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What's the perfect investment? It would have big tax deductions, so that the governent
subsidizes part of your investment cost. It would generate a regular income. Your investment
would compounding tax-deferred basis, thus increasing in value over time. Supply would outstrip
demand, thus making prices to steadily rise. You could insure the investment, thus covering the
risk of loss. It would diversify your total investmentment, rather than being concentrated in
just stocks, bonds, and real estate.
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.
Here are a few specifics on the merits of
investing in alpacas:
- Breeding stock can be depreciated
over 5 - 7 years. Active owners can even use their losses (up to
$105,000 for 2005 ande indexed higher for 2006) to offset other income,
while their herd is growing. Not only can you off-set your salaried
income, but income from rentals, sales of stocks and bonds, and other
assets can be offset. 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.
- Charge breeding fees of $1000 to $3000
for quality males, further increasing your cash flow. It is not
uncommon for a high quality stud to earn $20,000+ a year in stud fees.
- Deduct all operaing expenses.
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.
- Designate your property as agricultural land under the "Greenbelt Law," further reducing your property taxes.
- Increase your herd size tax free.
According to industry research, a herd of five females and two males
will typically grow to 126 animals at the end of ten years. There are
no tax consequences on increasing your herd size until you sell the
animals. Most females sell for $10,000 to $30,000 each. Average males
sell for $5000 to $10,000, and exceptional males for even more if they
are top stud quality (several have sold for over $200,000!). Your
ever-growing herd is tax-deferred until you sell, and the gains are
taxed at the lower capital gains rate.
- Demand exceeds supply.
Since a female can only have one baby each year, there can only be a
steady but slow growth rate of available animals – especially since
only half of the available animals are female. However the Alpaca Owner
and Breeders Association (AOBA) reports a 30+ percent growth rate per
year in people starting an alpaca farm. Females typically begin
breeding at two years of age and can produce valuable cria until their
late teens.
- Small acreage requirements and easy to keep.
Because alpacas are such efficient eaters (with 3 stomachs), you can
run 8-10 animals per acre. So a 5 to 10 acre farm is quite feasible.
The animals are very hearty and require little effort. They have no
odor, and they are "earth friendly."
- Sell the fleece for additional revenue
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. In addition, if every other cria is a girl, then your
$15,000 animal can produce another potential $15,000 animal every other
year (a 50% annual return!). It's no wonder that industry studies show
the average annual returns can be anywhere from 20-40% a year. I
hesitate to state numbers like this because they sound too high, but
the fact remains that you can make double-digit returns from the tax
benefits alone!
- Closed registry protects against a flooded market.
The animals are registered and their pedigrees documented by DNA
testing. No further registered imports from South America are being
accepted by the Alpaca Registry, Inc. (ARI), so the market is closed to
new animals and bloodlines. A closed registry further protects your
alpaca investment by preventing imports to flood the market. It will be
many years until the U.S. herd grows large enough to meet the
international demand for the fiber.
- 100% insured for full mortality.
Alpacas are insurable for their full value, so the risk of catastrophic
loss is minimized. Premiums typically average 3% annually for this
insurance, so it is well worth the cost for peace of mind. In addition,
your insurance premiums are tax deductable as a business expense!
This page was last updated on June 10, 2009.
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