Natural Resources Management

By Andy Martin, R.F.

Finding diamonds in the rough on the East Coast of the United States might seem a little far-fetched. However, if you own undeveloped property, you may be surprised by some figurative diamonds in the rough you might find on your property.

Natural Resources Management Feature BB&T PerspectivesDiamonds are certainly valuable, but other natural resources are not as often recognized for their value. Timber, farmland and minerals can generate significant wealth for property owners who understand the markets and how to manage the resources in a way that leverages opportunity.

Many people own property that has been in their families for years. A parent, aunt, grandparent or other family member may pass away and the property is inherited. It’s not unusual for the property to have some sentimental value – a farm where parents or grandparents grew up or a property associated with childhood memories like learning to fish or ride a horse. Sometimes when there is a long history or sentimental attachment, property owners forget to assess what they really own.

Discovering Your Property’s Value

The only way to really evaluate your property’s value is to understand what you own. Fortunately, there are professional natural resource managers to help property owners assess their land and establish plans for its management. Good natural resource management professionals will first ask to inspect your property and to arrange an appraisal. This process is, in essence, an inventory of what you have – whether or not you intend to sell the property.

Once your property has been inspected, and the value of the natural resources have been initially assessed, you and your natural resources manager can develop a plan that fits with your current financial and estate plans.

Unknown Benefits

It is not surprising to discover some immediate benefits as you learn more about your property. For example, if you have forested land, it’s quite common to classify the property as timberland – which, in many states, has a significantly lower property tax rate.

If property will pass to you in an estate, or you expect to pass real property to your heirs, it’s important to understand the property’s value. There could be estate tax implications, depending on the total value of the estate. Once the property has been transferred, the current value will become the new basis.

Tax calculations – capital gains or inheritance – will depend on that valuation when the property is sold or transferred again.

Undeveloped property presents some challenges as an investment – it takes time to sell, it has property tax cost and there may be a liability risk if people spend time or travel on the property. If you can develop a revenue stream from your property’s natural resources, you can at least offset the costs – and possibly generate significant value. If a revenue stream has already been established, does that agreement represent the current market value for the resources? A natural resources manager can help you assess the opportunities and negotiate a fair agreement.

Capturing Value

Natural Resources Management BB&T PerspectivesIf you have farmland, for example, it’s common to lease that land to other farmers or farming organizations. We recently helped a client, who owned multigenerational farmland, with a lease that had been agreed to years earlier. We were able to renegotiate the lease so our client reversed a $200,000 annual loss into a $160,000 annual gain.

In another case, a client’s family had property that generated revenue from a mineral used in manufacturing processes. An agreement signed years ago was generating less than $10,000 in annual revenue. We reviewed the agreement and suggested they renegotiate. While the renegotiation process took several years, the current agreement generates more than $300,000 per year, on average, for the family.

One of the least understood and most overlooked natural resources is timber. Many of our clients, and even many real estate agents and brokers, don’t understand the value of timber. Granted, there is a lot to know. If your property has acres of pines in the Sandhills of North Carolina, cypress trees in the swamplands of the Southern states or a stand of hardwoods in the Appalachian Mountains, you have a range of different variables to consider in determining value. Finding out what you own is worthwhile. Timber can generate a solid return for you. Recently, a client family with a 35- acre, old-growth pine tract sold their timber for $7,500 an acre – or slightly more than $260,000 – and the tract has now been reforested with new trees.

Local Knowledge

We suggest engaging a natural resources manager who works with local professional farmers, foresters, geologists or mining engineers. Local experience and insight give you the best opportunity to capture the whole picture in understanding the value and potential of your natural resources.

While we’ve only scratched the surface in helping you understand the value your natural resources may offer, we hope we’ve piqued your curiosity for discovering those diamonds in the rough your property may hold. Ask your BB&T Wealth advisor if you are interested in learning more.

Natural Resources Management

By Andy Martin, R.F.

Natural Resources Management Feature BB&T Perspectives

Finding diamonds in the rough on the East Coast of the United States might seem a little far-fetched. However, if you own undeveloped property, you may be surprised by some figurative diamonds in the rough you might find on your property.

