Julie and I are the proud owners of Hollyhock Vineyard, a 10 acre property with a 1940’s farm house, two cottages, and 8 acres of Grenache and Mourvedre vines. It hasn’t been an easy road but is has been an educational one. As such, we would like to begin sharing our lessons learned with other future (small) vineyard owners.
So you want to buy a Vineyard?
Just the sound of that question conjures images of romance, nature, and opulence. If you have ever visited a winery and experienced the alluring views of well manicured grapevine rows and the majestic French/Italian/Spanish Chateau nestled in between you have likely mused about retiring there one day… and then quickly dismissed the thought as just a dream. Julie and I are no different. In 2013 while on our honeymoon in St. Emilion France we were lucky enough to stay at Le Relais De Franc Mayne
, a 17 acre vineyard that also rented out rooms
in their Chateau.
In full transparency Julie and I did not set out to buy a vineyard property in 2015 – we did it by ‘accident’. A bit of background may be useful. I am originally from New England, worked in Boston, and owned a small beach cottage in Kennebunkport Maine.
About 10 years ago I was working for a large technology company and was promoted to lead a team covering the entire USA. That meant spending more and more time near our HQ in the San Francisco Bay Area and less time at my home in New England. Rather than staying in expensive hotels I discovered a creative way kill two birds with one stone. I had always wanted a boat but in New England the summers are too short. It was 2008 and thanks to the Financial Crisis I was able to pick up a boat that was large enough to overnight on for pennies on the dollar and docked it at Pier 39 in downtown San Francisco. Originally I had intended to spend only a few nights a month living on the boat, but soon I was living on it full time. Thus my first ‘accidental’ move.
Since I was no longer utilizing the Kennebunkport cottage I began doing short term rentals on VRBO/Homeaway.com, years before the whole AirBnB craze. For 7 years this worked great until Julie and I had our first child and both of my parents retired to Florida and Georgia. We no longer had a reason to visit Maine. So why not sell the cottage and buy something in Tahoe or on the beach in Cayucos and do the same rental approach? I quickly vetoed the Tahoe option. I moved to California to avoid the snow.
For months Julie and I would take the 3 hour drive from the Bay Area to look at homes along the Cayucos waterfront. After house shopping we would stay in Paso Robles for afternoon wine tasting and dinner downtown. We often found ourselves paying close to $300 a night for a hotel. We aren’t talking the Hotel Cheval
either – think Hampton Inn. We soon found ourselves frustrated not only with the cost of hotels but also with the high cost of waterfront property with their low rental occupancy rates and low(ish) cost per night. The math just wasn’t penciling like it did with the Kennebunkport Cottage.
One day while cruising Zillow I expanded the search into Paso Robles and found properties with large lots and/or vineyards. The prices didn’t seem too bad compared to the beach properties. “Hey Julie – what do you think about buying a vineyard and then renting out the house on it. It would be similar to what they do in Florida. They take a piece of land, put a golf course on it, and then build houses around it at a higher price.” The look she shot me was quite disapproving – “No Bill we are NOT buying a vineyard, are you crazy?!”
I do have a little bit of shiny object syndrome – but the feasibility of buying or planting a vineyard held all of my attention. My hypothesis was:
- The market is shifting more to ‘wine tourism’ and the wine experience rather than just buying and consuming wine. (Napa just passed Disneyland as the #1 tourist attraction)
- Owning a Winery is a hard business with low margins, high opex, a sales/marketing function, and requires full time attention. It is like the miners during the gold rush.
- Owning a Vineyard is a highly leveraged, capital intensive business (like owning rental properties!)
- Napa/Sonoma is too expensive to buy into. Livermore land is worth more as house lots than vineyards and is too close to the Bay Area. Lodi is too farm country. Paso Robles, like the three little bears, is ‘just right’. It is in the middle between LA and SF, has comparatively low land costs, and was named Wine Region of the Year in 2013.
- A vineyard alone doesn’t ‘pencil’ well financially.
- A rental alone doesn’t ‘pencil’ well financially.
Like in the gold rush, why be a gold miner when you could be a business selling to the gold miners? I believed you could marry a commercial vineyard with rental units to create a leveraged investment vehicle with both cash flow and asset appreciation. Oh, and unlike a mutual find you can stay at the property yourself and imbibe what it produces 🙂
Unfortunately after googling for weeks and reading a few books I could not find applicable information on the business economics of a vineyard. There was a ton of information on starting and running a winery, but less so on a vineyard. I will share more of what I found in my next post, but for the sake of discussion I found the following two sources:
The Tablas Blog provided some rough numbers and while the Buyers Guide was interesting, the most useful outcome was finding the author, Paul Shannon
, and asking him to be our Realtor. For our first meeting Julie, our newborn baby girl Addison, Julie’s parents, and I walked in to a fancy wood paneled board room with a big screen projector and maps of Paso Robles Vineyards hanging on the wall.
