Have your grapes and drink them too
By John Bergman
Imagine this dream. You sell your present home, pack everything that you own and move to the Wine Country. You buy a property putting the least amount of cash down, and invest some of the remaining equity to plant a vineyard. Three years later the vineyard begins to pay all of your real estate overhead, plus even give you a positive income.
Why would anyone wish to do this?
- 1. Get away from the 9 to 5 job.
- 2. Leave the Jones' behind.
- 3. Live a healthier, happier and longer life.
- 4. Get away from the neighbors.
- 5. Call your own shots for a change.
- 6. Make a major lifestyle change.
- 7. Have some privacy.
There are as many reasons to make the change as there are people that make them. Here is an actual situation that I know of first hand.
A major international corporation decides to gear down. They send out a memorandum to their loyal 10 to 20 year employees, offering them an incentive package for early retirement. One of the recipients says to himself, "What can I do, this job is all that I know? I'm too young to retire, and too old to jump into the job market." What a dilemma!
So he decides to take his wife and family and spend a few days in the wine country to think over life's little glitches. He notices that this place is about the most beautiful place that he and his wife have ever spent time in. She says to him, "Honey, wouldn't this be a great place to live?" He thinks to himself, "What would I do here to make ends meet? My pension plan and other investments may not be enough to support the lifestyle that we are use to living. What should I do?"
Just for fun they look at some property. They find a 15 acre vineyard property. The vineyard is old, but is still producing an income. The vineyard specialist takes the time to run the numbers to find that there is a possibility that they can afford to live in the Wine Country.
This is how they made it work. Their home sold for $900,000. They had approximately $600,000 in cash when it sold. They bought the vineyard for $645,000, and put $260,000 cash down and got an agricultural loan in the amount of $385,000. Their monthly principle and interest payments added up to $2,825.00.
The grapes from the Cabernet Sauvignon vineyard have been selling to a large winery for approximately $2,000 per ton. The vineyard is producing around 3.4 tons per acre, and is on an annual decline due to disease in the vines. The gross income from the vineyard was about $105,000. The management costs of the vineyard ran approximately $33,000 per year making the net operating income approximately $72,000 showing around $38,000 income a year after the debt service.
The new owners rented for a year or so in the Silverado Country Club, while they designed and got approval to build their new home. At the same time they decided to have the vineyard ripped out and replanted by vineyard experts using the newest technology available.
The 3,000 square foot home was built for about $375,000, and the new 12.5 acres of vines were planted for approximately $16,000 per acre. Napa Counties newest wine country residents moved into their vineyard estate property within 18 months after purchasing the property. The old loan was paid off and a new one was borrowed in the amount of $835,000. They also used some of their own cash to develop the vineyard.
Financial breakdown
Paid for the vineyard property $645,000
Built their home $375,000
Replanted their vineyard $200,000
Miscellaneous costs $100,000
Approximate total investment $1,320,000
It's now 1 year later, and the new vineyard is not producing as yet. However, the owner has signed a long term contract with one of the major wineries. They agree to pay top dollar for the grapes when they do come into production. Beginning in about the fourth year the crop should be producing around 6 tons per acre, if the grapes sell for $2,200 per ton it is conceivable that the gross annual income would be approximately $165,000, less about $31,250 for management and maintenance, leaving a net operating income of $133,700.
The debt service on the property runs about $5,838 per month or $70,100 per year, leaving about $55,000 positive cash flow per year to pay for taxes, insurance and other household items.
This vineyard income, along with their pension plan and other retirement vehicles allowed them to live the life style that they never, ever in their wildest dreams thought that they could afford.
Grapes make great tenants
- A. They never call if the toilet breaks.
- B. They are beautiful to look at.
- C. They always pay their rent on time.
- D. They take very little management.
- E. They don't sneak out in the middle of the night leaving the place a mess.
- F. They usually put up a 30 year security deposit.
- G. They are ecologically acceptable.
This is very close to an actual transaction that took pace in the last 18 months here in Napa County. If you have been thinking of making that lifestyle change, its never to soon to sit down with someone that can run the numbers for you based on what you have to work with and see if this dream can be yours as well.
Well, the sunset is near, and I have to join my wife for a glass of Chardonnay, looking over my vineyards to the West and watch another beautiful day in paradise silently slip away. I hope to see you soon to talk about your future sunsets.
John Bergman is celebrating his 32nd year in real estate this year. He specializes in vineyard, estate, ranch and winery sales in the wine country. John's commercial real estate back ground has offered him the ability to crunch the numbers for performance on almost every type of real estate investment available. Why not vineyard estate living?
If you are interested in buying a vineyard, I suggest that you go to my home page at http://www.bergmanvineyards.com and click on the link to my questionnaire. Answer the questions and click the submit button. I would like to help you create your dream of living in the wine country.
Vineyard Shoppers Questionnaire
