Vineyard Frost and Shoot Thinning

IMG_0785A big hello from Hollyhock Vineyard to our 600+ readers.  As a reminder you can subscribe to updates via email on the right hand side.  Apologies on the delay in updating it has been a crazy few weeks with the recent Hospice du Rhone event (topic of next post) and Bill getting a new ‘day job’.

As you can from the picture of Julie and I with the Mourvedre bloc the vineyard is in full growth mode!  It is exciting times.


A Frosty Reception

This has been an odd year so far in Paso Robles with a very warm winter and a major el IMG_0266nino that ended up being a bit more temperamental with only spurts of rain.  One of the major side effect of this weather was the earliest bud break ever recorded in Paso Robles.  Early by a whole 2-3 weeks.  Bud break is when the grapevine has been dormant/sleeping for the winter and starts to wake up.  The vine begins drawing water from the soil and growing the buds until they burst into new shoots and leaves.  On the right is a picture of a young Grenache vine whose bud had burst open into small leaves and a baby shoot (the stem).  This picture was taken in mid February.  Happy Valentines day!  Early bud break by itself isn’t a bad thing by itself.  Jason Haas at Tablas Creek does a good job describing how if the weather remains warm and tropical due to el nino everything will be fine (Budbreak, 2015: Early, like 2014. Cue the frost alarms. – Tablas Creek).  However, this can be a very sensitive time for the young fragile new shoot.  If frost does come, the shoots haven’t hardened off yet and they can easily be damaged and die.  Why is this bad, won’t more just grow back?  Yes and No.  Unfortunately the buds that will create ‘fruiting’ shoots/canes (the stems) are actually developed last year and are only sprouting now.  If those die then any new shoots are unlikely to create fruit at worst or product it late or at a much lower yield at best.  For the impact that can have just look back to 2011 and the worst case scenario in our Small Vineyard Business Plan.  Instead of an average yield of 18 tons of Grenache only 5 tons was harvested.  This is a difference of $26,000 (13 tons * $2000) and wipes out your entire profit and puts you into the red.

As new owners we were crossing our fingers IMG_0940that bad luck like that happens only once a decade and we would get beginners luck.  For weeks we were safe and temperatures hovered in the low 40’s.  Until one afternoon we get the following text…. “burned”…. “frozen”“No we can’t do anything, try again next year”.  Doh!

Grape Growing is definitely a business where you have no periods of no action and then 4 hour bursts that make or break your entire year (frost, harvest).  Game over, try again next year.

I am a glass half full kind of guy which is a good balance to Julie whom I affectionately refer to as being “Hampty” (Glass Half Empty).  Maybe it is the Maine’ah in me but when hit with a bad situation just assess the damage, figure out what is in your control and what isn’t.  We immediately looked at our satellite maps to see how bad it was and how much actually got hit with the frost.   Our top block is our Morvedre and the lower block where the house is contains the Grenache.  The red areas are below the Walnut tree and the low depression area next to our neighbor.    It was here that the cold air rushed down from the hills and settled creating the frost.  Glass half full = ‘Oh, thats not too bad, it is only about 5-10% of our harvest, we aren’t that $%&!’ed”.  I won’t share what the Humpty view was 🙂

Screen Shot 2016-04-28 at 5.42.27 AM

Grenache is the closer block where the house is.Screen Shot 2016-04-26 at 6.54.34 AM


So what does frost look like?  Below is one of the mature Grenache vines.  On the left you can see brown curled up leaves and brown dead stems.  You can also see a frost damages shoot above the new baby ones on the right.  Grenache is a very vigorous vine and loves to grow.  That is a good thing.  The bad thing is that those new shoots are not in ideal position.  They are on the underside of the vine rather than the top.  That means they will have a harder time being sturdy and carrying what ever fruit may grow.  It is geometry and mechanics.


A bit further up the hill on the border of where the frost occurred is a younger replacement Grenache vine.  Here you can see on the right that all of the shoots were burned and died.  On the left those new buds hadn’t burst until after the frost hit and are growing as normal.  IMG_0659

Happy our trusty golden retriever is out there to let us know it is all ok (and campaigning to be included in the next Wine Dogs coffee table book

So where do we go from here?  Well, you irrigate that area a bit, cross your fingers, hope you get some fruit out of that section, and then plan for next year.  Another shout out to Tablas Creek and their entry on Frost Damage and Recovery.  Amazingly and thankfully they are one of the few wineries/vineyards out there posting information on these topics that growers like us can leverage.

