You can finance the purchase of a woodlot through a bank loan either in part or in full. The forest estate to be purchased can also be used as collateral for your loan.
Why does it pay to invest in a forest?
- Forests are a safe investment.
- According to studies, a long-term real return is 3–4 per cent and the return varies only a little.
- A forest as an investment can be compared with a buy-to-let home.
- The return may vary due to changes in timber prices, forest damage and any restrictions on commercial use of the forest.
- You can take out insurance to protect against risks of forest damage.
Transferring a forest estate to the next generation
Selling a forest estate to the next generation is the most tax-efficient way of transferring forest property to the next generation. The transferor will receive the selling price net without any tax consequences. The successor is entitled to a forest deduction in timber sales tax, which reduces the tax levied on timber sales proceeds. If the forest's growing stock is large, you can in many cases use the income from timber sales to repay your loan.
Buying a forest estate on open markets
Open markets have forest estates more than before on offer. A forest is usually a long-term investment. When, for example, the investment horizon of an equity investor is 5–10 years, at least a 10–20-year horizon applies to a forest owner. You may also need sources of income other than timber sales proceeds to cover the costs of borrowing related to a forest estate purchased on open markets.