Selling Land with Timber--Who can help structure this in a smart way?

[samclem]

My MIL has some land with timber on it, and she wants to sell it. I'm guessing the best thing for her to do is to sell it with the timber on it (it is ready to be cut). She's also talked about using proceeds for the benefit of some of her kids. Obviously there are lots of questions about the sale itself and how best to structure it for her benefit (getting full value for the land/timber and structuring the sale/payment to reduce her tax liabilty).
She's asked for my help, but I'm sure there are smart and less-smart ways of doing this. So--who should I be talking to to get some advice? A CPA? Real estate attorney?
Input is welcome.

 

[cooch96]

My instinct would be to try to sell the lumber first. If it's a large lot, it could be managed to produce lumber for harvest every generation, so you could call someone like Weyerhaeuser.

(DF is trying to do this sort of thing in Honduras, but I cannot recommend him in good conscience. He has neither a green thumb nor the Midas touch. )

Otherwise, call a couple local lumberjack outfits and get quotes. Then sell the land to a real estate developer.

 

[Gumby]

She's also talked about using proceeds for the benefit of some of her kids.

I'd suggest you talk to a trusts and estate attorney to help with this ^^ part. I have no idea whether the land and the lumber should be sold separately or together. Cooch96's suggestion sounds like a good one for that question.

 

[frank]

there is a newsletter in the upper peninsula called the logger shopper, it has advertisements and articles in it from accountants and tax people who specialize in how to reduce taxes and get the most from your timber property.

 

[pb4uski]

I would think that you want to consult both a CPA and a real estate specialist with experience with woodlots. There are special tax rules for timber. See the Timber section of Publication 544 (2014), Sales and Other Dispositions of Assets

 

[MRG]

Former logger, buyer and sawmiller.

I'm not sure if the land would have more value with the timber on it or cut, Edit to add: rather would a $20,000 sale reduce the land value by more then $20,000. I've never been asked questions about tax consequences.

A honest realtor may be able to tell you about the land pre and post cut, they will have no idea of the timber value. Much will depend on acreage, species, and accessibility(think 18 wheelers cutting ruts in crop ground).

If you're going to sell the standing timber. I'd start with your states conservation department, I'm assuming MILs land is in the US. Check out the loggers that the state conservative department recommends. Get bids, including species, board footage estimates. If your in hardwood territory, you want to know the value of the Veneer logs, if any, these are the butt logs of certain species, straight logs that have no knots, catfaces, etc., very hard for the average land owner to tell the difference, or know the true value. They bring the highest value. If there is true White Oak, estimates for stave logs should be included. Sometimes a split of Veneer and stave logs with the logger and landowner is the best way to go.

Get bids from at least 3 logging outfits that are recommended by the state. Let them each know they have competition, don't tell them who. In addition to the the above, they should provide a plan on how skid paths and landing areas will be laid out. Be honest, if an area is a swamp most logging equipment will sink to the bottom. Not good for landowner or logger.

All that said beware!!! Make the logger show proof of insurance. They should be willing to provide local references, and take you to a recent logging site.

On the bottom of the ocean there are several layers. Whale waste is on top, then some annuties salesman, then spinkle in some of the worst of the commissioned FAs, at the very bottom of the ocean there are some log buyers, they're not all bad, but some are thieves.

 

[nwsteve]

Not a simple question. Really need to know the age, specie mix (desirable or not), distance to market, etc to get a read on value trade-offs. For example, if there is a lot of young timber (think under 20 years) you might actually get more not selling the timber (you will get little more than chip value--gets sent to pulp mill).
As another poster mentioned there are special tax laws which can make the value either eligible for cap gains treatment or be treated as ordinary income).
Suggest you contact the local state extension office and ask for their forestry specialist. This will be a low to no cost option to at least find a qualified resource if not an answer.
Nwsteve

 

[calmloki]

Had an old logger cruise 15 acres we had - plan was to either log it before sale or to sell it with an advertised number of thousand board feet. Old logger was good - we walked the property and he pointed out issues with the various trees and we discussed what mills were buying what type logs and how far those mills were from the property. As it turned out we just did some clearing to benefit the look of the place and sold it with the trees intact. The place presented better for sale without the logs stripped off and after the cruise we were happier to let a buyer chose whether or how to log it.

 

[Sunset]

I read on another site this same issue months ago.

Its quite possible the land would be nearly worthless after selling the logs.
People think of nice clean stumps left on the property, but reality (from photos of the other forum) is the land is piled high with trash logs and branches and deep ruts of the machines.
Buyer will need to haul away or burn off the piles possibly starting forest fire, and bulldoze property which is hard due to the stumps left.

It would be nice if MRG could describe the condition of the property once logged as I for one would like to know if the above issues from the other forum are true, or just fear mongering.

 

[MRG]

I read on another site this same issue months ago.

Its quite possible the land would be nearly worthless after selling the logs.
People think of nice clean stumps left on the property, but reality (from photos of the other forum) is the land is piled high with trash logs and branches and deep ruts of the machines.
Buyer will need to haul away or burn off the piles possibly starting forest fire, and bulldoze property which is hard due to the stumps left.

