Invest in lumber?

[Peter Quadarella]

Actually I was just telling my wife we should invest in lumber today. I told her with the stock market down, real estate no good, and the possibility of inflation, it's time to put our money in commodities. For some reason she just thought this was a scheme to spend thousands on lumber for the shop.

Of course, telling her woodworking machines might be a good investment too might have been a little too far.

[jeff begin]

If this was truly a great opportunity (and honestly had anywhere near the return claimed), bankers and/or venture capitalists would be all over it. Instead, the company is forced to target "small people" with advertisements hoping that they might overlook some of the financial fine points because the industry interests them.

Sounds too fishy for me.

[Gregg Feldstone]

Thanks for your responses. Many of the points you all have made also crossed my mind. The website and literature they sent me talks about the coming scarcity of tropical hardwoods and how the land they are using on the big island of Hawaii is perfect for growing and free of risk from infestation, drought, volcanoes, hurricanes etc. They make it sound like I'd be buying gold real cheap. I did get the names of the two partners in the business but I had to ask twice. It's an interesting idea but I think I'll pass.

[Andrew Jordan]

Investing in a tree over 25 years....what if it grows crookedly, or doesn't grow? Are you buying an acorn for 6 grand, and hoping a tree develops? What if the tree is full of bugs and becomes punky? If a hurricane drops the tree, what happens?

In addition to the above, there's likely a catch - it has to be cut down in 25 years, and cannot be harvested before...gives the individuals plenty of time to run off...

[John Keeton]

Honestly, that is only about a 16.5% rate of return for 25 years. I know that this is good, but that is not unfathomable by any means.

That being said, I would not bother with this. There are many other ways to make good money than this in markets and such...

Chris, I think we agree on the issue of the original post, but I would respectfully take issue with the perception that "16.5% is not unfathomable."

While it may happen at times, in the investment world, the rule is risk vs. return. Over time Treasury bills average 3.7%(low risk), corporate bonds 5.9%(moderate risk), and the market 10.4%(I think we can all agree this has been proven to be high risk)

So, 16.5% is beyond, by a long shot, the market expectation. That puts it at or above an extremely high risk. If one likes to gamble, has money to lose, and enjoys high stake investments while still sleeping well at night - then it may be a consideration.

[Scott Wigginton]

Of course, telling her woodworking machines might be a good investment too might have been a little too far.

Not far enough! Tell her the Schwarz has declared quality handtools retain their value better than your 401K!


"May the Schwarz be with you"

[Karl Brogger]

Investing in a tree over 25 years....what if it grows crookedly, or doesn't grow? Are you buying an acorn for 6 grand, and hoping a tree develops? What if the tree is full of bugs and becomes punky? If a hurricane drops the tree, what happens?

In addition to the above, there's likely a catch - it has to be cut down in 25 years, and cannot be harvested before...gives the individuals plenty of time to run off...

Has Hawaii ever been hit by a hurricane?



To me it seems like a risky investment. Granted $6k isn't much to lose, but their projections are probably figured at 100% rate survival of the trees, and that is just unlikely. I've kicked this idea around domestically, plant X number of acres into hardwood. The biggest downfall being that even at 28 I won't live long enough to see anything become of it. I think it would take a bit of education in forrestry to know what to plant in what kind of area, and how to care/protect them to net the greatest yield.

[Paul Johnstone]

Got a brochure from Hawaiian Legacy Hardwoods and it looks intriguing. One can buy lots of 100 teak, mahogany or koa trees for $5800-$6100. When the trees are harvested you keep the profits. A $6100 koa investment is predicted to make you $280,000 over 25 years, but you can start getting profits in as few as 7-10 years. Has anyone else looked into this or other tree farms? Lots of variables and risk but they, of course, try to down play that.
It does look like something which may be profitable and play a part in keeping wood available in the future. The fact that the trees are planted on US soil also makes it seem more secure.

If you are serious about investing in this, I think there is a much safer way.

In the southeast US, there are people that buy land relatively inexpensively, clear it, and then plant those pine tree forests. In 10 years, you can harvest for paper. 15 years, you can harvest for framing lumber.
The government gives you a subsidy for planting the trees.. I think it is $50/acre per year.

Note, this information was from a relative that does this. It may not be 100% accurate. Do your own research.

[John Keeton]

I've kicked this idea around domestically, plant X number of acres into hardwood. The biggest downfall being that even at 28 I won't live long enough to see anything become of it.

