CHAPTER ELEVEN

PURCHASING WOODLAND

Know Exactly What You Want, and Exactly Why You want It

Do you want to buy woodlands? Are you solely interested in a short-term, real estate investment, meaning that you intend to buy and sell property and timber for a quick profit? If so, you are probably reading the wrong publication. The following focuses on purchasing the right kind of land, at the right price, as a long-term forestry investment.

A forester told the following true, cautionary, tale a few years ago about a landowner in west Tennessee. It seems that a young man purchased wooded property shortly after the birth of his son. He planned that the timber would grow through the years and pay for his son's college education. Well, the son grew up and became ready to go to college, so the owner called this forester to carryout a timber sale. The plan was good, the timing was just right, and he called in a professional to maximize his rewards. The problem was, his timber was absolutely worthless. As a young man, the owner had purchased a very small stand of honey locust and other just plain junk trees. Needless to say, both the owner and his son were devastated to see their dream shatter against the hard rocks of reality.

The above unhappy story makes a very simple point. You must know exactly what you are doing before you spend a considerable amount of money buying land. While you might not make the obvious mistakes described above, there are lots of mistakes that can be made by unwary investors.

Know What the Total Property is Worth Before You Buy It

How much should you pay for timberland? No more than it is worth, of course, but the only way you can know the value for certain is by paying for a thorough appraisal of the entire property including all associated assets. You should also do your own up-front homework, and only spend your time and money on desirable properties that you have a reasonable opportunity to purchase.

To begin, you must determine the current "bare land value," which represents the value of the land itself without considering the value of any improvements or other assets such as trees, fields, existing leases, and so on. Certified real estate appraisers can provide specific information about bare land values using comparisons with recent "comparable sales" within the County or region where the tract is located.

You may locate a tract for sale that is totally wooded, but most are not. For determining the value of assets other than timber, again use the specialized services of an experienced, registered, real estate appraiser.

Finally, get an accurate appraisal of the existing timber. The only way to be certain of what the timber is actually worth is for one of our highly qualified forestry consultants to thoroughly evaluate existing stand values and conditions. Do not rely upon the expertise of a real estate agent or appraiser to judge timber values. Real estate professionals commonly rely upon comparable sales for determining total property, including woodland, values. This assumes they know enough about timber to compare one stand of trees with another, which is a major assumption when it is your money at risk. Always get a reliable timber appraisal from our foresters, and besides, if you buy the property, you will need it later anyway to establish your "basis" for federal tax purposes.

It is going to cost you money to get reliable appraisals for the property you are speculating to buy. Your only alternative is to guess at the values and hope you guessed right. Seemingly, guessing is not a sound basis for investing.

Always Consider Site and Stand Conditions

Purchasing decisions should always be based upon finding property with site conditions favorable for the establishment and growth of desirable trees. A tract that may be purchased at a bargain basement price might make it a good real estate investment, but the price has nothing to do with whether or not it can produce desirable timber. Remember, soil and related site conditions constitute the engine that drives the productivity of your forest. Buy land at a reasonable price, but if you want your timber business to prosper, buy land that grows trees very well.

As a rule, good farmland equals good timberland. The greater the productivity of the soil, the greater will be your corn, soybeans, or wood production. As with most crops, deep, well drained, silt loam soils are preferred for the rapid development of most valuable forests. Soils with a very heavy clay content often tend to stay too wet, while sandy soils are often arid. Shallow soils simply do not allow for proper root development, and often lack adequate moisture holding properties. A "hardpan" is an impermeable layer of clay or chert under the surface of the soil that similarly does not permit proper root establishment. Professional advice on evaluating soils can be provided by your local USDA, Natural Resources Conservation Service (NRCS) office. Find out all you can about the best soils in the county where you intend to buy land, because soils are basic to production. Our foresters can help you interpret the information.

Following many years of exhaustive research, government scientists have concluded, beyond any reasonable doubt, that water runs downhill. Rain falling on top of a mountain, ridge, or hill is absorbed into the ground, and slowly percolates downhill through the soil to collect on lower slopes and in the valleys below. The amount of available ground moisture dramatically affects tree growth. So, well-drained "low ground" is greatly preferable to "high ground." Land on mountaintops, or land that predominantly lies along hill or ridge tops should be avoided.

