It Only Costs a Nickel more to go First Class
Like anything that one buys, we find that it is better to spend a little more money to get the best quality. This is also true when buying vineyard property. I get questions every day such as…
Questions Most Asked by Potential Vineyard Buyers
“What happens if the economy slows down, and people stop buying wine? Will my vineyard equity decline?”
“What is the best varietal of grape to invest in if the economy goes south?”
“Will the high-end wine consumer stop paying $40 to $100 a bottle if the economy slows down?”
“There are oceans of vineyards out there. Will there always be a demand for all of those grapes?”
“Where are the best locations to invest in vineyard properties to hedge my bet?”
“I’m afraid of the coming grape glut that we all hear about. How do I ensure that I don’t get caught up in this problem?”
Answers to Those Questions
The answer is, “It only costs a nickel more to go first class.” Here are my theories on investing your hard-earned money into vineyard property.
Statistics to Consider
- Out of the entire state of California, Napa and Sonoma Counties represent less than 10% of the grapes produced annually in the state.
- To retain the names Napa or Sonoma on your bottles of wine, at least 75% of the grapes in that bottle must be from Napa or Sonoma County. The remaining 25% of the grapes can come from anywhere else.
- Napa and Sonoma Counties are the most sought after premium grapes in the world, with the exception of some parts of France.
- When the economy hiccups, the average person will normally modify his lifestyle accordingly. The first things to go are the “toys,” and non-essential items, such as: not going to dinner more than once a week, waiting longer to buy that new car, not taking as many expensive vacations, and not buying the best wines.
- The number of people that buy $50 to over $100 bottles of wine and drink them on a daily basis is increasing. There are more and more sophisticated wine drinking palates developed daily. Most of the ultra premium quality wine drinkers that drink an average of one $50 bottle of wine daily, have also established themselves as financially comfortable, and are “bullet proof” as to the ups and downs of the economy. They will not be affected in their choice or price point of the wine that they drink.
In Conclusion
- If you invest a “nickel more,” and buy the very best quality vineyard land, you will produce the very best quality wine grapes.
- If those wine grapes go to an excellent wine maker, request your personal “vineyard designation” on each bottle produced. When and if this wine becomes ultra premium, and in great demand, your vineyard designation is on each of those bottles to tell the world that you are the one that controls the destiny of that wine.
- If your wine is noticed as a wine in the 90% or higher rating arena, you will never have a problem selling your grapes each year, as long as you maintain the vineyard quality.
- The recognition of the quality of your wine grapes will give you a major edge when negotiating for the highest price per ton when you wish to sell your grapes each year.
- There are actual statistics to show that there will never be enough premium grapes produced to meet the demand. When you understand that America’s premium wine grape growing regions put out less than 10% of the entire grapes produced in California, and that they are of the highest quality, it’s easy to see that demand will always outweigh supply. The number of premium wine drinkers is increasing daily, and the demand will increase even more over time.
The Underlying Key
The underlying key to your successful premium-producing vineyard is the land. Besides the land, there are microclimates, good water, and Mother Nature’s good blessings. The economy may affect the lower to medium priced wines, but will never affect the finest wine grapes produced.
When you decide to buy vineyard property, and wish to hedge your investment against any potential downturn in the economy, I suggest that you plan on spending that “nickel more,” and buy the best quality producing vineyard or potential vineyard land available.
Where to Buy Vineyard Properties
What is your lifestyle?
Do you want the “country feel,” yet be able to drive to three international airports?
Do you want access to some of the finest restaurants in the world?
Do you wish to live within an hour to an hour and one half from San Francisco?
Do you want to be part of one of the most beautiful places in the world?
Do you want to join in the festivities at harvest time?
Do you want to not hear the traffic, or smell the city smells?
Do you wish to be a part of a safe environment to raise your children?
If you answered “yes” to these questions, it sounds like you might want to look into Napa and/or Sonoma Counties. All of the above is possible. If you are looking into growing a certain varietal of grapes, here are the areas, more commonly known as “appellations,” that are the best for growing your varietal of choice.
