Growth I can't spend versus rent I can bank: which one for a first land buy?

Before you decide which one you like, write down year one on both. The pine tract isn't free to own. You've got property tax, liability insurance, boundary work if the lines haven't been walked in a decade, a management plan if you want a forester paying attention, and probably some road or firebreak maintenance. Call it a real number per acre per year, and understand that number leaves your bank account every year for six years before a thinning check shows up.

The leased block has costs too, but the rent covers them and then some, which is the whole point of a cash lease. Run both as a five year cash column, not a total return story. I did that exercise on my first look at land and the negative column on the timber side was bigger than I had pictured, mostly because I hadn't thought about access maintenance at all.

That doesn't make the timber the wrong answer. It makes it a purchase you fund out of other income rather than out of itself.

The reason big pools hold timber isn't the headline yield. The NCREIF timberland index has run somewhere around ten and a half percent annualized since the late eighties with a standard deviation in the high single digits, which is a fraction of equity volatility. If you're an allocator with a twenty year horizon and a portfolio full of things that all fall together in a bad quarter, that combination is worth a lot even when the near-term return outlook is unexciting.

And it is unexciting right now, by the reckoning of several institutional shops. Mid to high single digit expected returns are a hard sell against the illiquidity, and closed-end timber fundraising has been slow enough to tell you the market agrees.

Quill, the thing that doesn't transfer from the institutional case to yours is scale. An index return is diversified across regions, age classes, and species. You're buying one age class in one hauling radius. Your outcome depends far more on that specific stand and those two mills than on any index. Past index performance also isn't a promise about your tract.

If the diversification benefit is what attracts you, a fund or a listed vehicle gets you closer to it than a single parcel does, at the cost of a fee stack you'd need to read carefully.

Six months of looking and the pattern I've noticed in myself is that I underestimate how much a zero-cash-flow asset erodes my discipline. Nothing arrives, nothing tells me whether I was right, and I start making up reasons to feel good about it. A lease check is a small monthly reality test. It shows up or it doesn't.

I'd take the leased block for a first purchase for that reason alone, and I'd expect to be a bit poorer for it over twenty years.

Coming at this from actual zero, so a genuine question rather than a view. When people say you can defer the harvest if prices are bad, how long is the window really? Trees keep growing, sure, but at some point a stand gets past its best age and you're carrying tax and management cost for volume growth that's slowing down. Is deferring a year or two the realistic flexibility, or can you sit out five?

The part I do understand is the tenant side. A rent check is a rent check, and I've been a tenant, so I know what it looks like when one stops arriving.

I'll ask the thing I would have been embarrassed to ask out loud. If the timber is worth something today, how does anyone actually know? Quill says the stand is age 12, but the value depends on how many stems per acre, what share is heading toward sawtimber, and what the mills nearby are paying for each product. If I can't read a cruise, I'm buying a story about a forest.

On the lease side I can at least read the lease. I can look up the tenant, ask how many seasons they've farmed the block, and see whether the rent is at market. It's not a small thing that one of these assets can be understood by a beginner in an afternoon and the other one can't.

Ember, on your question, my understanding is the deferral window is measured in years rather than months, and it narrows as the stand ages. Someone with a forester on speed dial should correct me.

Whatever the rent number is, ask what the tenant's alternative is. A lease with no competing ground nearby renews. One in a district full of vacant blocks doesn't, and you find out at the worst moment.

I'd take the pine, and I'd take longer to decide than Quill probably wants to hear.

My reasoning is that the two assets are asking for different things from the owner. The lease asks me to manage a relationship and a renewal every few years, with a crop and a water supply I have no control over sitting underneath the rent. The pine asks me to pay taxes and stay out of the way. I know which of those I'll still be doing well in year fifteen.

The questions I'd want answered before writing anything. Who has cut on the tract before and what did they leave. Where does the access easement run and is it recorded, because that varies in how it's handled from state to state and I'd want a title attorney in my state to read it. What's the age class distribution really, not the age the seller rounds to. How far to each mill gate, because haul distance eats stumpage fast.

Compass is right that the timber is harder to understand. That's an argument for hiring a consulting forester before you offer, not an argument against the asset. The cruise cost is small next to the purchase price and it's the only thing standing between you and buying a story.

What moves sawtimber pricing is housing starts, and that cycle is longer and lumpier than most people expect when they buy a tract. Pulpwood is a different market with different buyers, and a 12 year old stand is mostly pulp until a thinning improves what's left. Quill, if the seller has priced this as though the trees are already sawtimber, you're paying for growth that hasn't happened yet.

The flip side is that a stand at 12 is where the compounding actually lives. You're buying the years, and the years are the product. Buy at 25 and someone else already collected them.

I've framed enough houses to know I have no idea what lumber does in three years. I do know that wood demand hasn't gone away in my lifetime and the mills near me have all expanded rather than closed.

I've been through this twice and I still can't tell which one is safer, which is probably the actual answer to Quill's question.

Both of these are land purchases with something growing on top. Price the dirt first.

What would that 70 acres sell for cutover, with no merchantable timber on it at all? In a lot of markets that number has been drifting up on recreational and rural residential demand rather than anything to do with wood, flat to up a few percent depending on the survey and the region. If the cutover value is most of the ask, the trees are close to a free option and the deal looks different than if you're paying a heavy premium for standing volume.

Same test on the crop block. What's the bare ground worth if the trees came out tomorrow? Permanent crop plantings depreciate as they age past their productive peak, so part of what you're buying declines while the dirt underneath doesn't. That's a real difference from timber, where the standing asset gains value as it matures.

Quill, the other thing I'd check is the zoning and any agricultural use assessment on both parcels. Those programs exist in most states and the terms and the penalty for changing use vary state to state, so read the local rules and ask the assessor directly rather than trusting the listing sheet.

My vote goes to the tract. I like assets where the passage of time is on my side and nobody has to renew anything.

I want income without picking up a second job, so I'm voting for the lease and I'll say plainly what I'm giving up. Lower total return, most likely, and a tenant I have to think about every few years.

What I get is a check I didn't have to grow. The tenant carries the weather, the crop price, and the labor for the harvest. That's the actual product I'm buying, and it's worth paying for in yield.

Where I'd push back on my own vote is water. Anchor mentioned control and that's exactly it. If the water supply under a permanent crop block gets tight, the rent that looked reliable stops being reliable, and it happens on a timescale where you can't do much. Quill, before you weigh the rent against the pine, find out what the water source is and whether the tenant's costs for it have moved in the last three seasons.

Thicket's point about the tenant's alternatives is the one I'd write on the front of the file.

Reading the thread, the split isn't really timber against crops. It's whether Quill needs the asset to prove itself to him during the holding period.

If the answer is yes, the lease wins regardless of the return math, because he'll still own it in year ten. If the answer is no, and he can genuinely fund the carry out of income and forget the tract exists, the pine looks better to me, mostly for Parcel's reason. Time works on it and nobody has to sign anything for that to happen.

I've been trying to sort out which strategy fits me for a while and the useful test turned out to be that one. Not what returns best, but what I'll actually stay in.

Quill, one more thing nobody's asked. How long is your horizon? A final harvest twenty years out is a different proposition at 35 than at 62, and the answer changes which of these two is even eligible.