Top Reasons Wine Country Properties are Unique
Do you want to own a vineyard and become a farmer? If so you should know that the cost to farm each acre of vineyard throughout any given year is roughly $7,000.00. So, if you have a 20 acre vineyard you should budget $140,000 to farm it through harvest. As a farmer you’re at the mercy of Mother Nature both with weather and with the health of your vineyard. Not all vineyards are equal. The health, age, location and quality of the fruit for each vineyard is key to your success.
If you have a vineyard that the local wineries aren’t impressed with then you have a very expensive landscaping project on your hands each month with no income to offset your costs at the end of the year. That’s a real problem. On the flip side, if you have a quality vineyard with the fruit contracted to local wineries you can do very well financially. You will feel the joy of growing something throughout the year that in the end becomes a fine product in the form of a beautiful bottle of wine that people love.
Your income will be based on the gross tonnage of your harvest. The price per ton you will receive will be dictated by the varietal you grow, the appellation your vineyard is in, the quality of your fruit and your relationship with the winery contracted to buy your fruit. An example would be having a Chardonnay Vineyard in the Sonoma Coast Appellation which produces 5 tons per acre on average and demands $3,000 (or more) per ton. Your gross income would be $15,000.00 per acre. If your farming costs are $7,000 per acre your net income would be $8,000 per acre. For a 20-acre vineyard that would bring you $160,000 net income at the end of the year for your efforts. Adversely, the same varietal grown in a less desirable appellation may only bring you $2,200 or less per ton changing your value proposition dramatically. Similarly, another varietal like Cabernet could (and likely would) change this formula substantially as well. It’s extremely important to know what the vineyard you’re looking at really is, what contracts and relationships that have been developed to support it, it’s health, the income, farming costs, the quality of the fruit, and the wines made by the wineries purchasing the fruit.
Do you want a Winery Estate and run a business? As a Winery Estate owner you’ll be investing in a business that creates a product requiring branding, promotion and marketing. Winery owners need to think strategically about product placement in the sense that they create a bottle of wine designed for a particular market group with a selling price that appeals to that group. Therefore, a Winery owner creates a value proposition for a particular bottle of wine by working backwards with a marketing campaign, and brand targeted to a particular end-user. With a targeted end bottle price, they then have to back out all their costs including farming, grape purchases, production, marketing, overhead and miscellaneous expenses. All this to reach a viable profit margin based on projected sales by number of cases of wine per year. Wineries develop multiple campaigns built around their different product lines and brand each accordingly ranging from very high-end cult quality bottles of wine, to low cost bottles designed to draw in the masses. Developing a palette for drinking wines hopefully lure them up the ladder to higher priced bottles over time.
It’s extremely important to develop distribution channels for their products beginning with local restaurants’ (and hopefully expanding that across the country if possible), distribution centers such as wine shops and warehouses, their tasting rooms and most importantly their wine club membership programs. A wineries highest profit margin is from selling their product in their tasting room and especially through their wine club memberships. Those are their profit centers. Their profit margins fall dramatically when selling to restaurants and especially to wine distribution warehouses. A common practice in selling to distribution warehouses is to get rid of excess inventory to free up the investment costs they have so they can utilize those funds towards other programs being developed. Personally, my favorite place to shop for wine in terms of value is our local Costco. It’s not as fun as visiting the winery itself. But you can buy wines there for half what the tasting room is charging on any given day.
As a winery owner you also have to track market trends. When the movie ‘Sideways’ came out, there was a big shift in sales towards Pinot Noir. It was featured in the movie as an extremely complicated and delicate wine, difficult to produce and exquisite to taste. Pinot is all of that. Before the movie it was looked at by winery owners as risky, hard to farm and difficult to get it right in a bottle that had a price tag high enough to make it worth the effort. Now, the highest selling prices per acre for vineyards are the Coastal Sonoma Pinot Noir Vineyards, and some of the most expensive wines you can buy come from them. Adversely, when we had our recent downturn in the economy, there was a large shift all around the world to drinking $20.00 bottles of wine rather than $40.00 bottles or higher. A good percentage of the people who had been drinking lower cost bottles stepped away from wines altogether, which reduced the number of move-up drinkers that would hopefully grow into higher quality bottles down the road. Today we have seen a revival of middle market wines in the $30.00 – $50.00 price segment, and wineries are working hard to increase their production to meet those demands. As an added complication, a winery owner needs to anticipate market trends well in advance as they typically have to barrel their wines for 2 or more years before bottling it. A good crystal ball would help you if being a winery owner is still what your heart desires.