And then Karl, there is that thing called the "unforseeable future." You go to all that effort, and 15 years down the road, a big developer comes by and offers you a small fortune for the land, bulldozes the trees, and "plants" houses!!

[Carlos Alden]

Gregg:

I concur with all the other suggestions that this is likely a scam. However if you want to pursue it you could call the State Attorney General office for Hawaii and ask them if they've heard of this idea, either specifically with this group or generically. My guess is they'll probably laugh and tell you they get calls all the time from people who have been duped. You could also call the Department of Forestry (or whatever the name is in Hawaii) and ask them how feasible this idea would be in terms of exactly what kind of trees would grow, what the normal anticipated growth-to-maturity is for those kind of tress, how long that would take, what the expected loss-to-disease rates are, what the environmental regulations and restrictions are for planting tree farms, etc. etc.

You could also call the company and ask them for the contact info for their legal advisor, their horticulture advisor, and their real estate person. IF they have the nads to actually give you someone's name (okay, that's presumptious - they COULD be legit) then double check those names with state licensing agencies and the BBB to make sure they are aboveboard, and call them.

I doubt you'd get that far, though.

Carlos

Let us know if you get more information. It might be fun to string them along: "hey, I know of an internet group that could get a BUNCH of investors together. How many acres can you cough up for me?"

[Benjamin Dahl]

Gregg, I'll second what Paul said. I have friends down here in Georgia who plant pine on plot of land when a child is born and then harvest when college time arrives and it pays for a good chunk depending on where the kid goes. My folks just had some timber harvested in northern Maine. They have owned the land for 25 years and had it partially cut when they bought it and partially cut in 2008. The forester made some good money and my folks were happy with what they got. Granted, buying a lot big enough to do something like this would likely be more than $6100.
Take care.
Ben

[Al Weber]

I wonder how many times they sell the same trees to different people? Unless you can pitch a tent or cabin in "your" trees and watch them grow, I'd forget it. However, I will sell you my 90+ acre tree farm in NH. I took about $10K out of it last year (no investment on my part since we live in the house on the property) in a housekeeping cut to take out the garbage (mostly firewood and pulp) in anticipation of a larger harvest when markets go up. Besides that I took down about 1000 board feet of prime rock maple, yellow birch, and cherry last year using a RipSaw. It is drying beneath my barn and will be ready sometime this year (except for the 8/4 and 12/4 stuff). If you really want to do this, buy some property that can be harvested periodically or plant some property close to you for future harvests. There are many documented cases of timber thefts, particularly in the Northeast where someone cuts property other than their own because the landowner is absent. The real reason for the Madoff and Stanford Financial fiascos is that people stopped thinking for themselves and allowed the "investors" - read "cheats" to do it for them without proper checks and balances. Sure it was easy and the profits were guaranteed. Right!

[David Keller NC]

One other comment about this that wasn't brought up is the risk of a change in climatic conditions that could esily render this sort of investment worthless. I don't know enough about Koa trees to say, but I'm betting they're pretty adapted to the climate that Hawaii has experienced over the last several thousand years. A big change in that climate profile could render the area that this tree farm is located in a hostile environment for the particular species.

And probably the biggest risk is an invasive species. This is a repeating story in the US, starting with the Chesnut blight in the early 20th century, followed by Dutch Elm disease, and most recently, the Emerald Ash borer, the Asian Long Horn Beetle and Butternut blight. The only reasonable way to minimize this risk is to invest locally in land that has timber value in a large number of species. If one gets wiped out by insect infestation the other speicies may make up for the loss somewhat.

[Jose Kilpatrick]

It would probably be more wise to purchase a plot of land and plant your own selection of trees to harvest in the future. You may also get a break on your taxes for it.
You can also buy wine by the cases or lot in the same manner as stocks and sell when you feel the price is right. The advantage is that you don't have to worry about storage and shipping.
I like the idea of starting a sawyer buisness best though.

[Jeff Mohr]

I would buy a sawmill with the $6100 and start profiting from day one, but that is just me As far as keeping wood available...
This is a quote from “Utilizing municipal trees from around the country” Stephen M. Bratkovich
“In the United States over 200 million cubic yards of urban tree and landscape residue are generated every year. Of this amount, 15 percent is classified as “unchipped logs.” To put this figure in perspective, consider that if these logs were sawn into boards, they theoretically would produce 3.8 billion board feet of lumber, or nearly 30 percent of the hardwood lumber produced annually in the United States."
Not to cram my philosophy down anyones throat, sorry, but urban logging is the answer.

Couldn't agree more!!!