In like manner, direct sunrays dry the ground. The more direct the sun's rays, the more water trees need and use. At our latitude, hillsides facing towards the south or west are hotter, and therefore significantly drier, than slopes facing towards the north or east. The operative term is "significantly," because aspect, or the direction a hillside is facing, is a very important factor influencing hardwood tree growth on most sites.

Soil types, the position on slopes, and aspects generally vary throughout any given parcel of land. Importantly though, it is wise to purchase land with as many desirable characteristics as possible. Knowing what you do now, would you purchase land located on a mountaintop, extending down a west-facing ridge, with inherently arid soils? Not if you want to make a lot of money growing wood.

Stand conditions affect the timing of timber harvests. From a financial needs standpoint, how soon must you begin receiving income from the property? How much money will you need? Is timber revenue needed to offset the cost of purchasing the property? If so, will the timber on the tract meet your needs? Would cutting the timber immediately make good sense from a timber investment perspective, or should sales be delayed to maximize the return on your investment down the road? What are the trade-offs? Clearly, there is no single answer to the above questions, as far too many variables could apply. The important point is to know what you want, know why you want it, and know if the timber on the property you are considering for purchase will meet your short and long-term objectives.

As part of the appraisal process, our foresters can fully evaluate current and future stand conditions, and the productive capability of the property. We will help you understand what you are buying.

Determine in Advance the Total Cost of Establishing Your Business

So, you found the ideal property to purchase. The soils, aspect, slope positions, and stand conditions are all perfect. Best yet, the land can be bought at a very reasonable price. So, if you buy it, your new timber business is all set, right? Maybe.

As with any property purchase, be absolutely sure your deed includes a precise description of the land, and that it is verified by a licensed surveyor. Also, make certain to receive a guaranteed title, as boundary disputes in rural Tennessee are common.

Confirm that a timber company has not already purchased the timber, and is thereby holding a timber deed or contract as a lien against the property. In like manner, avoid purchasing land if someone else is holding the mineral rights. Do not purchase property unless you can control every aspect of what happens to it. In effect, be sure you know exactly what property you are buying, and that nobody else is claiming all or any portion of it.

If you are financing the purchase, should you sell off the timber assets to get out of debt? Most economists would immediately say yes. A better answer could be, maybe. Be very, very careful here. If we are talking about harvesting an under-stocked stand of poor quality hardwoods, the answer is unequivocally yes. If you have a recently thinned pine stand that is yielding a twenty plus percentage return on investment, then maybe not. Perhaps you should sell some of the trees to offset some of the debt, or all of the trees, or most of the trees, or this stand and not that stand, or.....! Who knows? You should know, and have a specific plan prepared before you buy the land.

Are you buying a wooded tract that is ready for management, or a tract needing immediate additional investments? Perhaps the property has several acres of fields or cut-over areas that you intend to plant with trees. How much will that cost? Are you prepared to go ahead with planting right away? The planting cost will go up every year if you wait. What are the road conditions on the property? Do water quality problems exist? If so, what will be the cost of repairs? Anyone who ever bought an old home will tell you of the many small jobs needed to bring the house up to conventional standards. Each of the small jobs cost money, and the total costs can soon mount to ugly levels. Don't under-estimate the cost of bringing wooded property up to maximum production. Get our forester's opinion.

Finally, and this is a very serious "Buyer Beware!" situation. Tennessee is filled with illegal garbage dumps, and rural woodlands are a prime target. These dumps may contain everything from household trash, to agricultural chemical containers, to industrial hazardous waste. Be doubly sure to check the property very thoroughly for signs of dumping. If you find a dumpsite, bring it to the attention of the seller or his agent and demand that cleanup of the site be included as part of the sale contract. Before closing the deal on the land, have the Tennessee Department of Environment and Conservation, Solid Waste Section, verify that the site has been cleaned up properly, so that it will never become your very own, and very expensive, nightmare.

Where and How to Locate Desirable Woodlands

A primary consideration in purchasing productive woodland should be keeping bare land costs at an absolute minimum. The land is the factory that produces your product, trees. Like any business, you do not want to become over-capitalized in fixed assets. The higher the cost of the land, the less financial incentive there will be for you and future generations to sustain your timber business.

