What makes a wood or forest a good investment?

 In Comment, Finance & Investments

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Essentials to have in place

Whatever kind of woodland or forest is being considered there are some basics that must be in place to offer the potential of a good investment:

  1. Title. Although most woods will be sold freehold, a surprising number are sold on a very long lease (999 years) so that shooting and occasionally other rights, such as minerals, can be reserved to the Lessor. Rents will be very low (peppercorn), but the restrictions may make the property unattractive even spilling over to one’s amenity enjoyment too. Naturally, acquiring leasehold will be less expensive than freehold, but the restrictions may be too onerous in the long run.
  2. Access. Access to a wood or forest from a public highway for all kinds of vehicles and for all purposes must be in place. There’s no point buying a lovely wood in the middle of a field if vehicle access is restricted to a few weeks in the year or there is a weight limit on the vehicles that are permitted. Without full access rights, at all times and for all purposes, commercial management is fraught. The ideal is for a property to have direct access onto a public road with a wide well-gated entrance – see picture of my own wood.
  3. Access again! Good access to a wood or forest is essential, but almost as important and certainly something to look out for is good access within. Is there a main track from the entrance constructed to a load-bearing standard, say equal to at least 1km per 100 ha of wood, and are there usable secondary tracks (rides)? A second factor affecting access within the property is steepness of slopes, muddiness of soil, and other features of micro-topography. For forestry operations steep slopes, rocky ground, or very heavy, clay soils all make for difficult working and greater costs.
  4. Shape. Woodland and forest boundaries are expensive things, especially if fencing is required to keep out a neighbour’s livestock or to protect one’s investment from the ravages of deer or rabbits. Of course, boundaries next to highways bring the added health and safety risk too. A wood’s shape determines the amount of boundary in relation to size – long thin, sinuous woodland or narrow strips of forest, perhaps clinging to the edge of a hillside, will have far more boundary length per hectare than a square block.

So, a good forestry investment will have a sound title, excellent access to and within the property, and a regular shape without an excessive amount of boundary.

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Why do values vary so much?

  1. Size. While obviously the bigger the area the higher the total price, the price per hectare diminishes with increasing size. A small wood of only a few hectares may be priced at £10,000-20,000 per ha while one of several hundred may be as little as £2,000-5,000 per ha. Many factors affect this, but size is a significant one.
  2. Location and proximity to settlements. This can be a plus or a minus. A property within a reasonable distance, say 20 miles, of where one lives allows informal enjoyment if more than a pure investment is sought – a factor which won’t affect the price, but may influence your decision to purchase or not. The main negative issue is proximity to a town or housing estate and so be at risk from fly-tipping, vandalism and other unwanted trespass.
  3. Special features.  Really good access provision will increase value, but in the category of special features price per hectare will be higher if there is a stream or lake associated with the land for obvious reasons of amenity, sporting, and conservation. Such features can inflate prices particularly of smaller ‘amenity’ woods. Some features may depress prices. For example, a woodland with a conservation designation such as SSSI or national nature reserve or an archaeological feature will curtail management options, which may be attractive to some but a definite turn off for other investors looking to maximise return from growing timber. Likewise wayleaves and other easements or others’ right of access over tracks may affect the price a little.
  4. The trees themselves. And now we come to a question we have avoided answering so far, what is the objective of your investment? If it is to maximise profit from growing timber then both a different kind of forest and different considerations apply from one that is purchased for enjoyment or conservation.  These two main alternatives are important.

Two types of forest

  1. The timber crop.  Investing in forestry for a commercial return has several attractive tax features, and we will outline these in a subsequent article, but what kind of forest is going to produce income or increase most in asset value? Here are some generalities:
    1. buy an established forest in mid rotation – planting from scratch is expensive, despite grants helping a bit, and many years will elapse before any income;
    2. buy conifers (pine, spruce, fir or larch) since their timber is what industry needs and they grow faster than most broadleaved trees being ready for a final felling (when you make most money) after 40-70 years;
    3. buy a property which appears to have been well managed such as having well-stocked, not gappy, stands of trees, good roads and tracks, a history of thinning, provision for fire protection and deer control, and other signs of care;
    4. avoid buying forest on very exposed sites at special risk from storm damage (you’ll need specialist advice).
  2. The amenity wood.  Owning woodland, particularly small areas of a few hectares has become very popular. Most purchasers are buying for the pleasure of ownership, to enhance wildlife, to bring the wood back into traditional management, to conserve a landscape feature, to have somewhere for picnics, or to camp or, for youth group activities. The desirable features of such properties are very different from the commercial timber crop:
    1. broadleaves (deciduous trees) are preferred since dense rows of conifers are uninviting;
    2. starting from scratch can be exciting and creative though buying an existing woodland means you know what you are getting;
    3. many small broadleaved woods will have a history of coppicing, with some trees being pollarded, and re-instating these traditional practices are within the scope of more able owners and bring wildlife benefits;
    4. many such woods are ‘ancient’ i.e. the land has always been wooded, and they will be fabulous for wild flowers such as primroses, bluebells and other delights;
    5. such woods will often yield useful quantities of firewood – a green fuel in this age of climate change concerns, and such woods may have fine specimen oak or ash trees which can command very good prices.

I have deliberately drawn out the contrasts in the above and over-simplified things to emphasise the matters to think about. The truth is that all woods can satisfy both objectives – timber production and amenity/conservation – but the relative importance of these for the owner determines the general kind of wood or forest to buy.

Next time we will look at who actually sells woods and forests.

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