Right Now Is The Time For Colombia—And Timber Is The Investment
Timber as an investment holds a special place on any risk/reward chart. The volatility of stocks and bonds creates uncertainty. Timber, on the other hand, is a steady bet.
It’s also a long-term investment. Trees need time to grow. If you’re willing to wait it out, though, timber’s annualized returns generally rival or better those from stocks… without the roller-coaster experience of the stock market.
Historically, teak has been the tree of choice among individual investors looking to make an investment in timber. Teak wood is always in demand. However, the growth cycle for teak from planting to full harvest is at least 20 to 25 years. Give any investor the choice, and he’ll opt for a shorter holding period.
As a result, both investors and timber companies have been looking at other tree options. Uruguay grows a lot of eucalyptus, which is harvested at about 12 years and enjoys a strong demand from large local paper mills.
Europe has begun encouraging robinia and paulownia plantations, as the wood from these trees is in demand for outdoor furniture, fence posts, and biomass to feed electrical plants, among other uses. The good news for investors is that both can be harvested after 10 to 15 years of growth.
As you know if you’ve been reading these dispatches for any time, one of the investment markets I’m most bullish on is Colombia. I’ve been recommending this country, especially the city of Medellín, for rental property investment since 2008 (and continue to do so).
In addition, Colombia now offers a big emerging opportunity for investing in timber.
One area of the country in particular has been targeted for reforestation. Most reforestation projects around the world are actually tree farms, and that is the case here. The trees of choice are acacia and eucalyptus, and several groups are planting in earnest.
Acacia is another tree that can be harvested at year 12. However, one group in Colombia is researching a fertilization method that could allow for a valuable harvest at year seven.
Even if that possibility doesn’t pan out, 12 years is a much more appealing timeline for investors looking for cash flow than 25 years… and the projected annualized returns rival those of teak.
In fact, in the case of Colombia, where the government is offering cash and tax incentives for reforestation projects, the annualized returns project even better than those for teak.
You could do your own timber plantation in Colombia. Land is cheap enough. The problem is that the land cost is only a fraction of the total investment required. You’d need to plant at least 300 hectares to enjoy some economies of scale. The total cost for a plantation of that size would run about US$1 million.
Fortunately, longtime colleagues in Colombia have partnered with one of the biggest forestry companies in that country to be able to offer individual investors an opportunity to take a position in this growing industry. They’ve purchased land in the eastern part of the country, the region of the country I mentioned that has been targeted for reforestation, and have put together a plan for planting.
This group has agreed to allow Live and Invest Overseas readers to participate in the plantation with a minimum investment of only 100 million Colombian pesos. At today’s very favorable exchange rate for dollar investors, that works out to just US$30,750.
This is a fully turnkey opportunity. The developer and the forestry company they’re partnering with will manage everything on the ground in Colombia.
The projected annualized return is 16% over the 12-year growth cycle for the trees. That projection doesn’t include the possibility of intercropping for honey (bees like acacia trees) or the potential return from selling carbon credits.
Each of these additional revenues would be small, and the numbers right now are uncertain, but they’ll enhance the ultimate return over the lifetime of the investment.
The forestry company behind this project already manages more than 8,000 hectares and is planting an additional 1,000 hectares per year on its own land. This group is the biggest player in this region of Colombia but not the only one. More than a dozen companies have started plantations in the area.
All of these developers are working together to improve the potential upside for all plantations operating here. For example, they are collectively pushing the government to build a biomass electrical plant in the province to serve a large town nearby.
Such a plant would create an immediate and local demand for the biomass from the trees… both from thinnings and full harvests.
Additionally, biomass will be exported as will timber for various products, including furniture and flooring.
The first plantations in this region of Colombia were started seven years ago, meaning this new plantation benefits from seven years of learning curve, both to do with managing the plantation and the harvests and with selling the timber when the time comes.
An additional benefit for investors is that this investment qualifies you for residency in Colombia. If you’re shopping for a backup residency option, this is one of the best available right now.
In addition, the timing for this couldn’t be better. The U.S. dollar is at an all-time high versus the Colombian peso. If you haven’t yet made an investment in Colombia, I urge you to remedy that asap. This timber opportunity is a top option, as it’s turnkey and comes with a modest capital requirement. Last year at this time, the same 100 million peso minimum investment would have cost you US$42,500 in U.S. dollars.
While the cost of entry in U.S. dollar terms has been reduced dramatically thanks to the peso’s fall against the greenback, the return on investment hasn’t changed, as all projections are in Colombian pesos.
I believe the Colombian peso will begin to rebound over time as oil prices recover and the Colombian economy continues to enjoy the strong growth rates it has been enjoying. In other words, this is a window of opportunity that will not be open to you forever.
Your portfolio should include timber. Your portfolio should be diversified into Colombia. And you should be acting right now to take advantage of the U.S. dollar’s unprecedented position of strength versus the Colombian peso.
You should also be considering options for establishing a backup residency. You might even consider actually taking up residence in Colombia. It’s an awfully nice place to spend time.
Bottom line, timber always makes sense… and right now is the time for Colombia.
You can get in touch for more information on this Colombian timber opportunity here.
“Lief, I would like to hear your opinion on how the recent explosion of information on the Zika virus will impact an already fragile economic forecast in particular South and Central American countries. Brazil was hoping to re-ignite their stagnate tourism industry, with a window of exposure through the Olympic Games this summer, but most importantly an increase in expat/investor interest in real estate. I would like to know if one should put a hold on any real estate investment and wait until the dust settles. It looks like it may be a while.”
If your goal is to make a tourist-related investment in Brazil—a short-term rental property, for example—then you might expect lower occupancy in the very short-term if Brazil’s tourism numbers fall as a result of the Zika virus scare… which they could do.
That said, much of Brazil’s tourism industry is based on internal travel by Brazilians. Rio de Janeiro would be an exception, as it attracts big numbers of tourists from around the world.
Otherwise, making a purchase decision based on a news flash for Zika virus doesn’t make sense to me. Would you have put off a property purchase in the United States during the West Nile virus scare, when “West Nile!” was in the headlines every day several years ago?