With growing fears of a recession, investors are looking for reliable assets to strengthen their portfolios. But digital investments like cryptocurrency and NFTs are fickle, requiring investors to seek other solutions. One alternative investment worth considering is timberland.
When you invest in timberland, you invest in forest land that produces timber. This tangible hard asset holds fundamental value, making it a solid investment option. But there are other benefits you may have never considered, including portfolio diversification, multi-purpose uses, investment longevity and ESG perks. Let’s take a deeper look at each.
#1. Portfolio Diversification
As an investor, it’s essential to diversify your portfolio because diversification reduces risk and increases your chance of reward. The last thing you want is one adverse event to wipe out your entire portfolio. So, one option is to tap into the natural resource market, which includes timberland.
Timberland investments are a sound strategy because wood and lumber products are in high demand. The pandemic created a worker shortage in the forest products industry and disrupted supply chains, causing prices for processed wood products to nearly quadruple. These prices will remain high in 2023 and beyond as the demand for wood products from home builders and manufacturers increases.
#2. Multi-Purpose Uses
Timberland investments are robust because the land offers various uses that you can leverage for profit. While timberland can still appreciate without your involvement, you will reap greater benefits by actively developing the land.
A recreational land lease permits a land user to enjoy specific recreational activities on the land for a certain duration. These recreational activities can include:
- Timber harvesting
- Crop production
And when you diversify your recreational activities, you can increase the number of issued recreational land leases. Having more land users on our property helps to reduce trespassing and boost your profitability.
If you find keeping up with the licenses challenging, consider investing in a recreational license management system that can reduce the administrative work.
#3. Investment Longevity
There will always be a market for natural resources like timberland because it’s leveraged in multiple ways. This is especially true as people consume more wood products and timberland becomes more of a hot commodity.
Because timberland is so valuable, it offers steady investment growth over the long term. And it’s not affected by market forces that can upset other investment opportunities such as stocks and bonds.
#4. ESG Perks
Conscious investors utilize Environmental Social Governance (ESG) to help protect the environment. Timberland investors, in particular, use ESG to measure their land’s sustainability, ethical impact and risk over opportunity.
There are various ways to optimize your timberland for environmentally-friendly purposes, including:
- Greenspace and wildlife rehabilitation
- Economic and cultural support for local communities
- Wind and solar energy
Land conservation is “the long-term protection and management of unused or underused land resources” and another critical component of ESG. Protecting the environment means safeguarding it from development, which allows people to use the land for recreational purposes and promotes biodiversity. It also provides clean air and water, which are essential for the survival of living things. Examples of conservation include:
- Carbon offsetting and emission trading
- Conservation easements
- Renewable energy production in the form of biomass, like wood pellets
- Sustainable farming agreements
Before Investing, Do Your Due Diligence
While it may be tempting to go out and buy the first large land holding you can find, you should do your due diligence to ensure the land you’re buying is the land you’re getting.
When you perform due diligence, you investigate to confirm the exact boundaries and assets involved in the transaction. Here are the steps involved in the process:
- Mapping the transaction using GIS software
- Identifying discrepancies
- Resolving issues in the contract
- Digitizing the land records
Working with a GIS consultant can help to identify and resolve any hidden geospatial factors that may complicate your transaction. In addition, they can leverage a GIS-powered due diligence platform to give you total visibility into your land transactions so you can avoid any last-minute surprises.
Timberland is a worthy investment for new and seasoned investors because it diversifies your portfolio and can be leveraged in multiple ways. From recreational land leasing to ESG efforts, timberland provides steady investment growth that you can’t ignore.
Orbis Inc.’s land investment technical analysis service, LITAS, unlocks a visual and digital display of your assets, so you gain visual confirmation of your investment. Contact us today to learn more.
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