The Perfect Investment?

Michael cools down the girls.

Alpacas: The Perfect Investment?

What's the perfect investment? If it exists, it would have large tax deductions so that Uncle Sam subsidizes part of your investment cost. It would generate income on a regular basis. It would allow compounding of your investment on a tax-deferred basis to help build up the asset value. There would be a classic supply/demand situation where prices are rising since demand exceeds supply. It would be insurable so that your risk of catastrophic loss would be minimized. It would offer portfolio diversification outside of traditional investment choices like stocks, bonds, and real estate. That way all your investments do not move in tandem.

Cabernet makes a new friend Guess what? Not only does that investment exist, but it has an additional investment benefit – it's a fun, huggable, lovable investment. A lifestyle investment for those people tired of the fast track and the volatile investment markets. Alpacas are the “huggable investment” as well as the World's Finest Livestock Investment. USA Today wrote about alpacas as "The Investment of the ‘90s." We think it is also the one of the top investments of the new millennium.

Here are a few specifics on the investment merits of these beautiful, sweet animals:

• Breeding stock can be depreciated over 5 - 7 years. Active owners can even use their losses to offset other income while their herd is growing. Section 179 of the IRS code allows you to write -off up to $125,000 of capital invested in a new business during the first year, if you are actively involved in the management, which is another huge tax benefit. There are even tax benefits available if you choose to invest passively and let someone else manage the herd, though the biggest tax savings come from actively involved management.

• If you have stud-quality males, you can charge breeding fees of $1500 to $3000 per breeding, further increasing your cash flow. It is not uncommon for a high quality stud to earn $20,000+ a year in stud fees.

• All the expenses directly attributable to the alpacas can be written off – including feed, barn, fencing, vet care, a portion of your property taxes, equipment, interest expense if you borrow to purchase, insurance costs, breeding fees, travel expenses to visit other farms, etc. You can often have your land re-zoned as agricultural land under the "Greenbelt Law," further reducing your property taxes. Check with your tax adviser to see what costs can be attributed to your alpaca business.

• According to industry research, a herd of five females and two males will typically grow to 126 animals at the end of ten years. Most females sell for $15,000 to $30,000 each and males can sell for even more if they are top stud quality (several have sold for $500,000-$1,500,000!). Your compounding is tax-deferred until you sell, and the gains are taxed at the lower capital gains rate.

Nicole Kidman, our newest starlet is born- our first $50,000 cria?

• We have been very deliberate in our breeding program to make sure each female is "bred up" to the highest quality stud available in the U.S. We match weaknesses in our females to strengths of the studs so that each cria (baby) they have might be worth more than their mother. This is more expensive and time consuming; but we are able to sell our alpacas at premium prices because of the strong genetics and bloodlines. To further display their top attributes, we compete in many of the top national alpaca shows and have won 800 show ribbons as a testimony to the success of this strategy.

• Since only one cria is usually born to a female each year, and it takes over 11 months to deliver, there can only be a steady but slow growth rate of available animals – especially since only half of the available animals are female. Females typically begin breeding at two years of age and can produce valuable cria until their teens. The animals are very hearty and require little effort. They have no odor and they are "earth friendly" so many smaller operations start off with one or two in their back yard.

• Alpaca fleece is highly desirable and the animals are typically sheared once a year. The fleece can sell for $300 and up per animal, depending on what you do with it. It is a luxury fabric, soft and silky, warm and light weight, much warmer than wool, light as cashmere, and highly sought after. If you turn it into a finished sweater, blanket, or shawl, it can sell for multiples of this. That means a $15,000 animal can be depreciated in value by a several thousand dollars a year, and then generate another 2-6% return on their fleece each year.

• The animals are registered and their pedigrees documented by DNA testing. No further registered imports from South America are being accepted so the market is closed to new animals and bloodlines. It will be many years until the U.S. herd grows large enough to meet the demand as new farms are growing in number faster than the supply of alpacas.

• Lastly, the animals are insurable for their full value so the risk of catastrophic loss is minimized. Premiums typically average 2-3% annually for this insurance, so it is well worth the cost for peace of mind (plus it's also a deductible expense!).

Truly, if a perfect investment does exist, it encompasses many of these benefits.

Call or e-mail us for more information on the investment merits of alpacas. We also recommend that you consult your own tax adviser.

Jake, Mojo and Charlotte

For additional information contact :

Michael & Charlotte Goldston
High Meadow Alpacas, LLC
3400 Floyd Road
Franklin,Tennessee 37064
Phone (615) 373-0171
FAX (615) 371-8534
E-mail
mgold35@yahoo.com