VARDAMAN VIRTUAL FORESTRY COMPANY

Successful use of a PPIC for any of these purposes often requires help from advisors in timber procurement, investments, or taxes, and that's not our specialty. On the other hand, we can put you in touch with professional advisors or others who have used PPICs.

A PPIC is a unique vehicle for reaching these goals; so far as we know, there has never been and is not now anything like it in forestry investments. It is not a tract of land planted in loblolly pines; it is an installment-purchase contract on a planted stand of loblolly pines. The success of PPICs depends upon the interplay of many factors that change constantly. To understand them, you must appreciate the combined effects of tax laws, forestry, compound interest, and inflation. There is no quick, easy way to explain them. We have done our best in this and other articles.

What is the Price of Each PPIC?

The price of each listed PPIC is quoted as a down payment in cash plus interest from a certain date to closing plus the obligation to make required future payments. These PPICs may be owned by PPMC or by an individual investor. Prices will change whenever the owner pays expenses or receives income, and availability will change if the owner sells it or the landowner buys it back. PPMC may be listed as owner even when it is merely an agent for the owner. Because of the objectives of all owners, these listings tend to become permanent with the only change being in prices.

The price always includes both the previous investments in the PPIC and the obligation to make annual payments specified in the contract. They cannot be purchased with a lump-sum payment. These payments cannot be made in advance, and the estimated IRR earned on each cash contribution begins only at the time it is made. Although writing a check each year may be burdensome, it is the only way that the purchaser can earn the estimated IRR on each contribution and allow inflation gradually to reduce the real cost of the PPIC.

Annual Management of a PPIC

Under the PPIC contract, the investor must maintain detailed accounting records to allow calculation of the buy-back price, and IRS rules require him to report annual payments to the landowner on Form 1099. He must also furnish the landowner an annual on-the-ground inspection and report, complete with photos, by a qualified forester.

During most years, other management may not be needed, but when it is, the amount may be large. Attacks by insects, fungus, fire, trespass, etc., can require several days' work at considerable expense on only 40-50 acres.

All owners of listed PPICs have contracted with PPMC to handle landowner relations, forestry operations, and clerical work. You can do likewise at the same prices listed in the contracts or choose another method.

Because of provisions of the contract, many investors receive free and very valuable assistance from the landowner. As you can see from the Tract Maps, many landowners live immediately adjacent to and within sight of the PPIC. Because of the buy-back provision, all of them have a strong interest in the successful development of the plantation. Most of them have telephones and are quick to report important developments. We believe that PPICs are the most watched-over forests in the South.

Exit Strategies

The only sure exit strategy is the passage of time, and making annual payments for as long as 24 years may not appeal to you. We cannot predict the results of the permanent listing described above. Our experience since investing in the first PPIC in 1994 reveals, however, that the average term of them is much shorter. During our first four years about one-third of them have been either bought back by the landowner or sold to another investor.

Undivided Interests not for Sale

You cannot buy parts of, or an undivided interest in, a PPIC. You must buy all of each one or nothing.

PPMC's Availability as Purchasing Agent

PPMC maintains extensive contacts with actual and potential parties to PPIC contracts. It operates three sites on the Internet open to the general public; for 25 years, its Member-Manager has edited a quarterly forestry newsletter with 125,000 subscribers; it has organized a PPIC procurement organization with agents at 10 locations across the South.

PPMC's acquisition work significantly increases merchantability of the PPIC or its timber. It maps the area with a Global Positioning System, eliminates boundary disputes, assures access to public roads, uses a standard conveyance contract, arranges subordination of mortgages or cutting contracts, and prepares the forest-management plan.