Investing in your very own forest offers the chance to make attractive returns, with the added appeal of putting your money into something tangible and environmentally friendly.
But it's a fair bet that for most investors, it's tax, not environmental awareness, that is the main attraction.
That's because many of the expenses
involved in establishing and maintaining a forest are tax-deductible; you can use them to reduce your taxable income, even though the forest may be decades away from producing a return.
But before charging into the woods, keep in mind:
* Forest investments are extremely long term - maybe 28 to 30 years - and your circumstances could change dramatically over that time. You need to be sure you can afford to have your money tied up, producing no income for that long, and that you can afford the continuing payments a forest investment will require.
* It may not be easy to get your money out early. Some promoters organise a "secondary market" for investors who want to get out, but not all.
* Anything could happen to the demand for timber over the next 25 to 30 years. While logic says demand should increase with rising population, who knows what timber substitutes may be developed over quarter of a century?
* Before getting too excited about the projected returns be sure you understand the assumptions used. A promoter who assumes log prices will rise by, say, 4 per cent a year will be able to forecast much more attractive returns than one who assumes prices will stay at today's levels.
* Remember that your returns depend largely on the land where the trees are to be grown - its fertility, whether it needs clearing, how far it is from transport ...
* While you may be hoping that money grows on trees, those trees don't look after themselves. The quality of the management company and its track record are very important.
* While do-it-yourselfers who may be able to make their own decisions about many investments, with forestry schemes there's a strong argument for getting expert advice.
