“Don’t judge each day by the harvest you reap but by the seeds that you plant.”
Today I want to explore a slightly unique take on creating generational wealth, in the form of an investment that takes about a generation to reach maturity and at maturity the return on investment can be substantial maybe somewhat safer when compared to conventional investment products.
It goes without saying, creating and maintaining generational wealth is a very long term and multifaceted process. In this write up, we are simply going to explore one small idea that fits in perfectly into our personal circumstance and belief system.
A hardwood tree plantation.
They say the best time to plant a tree was 20 years ago, and the next best time is today, that the shade we sit under was planted before us and the trees we plant will provide shade for someone else after we’re gone.
We’re looking at growing a tropical hardwood tree plantation as a very long term investment strategy.
We somewhat stumbled across this idea while growing a small tree nursery and then transplanting the trees on to our small farm in Belize.
We weren’t initially looking at planting trees from a financial incentive or investment perspective, we set out simply to grow and plant a large variety of fruit trees, spice trees, and other trees with edible or medicinal utility, so that when we’re in Belize we will always have a plentiful supply of fruits and spices to enjoy.
Having some involvement in purchasing exotic hardwood lumber and building with it, and at the same time having a keen interest as an investor, I guess it was only natural that sooner or later id have an idea, go off on a tangent, start researching and crunching data on the viability of growing tropical hardwood lumber ourselves for financial purposes and then come back to pitch the idea to my wife.
The main question on everyone’s mind is probably the same question that I had;
“if its profitable, then why isn’t everyone doing it?”
As it turns out, the answer comes quickly too; “who wants to wait 30-50 years for a return on investment”?
That’s the main reason why growing hardwood tree plantations is not considered a profitable business, in today’s investment market, folks want to get rich quick, you’d have a hard time pitching an investment strategy where the investors would likely be dead before investment maturity!
But then again, perspective changes things…..if you try to think in terms of generational wealth,
(In that it’s not about you, it’s about your children and their children)
It actually makes complete sense to create a long term investment product with a maturity factor of 30-50 years that only your children and grandchildren can benefit from, in someways it could be a good fit for a “generational wealth portfolio”
As a generational wealth investment proposition, depending on location, costs can be minimal,
The main factor is to look at countries where land and labor are cheap.
And on the other end in a generations time, exotic hardwood lumber is almost guaranteed to be expensive, it already is relatively expensive, and with past and current global deforestation it’s highly unlikely that hardwood lumber will become cheaper over time, looking at historical data, it’s quite the opposite.
In our case, farm land (old sugarcane fields) aren’t particularly expensive, fencing in the acres with posts and wire and growing/planting the tree seedlings isn’t costly either, labors cheap, which also makes the first few years of maintenance not particularly expensive either. We’ve done the math, as best we can and arrive at about $31k to purchase, plant and maintain 20 acres for the first 10 years, (ok, maybe we’ve got our rose tinted glasses on, so let’s just double it and call it $62k all in!)
According to statistics, tree density in plantations runs about 400-500 trees per acre, using the lessor for 20 acres, in 30-50 years time we should have about 8,000 tall thick tree trunks ready for lumber.
(Zircote hardwood)
Species is key to value when it comes to hardwoods, so we’re planting a mixture of the high value beautiful hardwoods, Belizean Mahogany, sapodilla, Zircote, rosewood, ebony, granadio, and some others, on a lumber bases these woods fetch a top price, especially in the export market in Europe and Northern America.
Best we can tell 8,000 tree trunks at 18-30 inches in diameter by 30 feet tall should give us (actually our children and grandchildren) between 2 and 3 million board feet of 1”by6” lumber, which at current prices for the species grown would be worth somewhere between 4 and 6 million dollars at minimum,
So to recap the viability of this long term investment strategy, we can invest a maximum of $62,000. for a return in 30-50 years at maturity of about $5,000,000 (5million) !
Maybe my maths isn’t too great but best I can tell that’s a compound rate of above 9% year on year for virtually doing nothing after the first few years! that sounds like a very good investment to me. (Not to mention the land the trees were planted on has probably appreciated in value to, or even potentially other products than can be harvested and sold from the trees as they grow.
While this is a very safe investment as it’s not likely to be stolen, suffer a computer hack, be devalued like fiat currencies, suffer market crashes and so forth, I guess worst case scenario it could burn down in a forest fire, but that’s not particularly likely, as with everything in life there is some risk, but not much in this case as far as we can tell.
Fortunately for me, my wife agreed with my proposition!
So we’re in the process of creating this very long term investment strategy for our children……and their children.
My point here is this, even if this particular investment strategy is not the best choice for you, try to think long term, as in 30-50 years, I’m sure you’ll come up with something equally as valuable to invest in.
Until next time,
Frank