- Paul: “So you want to buy a vineyard? Have you ever owned a vineyard before?”
- Me: “Nope”
- Paul: “Have you ever owned a farm or farmed before?”
- Me: “Well… I grew up in Maine, that is a farming state”.
- Paul: “Yes but have YOU farmed before?”
- Me: “Sure, I had a big vegetable garden in the backyard”
- Paul: “Ummm… OK. Well, what type of grapes are you looking for?”
- Me: “I don’t really care, I just want a few acres so it will look pretty for the renters of the home that will be on the property”
Paul must have been bored or crazy, but despite being a commercial real estate broker he agreed to help us find the property.
- More than 1 rental unit (Multiple Houses, House + In law , House + Cottages)
- 6+ total acres and 5+ acres of vines
- If vines aren’t planted then the land should be ideal for planting.
- up to $1m if we need to plant vines
- up to $1.3m if planted and fully operable
- Julie wants the house to be ‘cute’
- Julie wants to see vineyards out the windows.
- West Side – because everyone told us that is where the cool kids are!
We looked high and low. There was the one on Peachy Canyon Rd with the great views but no vines and a frighteningly steep driveway, the house next to one of our favorite wineries on Adelaida but it had only 1 acre of vines and we found it wasn’t even a legal home, the 20 acres on Kiler Canyon with two house but no vines (and Thacher beat us to an offer!), the B&B that we could split into a duplex but was out of the way on Nacimiento and had a poor vineyard, and the complete winery on the East Side that could be had for a steal at $1.2m but would require $1m+ to renovate. Between the house, vineyard, location, and price something was always wrong.
After about 6 months and 30 properties Paul called me about this great lead he had on the East side but in the high end district of El Pomar and Templeton. The property (Zillow
) had 3 housing units, 8 acres of 12 year old vines on a limestone hill, expansive views of planted hills, and a long term contract in place with an established winery (which ironically was none other than Tablas Creek from the original blog posting). But was the house ‘cute’ enough for Julie? “It looks rustic, it’s cute, I like it”
. Boom! We are in business. We went under contract within 24 hours.
But the story doesn’t end there….
I will post a second blog in the next 2-3 days on our Small Vineyard Business Model
and explain in detail the historical costs of operating a small vineyard and what the projected profit could be. Our goal is to share this blog with fellow growers and create a discussion. We are at the very early phases of learning and the more we share the more we have to gain. The Tablas Creek Blog
has been invaluable to learn from and ideally this blog is able to full the gap for those of us who are (very) small growers or interested in that path.
I do still have a day job. How else can I (attempt to) make a fortune so I can properly lose it in the wine business? My plan is to alternate between authoring a blog on Sales Engineering and Leadership in High Tech and this blog.
Future Topic Ideas
- Learning How to Not Fail (and maybe how to succeed): a list of key websites, blogs, books and magazines that we are using to learn fast
- Your Team: there are lots of people involved in a vineyard (Realtor, Vineyard Consultant, Vineyard Manager, Laborer, Contract Labor, Spraying, Trucking, Repair, Labs, Farm Insurance, Tax Expert). Who are they, where do you find them, what do they do?
- The ‘Industry Discount’: when you are in the industry – it is a synonym for not making much money. So what is this industry discount thing?
- Going from Conventional to Organic: if your winery isn’t paying a premium for it, should you do it? What does it entail? What are the costs?
- Vineyard Activities: what does it actually mean to farm a vineyard and grow grapes? What do you do? Explain the activities such as Pruning, Dropping Wires, Canopy Management, Spraying, Mowing, etc.
- Technology for Small Vineyard: the big boys have their toys (sap sensors, wireless meshes, cloud monitoring) but what can the little guy do? A look at automation technologies, sensors, weather stations, etc.
- Equipment in Vineyard: it isn’t all about technology, sometimes you just got to jump on the John Deere and go for a ride
Taxation: if they best way to make a small fortune in the vineyard business is to start with a large one, why do so many people do it? You usually hear ‘they need a tax write off for their XYZ uber successful business’. Lessons learned on how to account for vineyard expenses and strategies for depreciation, material participation vs. passive activity, etc.
New Plantings – Portuguese Field Blend and Syrah: while the majority of our acreage is under contract we are able to hold back a ton or so of Grenache and Mourvedre for making a couple of barrels for ourselves. However, for a true GSM you need the S… Syrah! We are planning to interplant 2 rows of Syrah in 2017 (400 vines). We are also planning to plant about 100 vines of Portuguese varietals in a field blend. Where do you source vines, how do you plan the blocks, how do you decide on the clones?
- Contracts and the Winery – Grower Relationship: the fine balance of making this a win-win