Why Vineyards Might Make Great Investmentsby Bryant Asset Advisors on 05/28/13
in vineyards and agricultural assets may be low risk with the potential for high
When the market crashed in 2007-2008, many institutional and high net worth investors turned to quality agricultural assets, including farmland and vineyards. These agricultural properties yielded attractive returns and had the added benefit of providing tax benefits and shelter from the market’s volatility.
Why Invest in Vineyards & Agricultural Properties?
Historically, vineyards and other productive agricultural assets have been resilient, despite the equity market’s ups and downs. Agricultural properties have immediate cash flow, making them extremely attractive in a weak economy. Plus, increased quality and quantity of crop yields, commodity supply, and demand forces create excellent potential for capital appreciation.
Agricultural assets located near major metropolitan markets often do even better than their rural counterparts. Over time, agricultural assets located in desirable locations (such as vineyards in Napa and Sonoma, CA, just an hour away from the San Francisco Bay Area) may experience a transition to higher and better land uses. Operational vineyards could be converted into resorts, restaurants, and other luxury destinations that bring in a steady flow of revenue and offer greater ROI. Plus, if the market crashes again causing people to decrease spending on luxury vacations and expensive dinners, the asset is still attractive because it has the ability to yield crops (continual cash flow).
In addition to the protection from the overall equity markets, the U.S. government and banking systems also look favorably on working agricultural properties. Investors looking to purchase working agricultural assets can expect attractive financing options in the form of historically low interest rates as well as special tax incentives from the IRS and in some cases, the local taxing authorities.
Why Right Now May Be A Great Time to Invest
While agricultural assets haven’t always been considered as attractive as other real estate assets, the market right now may be especially favorable for those considering investment. Western consumer culture is moving towards organic, local food and consumers are interested in being economically and socially responsible. From the middle class to the high net worth individuals, customers everywhere are interested in purchasing local food and organic food that’s both good for their family and for the environment. That type of sustainable, cause-based marketing is an added bonus for would-be vineyard owners or agribusiness investors.
If managed properly and with the luck of Mother Nature, agricultural assets like vineyards can make solid investments, despite the broad economy’s twists and turns. Right now, the market offers a very favorable climate for small agricultural assets like vineyards and boutique farms. Consumers are continuing to become more selective, and investing in the right agricultural asset (particularly one near a major metropolitan area) might prove to be an incredibly smart move.
What Are the Tax Advantages of Investing in a Vineyard?
Vineyards and other agricultural assets are one of the best real property investments under today’s tax climate. Vineyards, orchards, and groves enjoy all of the benefits of traditional, row-crop farmland ownership. And, the current tax code is especially kind to these types of assets.
Vineyards (including orchards and groves) can capture expense method depreciation (I.R.C. 179) of the property’s “permanent plantings” (for example: grape vines, citrus and nuts). The expense method of depreciation can be a useful tool for any investors’ tax planning, as it can allow the investor to deduct the capital cost of the property on their income taxes as an expense rather than depreciating over time.
Demand for vineyard assets, especially lifestyle and boutique properties, may only increase as investors come to realize the tax-benefits, potential for cashflow and satisfaction provided by this type of investment. Americans are buying more and more wine, and, much like the craft brewing industry, they’re interested in wines from boutique and small-scale family vineyards.
And, as the Baby Boomers age and retire, more people are likely to seek out attractive retirement destinations that allow them to live out lifelong passions (such as making wine). In addition to the romantic love for vineyards and wine making, the favorable tax code could encourage many savvy Boomers to live out their golden years on a strategically located, productive vineyard property.
How to Invest in a Vineyard
If you are interested in investing in a vineyard or other agricultural property such as an orchard, a grove, or farmland, contact Bryant Asset Advisors. Our years of experience in both appraising and investing in quality real estate assets will ensure you find the right property at the best possible price. As brokers and appraisers, we have extensive knowledge of the current market, and experience in proper valuation, we can help make sure your next purchase is a sound investment decision.
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Robert Aldrich’s article “Beyond the Bottle: Vineyard Investment in California” in April’s National Real Estate Investor sheds even more light on the California vineyard market.