Investing

---

We have thousands of rare hardwoods growing on the property since we started in 2005.  We get asked all the time "Why?" Here is some info on why and lets pick a hardwood most are familiar with. Teak investments are medium to long term investments that put investors’ money into tangible, sustainable assets – prime tropical hardwood that grows for 20 years or more in commercial teak plantations. Though Teak originally came from south east Asia, these days plantations are more commonly found in Africa and Central / South America and the plantations are now considered to be extremely attractive long term investments, both because of their ability to help in the fight against climate change and help local communities and also because they produce returns for investors that are consistently over 9% and higher and have been for decades. What’s more, the International Tropical Timber Association estimate that that growth over the next few years will be double that, meaning that there has never been a better time to invest in teak.

The most common method you will see for assessing Teak investments is based on the Return on Investment (ROI.) ROI is considered to be a subjective estimate and one that is based on expected cash flows. However, cash coming in and out is not the only fundamental that potential investors should be considering, as the estimations you will be reading about Teak investments are based on a number of assumptions, including:

(1)   An estimate of price inflation.

(2)   An assumption of the base selling price of teakwood per m3.

(3)   The commercial timber volume (m3) of trees.

(4)   The schedule of thinning.

The schedule of thinning is another indication of commercial value. A thinning schedule sets the pace at which the plantation will be thinned out (removing bad trees) in order to leave more space for the good trees to thrive. Plantations only gain commercial value once they reach a particular age and when it comes to making valuations the earlier they set the thinning the schedule, the more positive an impact it will have on ROI because it indicates a shorter investment timeframe.

All of these factors are essential when it comes to working out the long-term viability and prospects of a teak investment, as opposed to concentrating solely on the Return on Investment. By examining each of these factors you can get to grips with the underlying assumptions (which are inherently subjective) that have been made in coming up with a ROI and better assess the risks involved. 

 Any investment has risks and it is worth pointing out those risks so you can make a proper assessment of any teak investment you are considering. The first risk to think about is whether a proper location and site analysis has been undertaken. This is especially relevant for new greenfield sites where the majority of the plantation is made up of newer, greener trees. Insects in the rainforest can devastate crops and fires are a risk to teak plantations.  Similarly, entering into a plantation investment at a later stage with more trees makes much more sense for investors as the maintenance needs are less and the projected results are far more reliable.

Yes, teak has always performed well, returning 9 to 10% consistently and yes, many are predicting returns far higher than that in the coming years. But not every plantation will achieve that and not every plantation will be run successfully and managed correctly to achieve such returns. It is always worth bearing that in mind.

 Stages of Hardwood Growth

Hardwood plantations in Costa Rica go through a number of stages in the reforestation process.

(1)   The initial stage consists of clearing an area and then pegging and planting the hardwood trees.

(2)   The next phase consists of tending and beating up the forest.

(3)   The final stage consists of pruning, thinning and harvesting the hardwood.

While we have thousands of trees at various stages of growth we wanted to give you some insights so we picked one people are most familiar with. There is a ton of info on the web about rare wood investments.