Diamonds are certainly valuable, but other natural resources are not as often recognized for their value. Timber, farmland and minerals can generate significant wealth for property owners who understand the markets and how to manage the resources in a way that leverages opportunity.

Many people own property that has been in their families for years. A parent, aunt, grandparent or other family member may pass away and the property is inherited. It’s not unusual for the property to have some sentimental value – a farm where parents or grandparents grew up or a property associated with childhood memories like learning to fish or ride a horse. Sometimes when there is a long history or sentimental attachment, property owners forget to assess what they really own.

Discovering Your Property's Value

The only way to really evaluate your property’s value is to understand what you own. Fortunately, there are professional natural resource managers to help property owners assess their land and establish plans for its management. Good natural resource management professionals will first ask to inspect your property and to arrange an appraisal. This process is, in essence, an inventory of what you have – whether or not you intend to sell the property.

Once your property has been inspected, and the value of the natural resources have been initially assessed, you and your natural resources manager can develop a plan that fits with your current financial and estate plans.

Unknown Benefits

It is not surprising to discover some immediate benefits as you learn more about your property. For example, if you have forested land, it’s quite common to classify the property as timberland – which, in many states, has a significantly lower property tax rate.

If property will pass to you in an estate, or you expect to pass real property to your heirs, it’s important to understand the property’s value. There could be estate tax implications, depending on the total value of the estate. Once the property has been transferred, the current value will become the new basis.

Tax calculations – capital gains or inheritance – will depend on that valuation when the property is sold or transferred again.

Undeveloped property presents some challenges as an investment – it takes time to sell, it has property tax cost and there may be a liability risk if people spend time or travel on the property. If you can develop a revenue stream from your property’s natural resources, you can at least offset the costs – and possibly generate significant value. If a revenue stream has already been established, does that agreement represent the current market value for the resources? A natural resources manager can help you assess the opportunities and negotiate a fair agreement.

Capturing Value

If you have farmland, for example, it’s common to lease that land to other farmers or farming organizations. We recently helped a client, who owned multigenerational farmland, with a lease that had been agreed to years earlier. We were able to renegotiate the lease so our client reversed a $200,000 annual loss into a $160,000 annual gain.

Natural Resources Management BB&T Perspectives

In another case, a client’s family had property that generated revenue from a mineral used in manufacturing processes. An agreement signed years ago was generating less than $10,000 in annual revenue. We reviewed the agreement and suggested they renegotiate. While the renegotiation process took several years, the current agreement generates more than $300,000 per year, on average, for the family.

One of the least understood and most overlooked natural resources is timber. Many of our clients, and even many real estate agents and brokers, don’t understand the value of timber. Granted, there is a lot to know. If your property has acres of pines in the Sandhills of North Carolina, cypress trees in the swamplands of the Southern states or a stand of hardwoods in the Appalachian Mountains, you have a range of different variables to consider in determining value. Finding out what you own is worthwhile. Timber can generate a solid return for you. Recently, a client family with a 35- acre, old-growth pine tract sold their timber for $7,500 an acre – or slightly more than $260,000 – and the tract has now been reforested with new trees.

Local Knowledge

We suggest engaging a natural resources manager who works with local professional farmers, foresters, geologists or mining engineers. Local experience and insight give you the best opportunity to capture the whole picture in understanding the value and potential of your natural resources.

While we’ve only scratched the surface in helping you understand the value your natural resources may offer, we hope we’ve piqued your curiosity for discovering those diamonds in the rough your property may hold. Ask your BB&T Wealth advisor if you are interested in learning more.

About the Author

Andy Martin, R. F.

Vice President, BB&T Real Estate & Special Assets Wealth Management Division

Andy manages more than 40,000 acres of land and timber and 75,000 acres of mineral rights for clients. His 25 years of natural resources management includes negotiating leases, ensuring proper payment and compliance of agreements, and inspecting and assessing properties. Andy holds a bachelor’s degree in forestry from N.C. State University. He is a registered consulting forester in North Carolina and West Virginia and a licensed North Carolina real estate broker.