Investing In Teak In Nicaragua

Earn Up To 14% Annualized While Gaining Residency In This Top Retirement Haven

Timber has the best risk-versus-reward ratio of any investment. The downside is that this isn’t a user-friendly investment option. Buying land and planting trees in volume enough to gain economies of scale requires a lot of money, time, and effort. Turn-key alternatives for a direct timber investment aren’t easy to find.

You could take a less direct approach. Some timber companies are listed on the stock market. Others sell shares privately. However, when you buy shares of a timber company you don’t own land or trees. As with any stock, you own a portion of the assets of the company, and the company has to be run effectively to generate a profit to be able to pay something out to shareholders.

I believe in real assets, and I want to own them directly.

At this week’s Live and Invest in Nicaragua Conference, we introduced attendees to an option for a direct timber investment, one that allows you both to own the land and the trees and also to enjoy turn-key management of the plantation and the harvests.

Teak is one of the preferred trees for a hardwood plantation in the tropics, because, after about three years, the trees are virtually impervious to natural hazards—that is, insects and fire have no permanent effect on teak trees once they’ve reached their third year of growth. Most other hardwood trees don’t share that bragging right.

A friend who developed a large timber plantation in Panama years ago started by doing test plantings of mahogany, cedar, and teak. After the first couple of years, he decided to go with teak exclusively but kept the mahogany and cedar trees he’d already planted.

A few years later, when the first trees were beyond their fifth birthday, a fire from a neighboring farm swept through my friend’s plantation. Most of the mahogany and cedar trees burned in the fire or died shortly thereafter as a result of the fire’s effects. The teak trees lost their leaves but came back strong the following year. Only one or two teak trees were lost out of thousands.

Teak is also a preferred choice thanks to the large and continually growing market demand. It is a tremendously versatile wood used for everything from boats and outdoor furniture to doors, windows, and flooring.

Teak grows in the tropics in places with distinct rainy and dry seasons. Nicaragua qualifies.

In addition, Nicaragua offers incentives for timber projects. The revenue from plantations is taxed at a favorable 8% rate. Furthermore, an investment in a timber project can make you eligible for residency in Nicaragua, if that’s something you’re looking for.

Nicaragua is one of the poorest nations in the Americas. The government is trying hard to attract foreign cash flow from both investment and tourism to bolster the economy. They are making progress on both fronts. The country saw one-million tourists for the first time ever in 2010, and tourism numbers have increased steadily year on year since. Foreign direct investment is expanding, as well, and the country is beginning to get the attention of some not-so-small foreign investors.

Hardwood timber is a top choice for long-term investment; I’d say perhaps the best possible. The downside is that it doesn’t provide for annual cash flows. You get some revenue from thinnings along the way, usually in years 12, 18, and 20. The big payoff comes, in the case of teak, when the trees are harvested. This is usually in year 25, generally considered the best time-to-revenue moment.

You can let teak trees grow longer than 25 years, but the additional revenue doesn’t support the additional time unless you’re going to let the trees mature at least 60 years. On the other hand, if you don’t like teak prices in year 25, you can hold off harvesting and wait to see what prices are in year 26 or beyond.

Timber is an ideal legacy and estate planning strategy. If you’re a younger investor, it still makes sense in the context of investing for retirement.

The teak plantation in Nicaragua that participated in this week’s conference in Managua projects an annualized return in the range from 8% to 14%, depending on increases in teak prices by harvest time. The bottom of that range, 8%, is the return if teak prices don’t increase at all between now and then.

However, a growing population coupled with a supply that isn’t keeping up with even current demand would suggest price appreciation and therefore a greater-than-8% return to investors by harvest time.

The other very good news is that you could make this teak plantation part of your real estate portfolio with an investment of as little as US$26,500. And, again, that investment could qualify you for residency in Nicaragua.

Lief Simon

Editor’s Note: Complete details for this teak-for-residency investment opportunity are included as part of our new Live and Invest in Nicaragua Home Conference Kit, available for a limited time for more than 50% off the regular price.

Full details are here.

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