Each appellation has its own unique ability to produce the finest quality varietal. Appellation designation allows those grapes grown within its boundaries the recognition established by the appellation. It took several grape growers banding together and petitioning the BATF to recognize that this area grows a very high quality certain varietal or varietals of wine grapes.
This is determined by having several inspections consisting of, but not limited to water analysis, water supply and soil samples sent to chemical labs for investigations. Other analysis determines the depth of the soils, slope of the land and how the micro climates affect the property.
It is important to know what varietals are the best to grow in each appellation. Then you must decide the varietal that you want to grow, and eventually sell to quality wine makers. In most cases, you will be expected to pay a premium price for that land, and you should, if your investment is to produce the returns you expect.
We know that cooler areas grow some of the finest Chardonnay and Pinot Noir grapes. It is also known that hotter areas grow some of the finest Cabernet Sauvignon, Merlot, Cabernet Franc, and Zinfandel wine grapes. Several other varietals such as Syrah and Petite Sirah grow in areas that are somewhere in between the hot and cool areas.
The best appellations for growing Pinot Noir, Pinot Gris, Semillon, Viognier, Chardonnay, Sauvignon Blanc, and some Merlot wine grapes in Napa and Sonoma County are:
- Russian River (Sonoma County)
- Green Valley (Sonoma County)
- Somona Coastal (Sonoma County)
- Carnaros (Runs between Napa and Sonoma County)
The best appellations for growing Cabernet Sauvignon, Malbec, Cabernet Franc, Syrah, Petite Sirah, Syrah-Shiraz, and Zinfandel grapes in Napa and Sonoma County are:
- Napa
- Sonoma Valley
- Sonoma Mountain (Sonoma County)
- Dry Creek (Sonoma County)
- Alexander Valley (Sonoma County)
- Chalk Hill (Sonoma County)
- Knights valley (Sonoma County
- Rutherford (Napa County)
- Oakville (Napa County)
- Howell Mountain (Napa County)
- Mount Veeder (Napa County)
- St. Helena (Napa County)
- Yountville (Napa County)
- Stags Leap (Napa County)
- Spring Mountain (Napa County)
I may have left a few of your favorites out of my analysis, however, these are the major varietals grown in these appellations, and are considered the best sellers as well.
What do I Have to Pay for Vineyard Property Today?
In this new millennium, things have skyrocketed. I attribute most of it to our wonderful economy. However, when you are a buyer, and especially if you want the very best, you will pay for it. There are several conditions that effect the value of vineyard properties when they come on the market.
They are:
Raw Potential Vineyard Land
The prices that you will pay per acre are varied from $30,000 to $100,000 per acre. This depends on location (appellation) and the reputation that the land has as a good producing area.
Declining Vineyard, Due to Age and/or Sickness
You will pay from $45,000 to $90,000 an acre depending on location, demand, and reputation.
Average Quality/Condition Producing Vineyard
You will pay from $70,000 to $125,000 per acre depending on location and reputation.
Top Quality/Healthy Producing Vineyard
You will pay from $90,000 to $250,000 an acre for top vineyard in this economy. Again, this depends on location and reputation.
Why is it So Expensive?
They are not making any more of it. Let us look at this from an investment standpoint. If a top-producing vineyard produces six tons of grapes per acre, and each ton sells for $4,500 a ton, the gross income per acre equals $27,000. If the management costs of that vineyard acre are $3,500 per year, the net operating income in $23,500. This tells me that a 10% capitalization rate says that the acre is worth $235,000.
This is not a bad return on your investment. I have a problem with buyers who say this is too high before considering what the return on the investment is. Besides the return, there are all of the wonderful tax advantages that this vineyard investment will offer. The most important part of this entire investment is in your own sanity. You will have a great investment and will most likely live a lot longer in this slower pace and beautiful environment. Everyday you will get to walk through your investment with your dogs or children, and think back on those days of traffic jams and stress. Yes, you should definitely consider the new life of vineyard living.
If you are thinking of buying vineyard property, I suggest you fill out my questionnaire. You will see the link below. After completing the questionnaire, push “send,” and your responses will go directly to my e-mail address.
I would like to help you create your dream of living in the wine country.
John Bergman
