Investing in timber may be considered an “alternative” form of investment, but in reality the practice is no different from investing in stocks, bonds or property. Whatever the nature of the investment, one is looking for the asset to provide a healthy ROI over a certain time period.
A forestry investor, therefore, should always consider the quality of potential cashflows. For example, if a walnut is worth twice as much as a pine, but is harvested less frequently, the decision to go for pine might seem obvious. However, if a single walnut generates 10 times the cash flow of a single pine, then a walnut harvest could generate five times the return of pine over a 30 year period.
So, if pine is worth $100 per tree and there are six harvests in 30 years, the investor would gain $600. If a walnut tree is worth $1000 and is harvested three times in 30 years, the investor stands to gain $3000, making walnut a far more attractive investment proposition.
Timber investments also depend on the availability of different types of tree over time. For example, pine trees in Australia are set for exponential growth, so a single tree will likely be worth less money in 15 years than it is today. Black walnut trees, on the other hand are becoming increasingly rare, so their value is increasing.