My post entitled http://www.internationalappraiser.com/2011/08/costa-rican-teak-farms-for-gringo.html has been the second most widely read post on this blog and has generated the most reader inquiries.
I received many complaints about Tropical American Tree Farms (TATF) in Costa Rica, who did not sell titled land, but sold unenforceable "certificates of ownership" in individual trees, written in the English language and thus not enforceable in Costa Rican courts. Some investors claim that they are due payments in arrears for as long as 16 years. The owners of TATF were an American couple; the husband died about a year ago. It seems that no investor has received any payouts from this investment over the last two decades.
Now that most TATF investors think that they have been cheated, I am frequently asked about how to account for their losses when preparing their tax returns. My advice to American investors has been to use IRS Form 4684 (Casualties and Theft). A guide to use of this form can be found in Publication 584.
Other readers have had problems doing this, though, because they did not directly invest in TATF, but set up an IRA (Individual Retirement Arrangement) instead, as recommended by TATF. IRA plan administrators, who are compensated by annual fees in proportion to each account, have refused to terminate these accounts as theft losses without proof of theft. Your tax adviser will tell you what to do, such as submitting a police report or a complaint to the SEC.
This has resulted in requests for me to appraise the value of their properties so that they can deduct their losses as capital losses on 1040 Schedule D.
Because the IRS requires an appraiser to identify the property and state the ownership of the real property, I have not yet been able to help. I have encountered investors who have no deed (known as the “escritura”) and cannot locate their trees on a map. Lacking that information, I cannot perform an appraisal for the IRS. I cannot state that their trees are worthless, either, because trees are not worthless.
If I have the relevant escrituras, I can appraise the investor’s ownership interest in the property, and if the escritura demonstrates that title has not been transferred to the investor, then the value of the ownership interest is likely to be zero.
Continued teak farm investment promotions
These are not necessarily fraudulent but are advertised with a large amount of puffery and unproven claims. For instance, in an issue last year of International Living, former congressman Bob Bauman, who normally presents sound legal advice for would-be expatriates, presented the new Panamamian residency visa for immigrants (such as Americans) wishing to pursue forestry in that country along with the unvetted investment claims of a Panamian teak farm investment promoter. (IL promptly removed the investment claims from its web site when I informed them.) The standard line from these promoters is that income starts coming from trimmings of teak trees at 13 to 14 years and that the trees can be profitably harvested at 20 years of age. No legitimate Latin American forester seems to agree with this.
"OLAT" -- Organizacion LatinoAmericana de la Teca, the trade organization for teak farmers, tells a different story. They considered a teak tree to be mature at 30 years of age, and immature teak has less value than mature teak, enough less that they did not even attempt to measure the value of teak less than 30 years old in their price surveys. Visit their web site at www.OLATgroup.org .
What are current teak prices?
Costa Rica's Oficina Nacional Forestal published average teak prices in June 2012 as 225 colones per pmt (pulgadas maderera tica) for standing trees and 326 colones per pmt for logs. A pmt is equivalent to 1 inch x 1 inch x 3.36 meters. Based on 504 colones per dollar and 364 pmt per cubic meter, this translates to a price of $162 per cubic meter for standing trees and $235 per cubic meter for logs. Bear in mind that the price per cubic meter increases as the tree matures.
My continued advice is to pursue all foreign investments with personal due diligence. If one's main goal is a Panamian residency visa, a forestry investment will help meet that goal, but don't expect to get rich that way, and make sure to actively manage your property.
Who are the investors?
The investors who have contacted me are North American, but my site statistics indicate many readers of this post are British or French. Are you also investors? Please e-mail me or share your experience in the Comments section.
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