Of course, these secondary buds are not always in the places you’d prefer, and it means a summer for the vineyard crew of carefully selecting which canes are allowed to grow and which will inhibit the air flow around the vines and have to be removed.  On the positive side, all of the rain that we received last winter means that the vines grow vigorously, and should have enough energy to spare to still produce decently off the secondary buds. (2011)

Juan, Dee (our consultant), Jordy (Tablas Creek viticulturist) will need to brainstorm on frost protection strategies for next year.  Most likely we will put in some sprinkler systems.

Culling the Herd – Shoot Thinning

So what is next?  Shoot thinning!  This is when you go vine by vine and pluck off the new baby shoots that you don’t want.   “Why would you do that?!  Don’t you want all the shoots you can get so you can grow the most fruit and make the most profit?”  Actually no.  If you look back at the Small Vineyard Business Plan it calls out the concept of yield vs. price.  The less yield you get the more concentrated the grapes and flavors.  That is why some bottles cost 2 bucks (chuck) and some are $45.  That is because some vineyards grow 20 tons of fruit per acre and some do 2.

At Hollyhock vineyard each vine (trunk) has 2 arms (the vines going sideways).  Each arm has about 4 spurs (last years shoots that were trimmed back to a stub).  Each spur is trimmed back so that there are 2 buds on it that will grow into a shoot (the green vines you see growing straight up with leaves).  Each shoot can carry 1-2 clusters of fruit on it.  What happens is that even though you may trim back last years shoots to only 2 buds, vines are vigorous creatures and tend to still put out lots of new shoots in unexpected places.  Right now while they are short (6-18″) you are able to go vine by vine and pluck off the extras so you only keep the two best upward facing strong shoots per spur.  It is best to do it early because if you allow them to grow the unwanted shoots will tangle with the desired shoots and it becomes much more labor intensive to pull them off and it increases the likelihood you will break or damage them.

Shoot thinning is one of the major activities in the vineyard for the spring (pruning, shoot thinning, mowing), this will be followed by canopy management and dropping fruit later in the year.  Since this activity is very labor intensive and time sensitive (the shoots are growing!) we will be bringing in a small labor crew of 4-5 additional people to help Juan.

The Mourvedre block growing well with shoots about 12″ long.


A Mourvedre shoot.  If you look close enough you can see the berry clusters already forming!  The shoot is the green stalk.IMG_0787

Juan our vineyard help (aka the guy who knows what he is doing) is teaching this me (aka the guy who has no idea what he is doing) how and why you shoot thin.IMG_0745

Thanks for checking in on the vineyard and we will post again this weekend on the Hospice Du Rhone event and the helpful culture in Paso!

Vineyard Financing

Thanks everyone for the great reception.  So far we have had over 575 unique visitors from 22 different countries.  As a reminder you can subscribe on the right to get email updates of all new posts or follow us on twitter @HollyhockVines and on Facebook.

Following our last post, Small Vineyard Business Plan, was the topic of financing the vineyard.  Today we will cover the types of loans and pros and cons.   This is an area where I am not a complete expert but will endeavor to share what we learned.   However, financing is highly variable and each lender has their own criteria.  This is where an experienced commercial realtor or contacts you make at other local vineyards and wineries can really provide value.

Differences between Vineyard & Residential

During our evaluation we found the following differences between purchasing a typical first or second home and purchasing a second home + vineyard:

  • Acreage: conventional loans via Fannie/Freddie have provisions on what constitutes a residence.  In particular it must first and foremost be a residence as its primary use and it must be similar to nearby residences.  This means if the property you want to purchase is 10+ acres and most nearby residences are all under 1 acre then it may not qualify as a residence and instead as a farm.
  • Vines: via the same qualifiers as above a conventional residential loan cannot loan on a commercial/income producing farm.  That means if you want a residential loan on a vineyard + house property the appraiser cannot assign any value to vineyard and cannot include any income produced by it when assessing whether or not you can afford it.
  • Distance from CivilizationI am not sure about all of the details on this one but all of the banks and insurance providers asked about it.  Even though our property was only 5 miles from town it almost prevented us from getting home owners insurance until our agent ‘found a loop hole’.  Sometimes I just don’t want to see how the sausage is made…
  • Rentals: this one seemed to be bank specific.  Some banks were ok with having a rental unit or renting the property out part time and others disqualified it.