It would be nice if MRG could describe the condition of the property once logged as I for one would like to know if the above issues from the other forum are true, or just fear mongering.

Sunset happy to try, but the answer is it depends.

Normally you will have the tops of trees that aren't cleaned up. Of course there's always folks that will pay or haul off firewood.

Stumps are left for the landowner to take care of. Years ago black walnut stumps were excavated for fancy walnut, or history says so. I w*rked in a walnut mill that manufactured gunstocks, fancy figure in the grain brings a premium. Even the old timers that were still around in 1980 had never excavated them. We needed the fancy wood and ran a test with 8 huge stumps. Even with modern equipment, excavating stumps was not profitable. Stump cleanup is left to the landowner. Good loggers get down low to the ground but you'll still have a stump.

Trash logs, ruts and post logging landscaping, be sure you and the logger have a detailed quantifiable agreement about the condition. The guy that offers the best price per board foot may or may not clean up the best.

Skidders(4x4 tractors that are articulated) can be rough on the land expecially if it's wet. For large tracts of land they're the accepted pratice. Dozers can cause less damage and are better suited for smaller tracts. The most ground friendly is a team of horses. They can access steeper areas and not tear up the ground. They're best for small tracts of timber.

The remaining woods themselves will have tree tops and possibly a few widow makers left hanging. With smaller paths leading to a landing that trucks can get to and logs are loaded. Typically the landing has the most traffic and the most disruptive traffic.

The trucks have to have a decent road. Ideally the road and landing are in the dryest terrain. Logging after the ground has frozen is the ideal situation. I've seen jobs that were cleaned up very well with little discernable damage. Then there were the jobs that needed much work after the logging was done. Some looked like a war zone.

All these variables are the reason to get multiple bids and visit sites the logger cut. If you pratice good environmental techniques mother nature will fill in after a few years.

I've seen more state conservative departments offer up lists of environmentally consious loggers that use best pratices. I'd highly recommend getting them involved.

 

[samclem]

Thanks very much for the replies so far--lots of great information. More on the situation:
The timber is all fairly mature softwood (southern pine). It is over 25 tears old now, has been thinned numerous times and the land/situation is good for pine.
Extended family is in the area, and it is likely my MIL will choose to sell the land to a close relative who still lives in the area and knows about agriculture and about timber. She (and everyone else) would like to keep the land in the family, even if this reduces the selling price somewhat.

I have no idea whether the land and the lumber should be sold separately or together.

I'm not sure if the land would have more value with the timber on it or cut, Edit to add: rather would a $20,000 sale reduce the land value by more then $20,000. I've never been asked questions about tax consequences.
. . .Get bids from at least 3 logging outfits that are recommended by the state. Let them each know they have competition, don't tell them who.
. . . All these variables are the reason to get multiple bids and visit sites the logger cut. If you practice good environmental techniques mother nature will fill in after a few years.

These factors are making me lean toward recommending that she not cut the timber herself, and let it convey with the land. That way the new owner/family member will have control over how/when the timber is harvested, and he's smart enough and experienced enough to choose the right folks. He's close enough to be there on site (or at least visit frequently during the cut). At worst, if the land is a mess when things are over, my MIL won't feel to blame. The sale price would be higher with the trees still standing, but the money gained from the cut (done the way he wants it done) could be used to rapidly pay down any financing he took out.

I would think that you want to consult both a CPA and a real estate specialist with experience with woodlots. There are special tax rules for timber. See the Timber section of Publication 544 (2014), Sales and Other Dispositions of Assets

Thanks for that--interesting reading. Money gained from selling timber can either be counted as "income" or capital gains, depending on a few other factors. Obviously, it would be much better for MIL if it is CG (so, no self-employment taxes, lower rate on the gains, etc). Another thing to discuss with a CPA familiar with this stuff, and possibly another reason to let the trees go with the land (though it looks like the new owner might need to wait a year before cutting to qualify for LTCG treatment of his new property).

If you're going to sell the standing timber. I'd start with your states conservation department, I'm assuming MILs land is in the US. Check out the loggers that the state conservative department recommends.

Really need to know the age, specie mix (desirable or not), distance to market, etc to get a read on value trade-offs. For example, if there is a lot of young timber (think under 20 years) you might actually get more not selling the timber (you will get little more than chip value--gets sent to pulp mill).
As another poster mentioned there are special tax laws which can make the value either eligible for cap gains treatment or be treated as ordinary income).
Suggest you contact the local state extension office and ask for their forestry specialist. This will be a low to no cost option to at least find a qualified resource if not an answer.
Nwsteve

Thanks, guys. Great leads for getting a value for the timber, and then possibly contact some RE agents for an estimate of the land's value. I think right now it is at it's highest and best use, nobody is building condos in this area, or within a few hundred miles of it, right now.

It's pretty land, and means a lot to the family. We all realize it's going to look bad once the trees are cut, but pine grows great there, and it will look good again in a few years.

 

[nwsteve]

One other consideration for you to check. Some states require forestland to be replanted witin a fixed time--usually less than two years.
SO if you sell timber, you will want to be sure to factor in regen costs. Your State Forester office or extension service can advise.
Nwsteve