Bare land values in rural Tennessee are normally only a fraction of those for comparable land in, or near, metropolitan centers. As with virtually everything else, supply and demand for land affects prices. Even some rural areas, such as parts of upper East Tennessee, are fast becoming a haven for retirement and vacation homes, which has let to escalating land prices. While some east Tennessee counties still have affordable land, you would be well advised to look towards regions such as the Cumberland Mountains and Plateau, Highland Rim, and very rural middle and west Tennessee.

If you have objectives in mind for managing specific types of timber, go where the best markets are. For example, if you are planning to grow loblolly pine, you should first look for land in the southern or western parts of the State. High quality hardwood markets are available state wide, with the highest hardwood prices historically found in east and west Tennessee, and the lowest prices on the Cumberland Plateau. A "choose and cut" Christmas tree operation will have to be located very near a metropolitan area, while a wholesale Christmas tree farm could be located just about anywhere. Knowing exactly what you want to do may guide you to where you need to go.

Finding land for sale is not difficult. Most people today use Realtors to market their property, so contacting local real estate brokers in the area you are interested in is a good place to start. Newspapers are another good source of information, and most rural counties have a local weekly paper. There you will find classified listings for property, some of which are notices from Realtors, while others offer property for sale by the owners. A surprising amount of land in rural counties is sold simply by word of mouth. Local contacts that you may have could provide the best leads to buy good land at rock bottom prices.

Negotiating a Land Purchase

Never pay more than the fair market value for property, and never pay more than necessary to get it. Therefore, get ready to "dicker." You will very likely be buying rural land from rural Tennessee families who have been "horse trading" for generations. Most enjoy it, and many are very good at it. This is no kid's game. It is strictly business, so do your homework. Consider the following simple, but important points when negotiating and closing a land purchase:

1. Know the total market value of the property prior to any

purchase negotiations.

2. Define a negotiations' strategy that matches your own

personality. Remain business-like and determined. Plan out

every step of the negotiation process in advance and stick to

your plan.

3. Never show your hand. You paid for your own appraisal, so it

is privileged, and very valuable information. If the seller

wants to know the appraised value, let them hire their own

appraiser and forester.

4. Establish a reasonable, maximum figure in your mind that you

will be willing to offer for the land that is equal to or less

than the appraised value. Be reasonable, because sane people

do not give land away.

5. Remember, the initial asking price for land is almost always

higher than what the seller is willing to accept, so expect to

see the property you want being advertised well above market

value.

6. Even though property may be offered for sale at less than its

true value, negotiate with the seller or their agent for a

lower price anyway. Take every advantage of a bargain.

7. Always begin negotiations with a "lowball" offer. That is,

offer significantly less than what you know the property is

worth or what the seller is asking. Start low, but plan to

go up later as necessary.

8. Most probably, your initial offer will result in a counter

offer at less than the original asking price. That puts the

ball back into your court. Your negotiations' plan should

include exactly what your next and subsequent offers will be.

It will not take very long for this "offer and counter offer"

process to reach an agreement at, or hopefully below, your

target price.

9. "Poor mouthing" is considered acceptable etiquette during all

stages of the negotiations, while "crowing" after buying a

bargain is not.

10. Sign an "Option," if you think it is necessary. If you have

made a deal on a really good bargain, you need to close the

transaction as soon as possible, and do not hesitate to put

"earnest money" down to seal the deal. Use your attorney's

advice, but be prepared to close the deal rapidly.

11. It should go without saying that property transactions

should always be processed by an attorney.

12. If the seller will not accept your best offer, you simply need

to find and buy property elsewhere. Do not allow yourself to

give in, or "fall in love with the land," and end up paying

more for the property than it is worth. There is more good,

affordable land for sale out there that you will like, so go

find it.

While negotiating the purchase of land, buy a bargain if you can, pay the fair market price if you must, but don't get taken to the cleaners yourself. Remember to be prepared, have a target, have a plan, stay on track, do not provide relevant information about the property, do not allow yourself to become distracted, and stick to your guns.