Do you want a Residential estate that looks out on someone else’s vineyard? After learning what it means to own a Vineyard or a Winery Estate, many of my clients come to the realization that what they really want is a country property that looks out at someone else’s vineyard. This is by far the largest part of my market as a real estate Broker in the Sonoma County Wine Country. Many people coming here are looking for second homes or are relocating from somewhere else after achieving independence enough to live and work where ever they like.
Living here is special, and no wonder it’s a target market for successful people to invest their lives and capitol in. Many second home buyers also develop successful vacation rental income from their second homes enough to carry the cost of owning them and afford them time to enjoy them on their own at their leisure. The short term vacation rental market has grown significantly in the past decade to become a point of contention between property owners, county and city officials within Sonoma County. If you buy a luxury vineyard view estate in Healdsburg’s Dry Creek Valley with a beautiful pool and views for 2.5 million dollars, you could then rent it out for $1,000.00 or more per night. It will be booked for the better part of the year with just marginal exposure from places like VRBO.com. You could have Beautiful-Places.com or another management operation book it for you for a fee which relieves you of having to manage it yourself. I once promoted this idea to a client of mine who owned a beautiful estate in Alexander Valley. I set up a VRBO site for them and within 2 weeks they had to move out completely. They made over $250,000.00 in the first 12 months after that. It ruined my ability to sell the property because I could never get in to show it. Eventually I did sell it, and it became a happy story all around.
A favorite saying of mine for someone who really isn’t the farmer or winery type is; ‘the best vineyard to have is someone else’s that you look out on’. That is a very true statement for most people. When buying a country property in the Wine Country you need to be aware of a few very important things. Country properties have septic systems for your waste and grey water. They have wells that provide you water. Without either of these working as they should your property will not be livable. It’s extremely important to know how well both are working with a long term perspective in mind. Most often these country properties have PG&E for electric but sometimes they are off the grid powered by solar only. They usually do not have cable or DSL high speed internet connections. This has become a very important purchase decision for anyone moving here that intends to work from home. There are local alternatives that include high speed infrared microwave connections that are line of sight to places like Mount Saint Helena which are fast and reliable. There are also satellite based systems like Verizon or HughesNet. Other concerns could be the farming practices of any adjacent vineyard owner. There’s nothing worse then waking up to industrial fans being turned on in the middle of the night next to your bedroom window to help protect the vineyard next door from frost during the spring months. Most farmers also use chemicals to maintain the health of their vineyards and being around those when they spray is a very valid concern. Organic farming is on the rise however, but it’s not as effective or as efficient as traditional methods and it costs more to practice.
Just because you don’t want to own a winery or a vineyard doesn’t mean you have to give up the dream and romance of owning a piece of Wine Country and getting involved in wine making. You can have a ‘hobby vineyard’ and make your own wine either in your garage or through a custom crush facility that will crush your fruit, barrel it, and help you with the wine making process, they will even bottle it for you when it’s ready. A hobby vineyard is a smaller vineyard of less than 10 acres. You can have smaller vineyard management companies, or individuals take care of it for you generally for a lower cost than going all in with a larger vineyard. Needing to cater to a winery that dictates higher standards of farming methods can be a large burden. As long as you aren’t selling your wine, you are perfectly within your legal rights to make your own wine for your own consumption up to certain production limits measured in cases. A good thing to know is that as a rule of thumb, 1 acre of vines produces 3 to 5 tons of grapes. Each ton of grapes produces 150 gallons of wine. A normal bottle of wine is 750 ml. So, a case of 12 bottles totals 9 liters or roughly 2.4 gallons. At 150 gallons per acre, you’ll produce 63 cases of wine per ton, or 756 bottles per ton. That’s 190 to 315 cases of wine per acre! You can then put your own custom label on each bottle, and spread the love around to friends, family, and business associates to your heart’s content. Just don’t charge them for it.