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Financial Projections
Calculating the financial projections of a long term investment is always difficult because so much can change over time. The good news is that no matter what happens over time, your tropical hardwood just keeps growing, both in value (the wood from an older tree is more valuable per board foot than a younger one) and in quantity as the trees themselves grow. In order to help you make an informed decision about this real estate and tree farming investment in Costa Rica, we have created a spread sheet that covers the major issues that change over time. This spreadsheet is designed for you to be able to change the major assumptions such as lumber values, real estate costs, inflation values, etc. However, the numbers that we have selected for the assumptions have not been selected randomly. Rather, we have spent years studying Costa Rica real estate prices, growth rates, and trends in tropical hardwood market.
Below we have put together sample real estate and reforestation investment, to give you a solid example of what you could expect. Eventually, we will adjust these numbers for the specific real estate and reforestation plan that you consider. For this example, we assume you have ~$150,000 to invest over three years, to buy and plant your land; that this would get you a primo, gorgeous, ~60 acre finca; and that Land Assurance (LA) would reforest 40 acres with a mix of teak and native hardwoods. The rest of your Costa Rica real estate investment would be left to primary and secondary rainforest. Note: we can reduce the land area and make this work for you for as little as $80,000.
Included as assumptions for this price are all the "essentials": decent soil & drainage, nice views (to give the underlying land a secondary investment value), several potential housesites, year-round car access, source of water, etc. What you pay in the end for both the real estate and the reforestation will depend on the location and the features. Finally, you would also need another $10,000 - $15,000 per year for the first seven or eight years, to cover the bare costs of maintaining the 40 acres (pruning, organically fertilizing, etc.). These costs are included in the $150,000 example. Now for some solid numbers. |
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Financial Projections for Reforestation and Real Estate investment
Click here to open Investment SpreadSheet (Requires IE and Excel)
 Overall Picture Of Your Investment in Costa Rica Reforestation
- The investment: we assume that you could buy the real estate in three installments, and plant all the trees over the first two years. The Overall Picture shows a total first year cost which, actually, would probably be paid over 2-3 years if the seller offers a mortgage). This examples total, ~$150,000, is the amount you would be investing to buy real estate totaling 60 acres. Note that the ROI on this investment does not include the appreciation of the Costa Rican real estate which alone has historically been a great investment -- especially within the last five years.
- Teak or Native species: We are particularly bullish on many of the native hardwoods in Costa Rica. We have plantations with various trees that are matching the Teak in growth rate, and have lumber values in the world market similar to Teak. Why then are all of our calculations based on Teak? Because Teak has been grown in plantations for hundreds of years (and in Costa Rica for at least 45 years) yielding a large bank of data to draw assumptions from.
- Our recommendation of no more than half of your plantable real estate in teak: There are many "eco" and other reasons for wanting to go with native species wherever feasible. In the spreadsheet you can play with different mixes of Teak an native species and also change the value of the native species in relation to Teak. For example, Cocobola (rose wood) is very, very valuable wood, but grows more slowly than teak. So, you may want to plant some, and consider that it will yield a value of only 75% of what the Teak yields.
- First culling - year 4 to 8: We assume no income to speak of, although we may be able to make a little money from sales of the young trees as poles. We think it might be enough to cover the bare bones cost of the culling operation, if that-but no more.
Start Up Costs
- Cost per acre to buy the real estate: Remember that when you buy the property, not all of the property will be reforested. For purposes of calculating the cost of the land on a per acre basis, you must, therefore, spread the cost of the unused acres over the used acres. This makes guessing a per-acre-cost very difficult as most of our clients want dual use properties. Some part for reforestation and some part for living space. So, we have put a pure reforestation price in the spread sheet (which makes the land price low because we assume a 100% use). Please modify this number as you get an idea of what land you will be buying and how much you will be reforesting.
We estimate that remote ex-cattle pasture land with average soil for the region in the south central coast of Costa Rica, especially to the South of Palmar, at between $1800 per acre to $2400 per acre. This is extremely subjective pricing and has been rising steadily over the last two years. Smaller farms, especially those with nice views, cost more. And real estate parcels, such as house site lots, are going for $85,000 and up. On the other hand, we can find inland real estate in Costa Rica ideal primarily for planting at much lower prices. Again, it will be your call to balance the extra features against the prices.
But note that the price of the real estate is almost inconsequential to the investment over the long run. For example, doubling the assumed land cost doesn't change the ROI as much as you might think. That's why we recommend spending a little more up front to get a primo piece of Costa Rica real estate, since that will be sure to appreciate over time far more than cow pasture in the middle of nowhere-regardless of how well your trees do. We see this as a little extra insurance. Please click here to see our listings of great Costa Rica real estate starting as low as $40,000.
Running Costs
- These costs are highest in the first four years when the saplings must fight against weeds and faster growing trees of pioneering species. During these years, your management company must spend a lot of time weeding, pruning, fertilizing, and protecting the young trees from insects.
- After the first four years the costs drop significantly as the trees become big enough to shade out the weeds. Additionally, a bigger tree is much more robust against insect problems. However, during this period it is very important to keep the trees properly prunned and fertilized.
- After year 12, very little maintenance is require. There is a yearly prunning and an inspection every three months. The pruning is slightly more expensive because of the height of the trees.
- We typically propose to trade 10 percent of your gross income in order to lower the up-front maintenance costs. Note that this 10 percent fee is not reflected in the projections, since you have yet to agree to it, and may wish to make some other arrangement.
Mixed Native Calculations and Projections
- Because Teak has been farmed in plantation for hundreds of years, there is a large body of statistical data available to forecast growth rates, yields, and market values. This is not the case with many of Costa Rica's indigenous hardwoods. This doesn't mean that the local wood won't be equally or even more valuable that Teak in the long term, it simply means that it is difficult to forecast.
- One reason that you would want to consider planting a mix of tree species is to add bio-diversity to your plantation and enhance the value of your real estate investement. In doing so, not only will you be introducing multiple species of trees, but each specie of tree tends to foster its own local ecology of plants and animals. So, by having say five different tree species on your finca, you would be promoting the growth of hundreds of species in the understory.
- What is the advantage of having all these species growing together? The answer is both the health of the tree and the health of the soil. Balance is the key. In a mono- culture, there is no balance of resources (nitrogen, good insects, etc.). In a poly-culture the balance can often keep any one predatory plant or animal in check. Compare one of our patch-work quilt plantations with that of an industrial style Teak plantation:
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- In order to calculate the value of the mixed species as best we can, we have introduced two fields in the assumptions of the spreadsheet. The first assumption is, what percentage of your plantation will be Teak and what percentage will be other species. The second assumption controls the estimated value of the other species with respect to Teak (expressed as a percentage). So, for example, if you planted 1/2 Teak and 1/2 native species, the first assumption would be 50%. Then, if you wanted to be conservative and assume that the native species would only be 3/4ths as valuable as Teak, then you would use 75%. The formulas in the spreadsheet would then devalue 50% of your crop by 25%.
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