Loan Types

    • Down Payment: 35% for a second home (10-20% for primary)
    • Interest Rate: typically the same or 0.25% higher than prevailing mortgage rates for primary homes.
    • Terms: the same as a primary home mortgage, typically 15/30 year fixed or a 5/1 or 7/1 ARM.
    • Lender Types:
      • National Bank & Resale to Fannie/Freddie: these include banks like Wells Fargo, Bank of America, etc.  These banks have very strict qualifying criteria because they package up your loan and typically sell it to Fannie Mae or Freddie Mac.  They can usually offer a better interest rate.
      • Local Bank and Portfolio Loan: A locally owned and operated bank like Heritage Oaks Bank in Paso Robles or Saco Biddeford Savings in Maine.  These banks have their own money that they lend and therefore they can decide on their own criteria.  This allows them to include a vineyard, extra acreage, etc.
    • Down Payment: 50% if you have not previously owned a farm and cannot show multiple years of commercial experience.  35% for qualified commercial growers.
    • Interest Rate: typically the same or 0.5% to 1% higher than prevailing mortgage rates for primary homes.
    • Terms: the majority of the commercial loans we looked at were ARMs.
    • Lender Types: these can include Agricultural lenders or specialty banks like Silicon Valley Bank (SVB) and their Wine Division.


When you go to qualify for the loan banks will always want to be sure you aren’t stretching beyond your means.  This usually means that your Debt to Income ratio must be under ~43%.  Thus you have two options:

  1. You are a Baller: congratulations you are inherently wealthy, have great income, low expenses and can afford a second home even if you generate no income off of it! The-Wolf-of-Wall-Street
  2. Income from Property:
    1. Farming: if you have a contract in place to purchase your fruit for a set amount then a commercial lender and some local lenders with a portfolio loan will count ~75% of this as income.
    2. Rentals: to count rental income you usually need to have a yearly lease in place or documented proof that there have been multiple years of short term rentals and income.  Lenders will typically count ~75% of this as income.

Down Payment

3ad3fb6fb3dac27dac1d038d673dd4afLet’s assume your debt to income checks out and you can afford to pay the monthly financing costs (plus farming costs covered in Small Vineyard Business Plan).  Now you will need to pay for the 35%-50% downpayment.  What are your options?

  • You are a Baller: you were employee 100 at Google and just sold off some stock or you are an oil baron who invented fracking.  Being wealthy with a ton of free cash continues to be the easiest approach
  • Friends and Family are Ballers: your friends or family worked at Google or in Oil and are willing to lend you money.  Be aware of this approach though as they will likely want to spend additional quality friend and family time at the vineyard and may have opinions on how to decorate the house or operate the vineyard that may not jive with your own preferences.
  • Hard Money: if you watch Flip or Flop on HGTV, this is the shady guy who will loan you money at a very high interest rate.  This is typically best for short term loans where you will be able to refinance it within a few months.
  • 1031 Exchangeyou purchased a different investment property before, operated it successfully, sold it for a profit.  You can now purchase a more expensive property and use the proceeds tax free.
  • Home Equity Loan on Primary Residence: if you purchased a property in California between 2009 and 2013 at the bottom of the housing market you likely have built enough equity in your home to buy a McMansion in Texas or a vineyard downpayment.  Credit Unions are a great option and typically offer home equity lines of credit up to 90% the value of your primary home on a 15 year note and ~3.5% interest rate.  The benefit of this option is you can also use the line of credit for the farming portions and working capital.


All of these options can drastically restrict the type of vineyard + house properties you can buy.  Think of these scenarios and the impact:

  1. House with land suitable for vines: if the house was owner occupied this means you cannot count any income from rentals or farming.  You will need to owner finance planting the vines yourself.  This means a lot of cash… 35% downpayment, $5k to $40k per acre planting costs, and then 3 years of farming without income.  Good news is that you can likely do a standard residential loan.
  2. House with vineyard:  You have options here.  If your personal income is high then you could still do a residential loan with a 35% downpayment and not count the vineyard income.  Or, you could do a portfolio loan with 35% downpayment, count the vineyard income, but pay a slightly higher interest rate.
  3. Vineyard with no House: you better have a lot of cash and time on hand.  You will need to purchase the land via a construction loan.  The valuation will likely not place any value on the vineyard so you will need to pay for that with cash on hand.  Then you will need to do approvals for building etc.
  4. House + Rental Units with vineyard: this was our situation.  A purchase price of $1.135m and a commercial appraisal of $1.135m.  However, the residential appraisal came in a few hundred thousand less than the purchase price because for a residence they don’t count the full value of a commercial vineyard.
    1. Conventional Residential Loan: the loan limit for SLO is $561k so that would mean a downpayment of $574k + closing costs.  Income from the vineyard and rentals could not be counted.  The prevailing interest rate for a 7/1 ARM was about 3.375%.  However, this type of loan had a low likelihood of satisfying the Fannie/Freddie criteria above due to the income producing vineyard and rentals.
    2. Portfolio Residential Loan: would be 35% down but on an appraisal of only $950k or so.  That means a loan of about $625k at a prevailing interest rate of 3.8%.  That means a downpayment of $510,000
    3. Commercial Loan:  would be 50% down but on the whole value of the property at $1.135 resulting in a $567k loan and a $567k downpayment.  The prevailing interest rate was around 3.875%.


