HOW TO GET A “GOOD DEAL” ON A TIMBER INVESTMENT:
A TUTORIAL
For years the success of timber investments has been
enjoyed only by a handful of savvy, well-informed traders, but lately many
people who know a lot about other investments but not much about timber
investments, have come to the market. New tools are available to help
investors, newcomers and old-timers, evaluate current or potential timber
investments just like any other investment.
These new tools are (PPIC®) Pine Plantation Investment Contract®, PTAEDA2.1V growth and yield model, and the
stumpage prices available at www.vardaman.com.
We can best illustrate how to use each one with a real life example. This is
the 40.4 acre “LA87040MMB” PPIC listed for sale in East Feliciana Parish, LA on
www.se-timbersales.com. Here is a step-by-step account of how it was created
and how we determine its value on a given day.
The “LA87040MMB” PPIC was created in Sept. 1997. At
the time the plantation had just completed its 11th growing season.
Here’s how it was created:
Step 1: Seventy-five 1/40 acre plots, evenly distributed throughout the tract, were measured. Each tree diameter was tallied to determine distribution as well as trees per acre. In every other plot heights were measured to determine site index of the soil.
Step 2: The Step 1 results were entered into
PTAEDA2V. PTAEDA2V was then instructed to grow the trees to age 12 and a
thinning was simulated. To see the volume tables at age 12 and the trees thinned click here.
Step 3: PTAEDA2V was then instructed to grow the
remaining stand to age 22. To see the final harvest volume
tables click here.
Step 4: Volumes from both harvests were
multiplied by the current prices in that area for each quality class (pulpwood
or sawtimber) and diameter class.
Step 5: Total proceeds of timbersales were
then discounted back to what was then the present (Sept. 1997) using a 10%
compound interest rate (the buyers target return on investment) and divided
into 16 annual payments. The buyer needs this many years to complete harvests.
Step 6: Step 5 revealed that the buyer, PPMC (Pine
Plantation Management Company) could offer annual payments of $8,039 for 14
years in exchange for planned harvest incomes of $10,465 in 1998 and $171,663
in 2008. The owner accepted this offer and signed a PPIC contract.
How we determine its value today (Sept. 22):
Step 1: We instruct PTAED2V to grow the residual
stand, created in its data base in Step 2 above, for 2 years, the number of
growing seasons completed since thinning.
Step 2: Multiply the volumes in each diameter class
by the corresponding unit prices found in the www.vardaman.com stumpage prices.
These calculations can be made monthly, yearly, or
at other times in tracking your investments. Try it with the
demo version available under the red “PTAEDA2V” button. See how easy it is. If
you have any trouble, call us, and we will be happy to walk you through it.
1 (800) 455-4568
Getting a good deal is not paying less per acre than
the guy down the street. Getting a good deal is knowing exactly what the
investment is worth to you and getting it at or below that price.
