Timberland draws investors with the resources and patience to plan long term.  And that means from 20 to 30 years the time it takes a tree to mature.

For many Georgians, the nest egg that will fund their retirement or their children's college education is not in U.S. Treasury bonds but in a stand of pine trees. Georgia has 23.5 million acres of commercial timberland that cover two-thirds of the state.  Almost 70% of the land is owned by individuals and families, according to the Georgia Forestry Commission.

Back in the 1950s and 1960s, when rural land values were jumping 10% per year, timber owners made fortunes off the rapidly escalating prices.  But property values have stabilized, and timberland profits now come from tree harvests rather than land speculation.  As a result, timberland draws investors who can stick it out for the long term.  And that means 20 to 30 years -- the length of time it takes for a pine tree to mature.

Trees blanket every part of the state.  Softwoods like loblolly and slash pines flourish across the piedmont and South Georgia; bottom lands near creeks and rivers are good for oak, maple, gum and other hardwoods.  More than 500 sawmills and pulp-and-paper manufacturers around the state turn the trees into lumber, pulpwood, paper and other products.

The industry got a shot in the arm with the passage last November of Amendment 3, which restructures timber taxes.  Georgia law previously required landowners to pay annual taxes based on the fair market value of their standing timber.  However, timber in as many as 75 Georgia counties was never taxed at all, and timber in other counties was not taxed fully.  Amendment 3 validates this longstanding practice.  Although the General Assembly will write enabling legislation during the current session, the amendment ensures that timber will not be taxed until it is harvested.  The amendment also reduces property taxes, which are separate from timber taxes, on timberland that has appreciated in value because of nearby commercial development.  The amendment's proponents billed it as a pro-environmental measure.  They said that without the amendment owners would be forced to sell land to developers or harvest trees prematurely in order to pay taxes.

As an investment, timberland might be thought of as the ultimate zero coupon bond.  Income is realized only at harvest time, decades after the trees are planted.  The first harvest, or thinning, done when the trees are 15 to 20 years old, removes diseased or stunted trees and yields low-grade wood used mostly in paper products.  The final harvest takes place when trees are 25 to 30 years old and produces lumber and plywood.  An acre of mature pine trees can be worth as much as $3,000.  If an investor holds the timberland for 30 years, the two harvests produce the equivalent of an annual return of 4% to 8% over inflation.

Professional help with maintenance and marketing can increase the profitability of a timber investment.  Charles M. Tarver, an investment adviser who specializes in timberland, estimates that poorly managed land will yield 50% less timber.  He says that using a forestry consultant to conduct a timber sale will boost the price and more than pay for the average 10% to 15% commission.  "You get only one chance to sell those trees every 20 or 30 years, and if you mess up then, it takes a long time to recover," says Tarver, who adds that selling timber without the help of a consultant is "the most common penny-wise, pound-foolish mistake that private landowners make."

 Consultants can solicit a wider range of bids from the mills, paper companies and dealers who purchase raw timber.  Pulpwood and timber prices vary around the state, depending on demand. Average regional prices appear in trade journals like Timber Mart South, a quarterly published by the University of Georgia's Warnell School of Forest Resources.  Prices are generally higher in southeast Georgia, which has a concentration of mills, and lower in the northwestern part of the state, where there aren't so many buyers.

Proper maintenance offers enough protection from hazards such as fire and insects that few timberland owners purchase insurance.  Fire breaks contain fires, and removing diseased trees reduces insect damage.  "The biological risk from well-managed timberland is so low that it doesn't justify the purchase of insurance," says Robert Chambers, vice president and manager of timberland for First Wachovia in Atlanta.  The danger of fire is also minimized by the Georgia Forestry Commission's prevention efforts, which on average limit fires to under five acres.

Although the recession and the slump in home building is bound to have an effect on timber sales, prices in Georgia had not dropped by January, says John W. Mixon, director of the Georgia Forestry Commission.  Worldwide demand for wood and paper is still increasing, while the timber supply is shrinking in the Pacific Northwest and overseas.  That should mean continued demand for Southeastern timber, says Chambers, who expects prices to hold up if the recession is mild.

Historically, timber investments have been less volatile than stocks and bonds.  A study by F. Christian Zinkham, a business professor at Campbell University in North Carolina, examined returns over 30 years and assigned Southern timberland a beta of minus .21.  (Beta is a measure of stock price volatility. Stocks that fluctuate in step with the overall market have a beta of 1.0, while more and less volatile stocks have betas plus or minus 1.0 respectively.)

Negotiating a good purchase price on timberland makes or breaks the investment.  Look for tracts of at least 100 acres.  Expect to spend $400-$500 or more per acre for the land and another $200 per acre to clear it and plant trees.  If the land already has standing timber, expect to pay from $800 to $1400 per acre.  [The preceding figures presume the property has no "higher and better" use value -- no residential/commercial potential].  Soil quality is judged by a "site index," which predicts how tall a tree planted there will grow in 50 years.  Investment-grade land should have a site index of at least 80.  In other words, the trees would be expected to grow 80 feet high in 50 years.  Be sure the property is accessible to papermills or sawmills.  Careful selection of land, proper maintenance and plenty of patience are the keys to profitable timberland investing.