear,select

 

[BSK]

why clear cut,do a 50/50 clear,select

Clear-cuts have the advantage of maximizing browse production, with less hardwood sapling growth. In small sections, they have their place in the management toolbox.

 

[bigtex]

why clear cut,do a 50/50 clear,select

When a clear cut is done as a wildlife management "tool" just a percentage of the total acerage is cut. In other words, if you own 200 acres, you would select a couple or more small tracts, say 5-10+ acres to clear leaving the rest to be cut in suceeding years.
The term "clear cut" is sometimes misunderstood, especially in this context.

 

[Tennessee Todd]

why clear cut,do a 50/50 clear,select

In this instance, for once in my life, I'm not doing this for wildlife. I'm doing this as an investment. IF I can truly pay for the land with the timber, and then only get peanuts per acre down the road for clearcut land, it will be a nice money maker.

Having said that, clearcut or mature woods, the property is full of deer and turkey. No matter what I do, it will be a good place to hunt, just in this case, hunting is not a factor at all in the decision.

Thanks again for all the feedback. Great stuff to think about.

 

[SelphLogging]

If its for investment purposes it great. For wildlife, yea it has its advantages too. For a piece of property you want to cut 20-30 years, no.

Its like this, if your in the market for a truck, and there's one of a $10,000 value, and you can get for $5,000, its a great investment.

Because like I said in my previous post, if what your saying holds up, that if it ATS for it, land is bare min at $600 an acre. So even if you have
$300 an acre in it, its smart.

As far as market prices, they're changing as we speak, no need to watch. The changes are so small that it doesn't affect mill prices hardly at all. I've been in the business for going on 2 years, and was in it working for someone else for the previous 1.5 years. And I have never had my prices at the mills I use ever change. The mills generally eat a little of that market change and gain a little on the change. We're talking pennies per board foot. Not enough for the mills to stress over.

Also ways of improving your land after a clear cut, is to have a good excavator come in and remove the stumps along the reseedable areas and torn to pasture or crop land according to type of terrain. I'm actually in the process of my own land now. A good trackhoe operator can remove 2-4 acres a day, at $100 an hour, so roughly $400-$500 an acre with dozer work added in.

So now you've created a $1300-$2000 out of a $600 an acre land.

And as far as the percentage, I said 40% +/- a few, cause out of total dollars including pulp wood,

 

[SelphLogging]

ATS should be pays, sorry.

 

[pass-thru]

I certainly think you can get more on a percentage deal...if you can trust the logger. BUT, one thing I learned recently is that if you do a percentage deal, the logs are yours and the loggers until they reach the mill. So when Johhny logger is driving that log truck down the road, guess what, you the landowner are partly liable for anything that could happen. And the only way to keep current with prices is through the Hardwood Market Report, but the subscription is $200 a year. It comes out once a week because timber fluctuates so much. I just go to a friends mill and look at his when I need to.

Where did you hear this? Logs are real property when they are standing (yours)...the logger cuts them and they become his personal property, until he sells to the mill and they become the personal property of the mill, at which time you are paid according to your contract with the logger. Furthermore, liability is tied to negligence. Your relationship with logger is contractual, he is not your agent, so there is no respondeat superior.....so how can you possibly deduce liability from a logging truck just because the logs came from your property?

 

[SelphLogging]

Todd, can you clarify the timber consultant? You're saying he charged you a reasonable fee to cruise the timber, for example $1000. But if you let him cut or contract it out that he gets 10% of total value? So if it brings $100,000 he gets $10,000? Shouldn't he cut you a deal if you give him work?

Also if your near me I don't mind you coming to look at what I'm doing with my 75 acres.


And where you located bigtex?

 

[SelphLogging]

And passthru your correct, landowners are not responsible for the transportation of the wood. Loggers are responsible if something negative happens. Wreck or something like that. Most timber is cut on contracts for both parties sake. Loggers get bad reps sometimes for what 10% or less of loggers do wrong. Kinda like deer hunters

 

[BSK]

As far as market prices, they're changing as we speak, no need to watch. The changes are so small that it doesn't affect mill prices hardly at all. I've been in the business for going on 2 years, and was in it working for someone else for the previous 1.5 years. And I have never had my prices at the mills I use ever change. The mills generally eat a little of that market change and gain a little on the change. We're talking pennies per board foot. Not enough for the mills to stress over.

SelphLogging,

The biggest problem I've experienced with mills isn't huge drops in prices, simply the mill not taking certain species of log. One week they want it and the next week they don't (due to inventory). Sometimes they want Poplar and sometimes they don't. Sometimes they want maple and sometimes they don't. High-quality oak always goes, but other species are hit and miss at times.