As you can see there are a lot of factors that go into financing a house + vineyard and it is dependent on the amount of cash you have on hand or access to, your personal income, the rental income, the farming income, and the type of loan you would like.  I am sure there are many more options and it would be great to hear about them in the comments section.

Next Post

Julie and I will be down at the vineyard Thursday evening for the Hospice Du Rhone seminars.  Unfortunately we will be assessing our first major setback – FROST!   This was one of the primary dangers we observed in our Small Vineyard Business Plan and we hit it. Stay tuned for pictures and commentary from the vineyard coming next week!

Small Vineyard Business Plan

Thank you everyone for the great reception to our original post: So you want to buy a vineyard?  We have had over 300 unique visitors within the last 24 hours alone.  Very humbling but also very cool.  As a reminder you can click the link above to comment.  We now have a twitter account at @Hollyhockvines where we will post pictures and updates when we do a new blog. You can also click on the Follow button to the right to be notified of new posts.

IMG_0327Once we found our ideal vineyard we needed to figure out if it could be a viable business. After all, people say the best way to make a small fortune is to start with a large one and enter the wine business.  However, they also say the best day in a boat owners life is the day you sell it and I found that to be untrue.  By being creative I was able to have a 2 bed, 2 bath, 750 sq ft ‘condo’ with 2 parking spots and all utilities/cleaning included on the waterfront in downtown San Francisco for only $1450/mo.  By my accounting that is much less than the $5k to $7k others were paying for their condos. (Btw, the boat is for sale and I am happy to share how to do it for $1450/mo 🙂 )

So if a boat can be profitable, why not a vineyard??

Unfortunately there isn’t a whole lot of information related to vineyard business models online or in books.  What is available is focused on wineries and/or Napa whose cost models are way out of whack with the rest of the normal world.  Unfortunately, this paper was authored after we closed on the property: Sample Costs to Establish a Vineyard and Produce Wine Grapes – Sierra Foothills (2015 UC Davis)

Fine Print: before Julie (wife & co-owner & boss lady) shoots me for sharing too much personal information, all of the below figures are publicly accessible.  Where data is private/sensitive (grape prices, mortgage rates) I substituted applicable averages or estimates.

What Would Make It Pencil?

While looking for properties I began to appreciate the difference between a residential real estate professional and a commercial real estate professional like Paul Shannon.  When you house hunt with a residential realtor you hear things like:

  • “Can you imagine yourself waking up to this view of the vineyard?”
  • “Picture yourself with a coffee sitting out on the patio every morning.”
  • “Don’t you love these granite counter tops and stainless steel appliances?”
  • “This goes really well with vanilla ice cream when you drizzle it on top.”  (oops… that is what every balsamic vinegar or port wine tasting professional tells me.  Has anyone really ever drizzled something other than caramel or hot fudge on their ice cream? )

When you property hunt with a commercial realtor it is simple:

  • “It is nice, but will it pencil?  What is the Cap Rate?”

When looking at any business it is pretty simple – what are my expenses per month and what can I rent/sell it for each month? Just like fitness – Calories In vs. Calories Out.  For the rental property it is a simple formula:

  • (# of Units * Average Nightly Rent * # of days a year rented) –
    (Mortgage, Taxes, Upkeep, Expenses)

For a Vineyard it is also a simple formula

  • (# of Acres * Yield per Acre (in tons) * Price per Ton) –
    (Mortgage, Taxes, Upkeep, Farming Costs)

Now the trick is to find out what the #’s are so you can “see if it pencils”.  Reach back into your early school days and lets solve the Math Word Problem.

# of Acres: is easy if the property already has a vineyard.  It will be listed in the property description.  It gets much trickier if the property doesn’t have vines planted yet as it gets into all kinds of complications such as how much is viable for planting, soil tests, costs to clear and remediate land, etc.  Lets leave that for the advanced course.

Yield per Acre: how many tons per acre will you grow?  This is controlled by 2 factors, your location and your winery buyer’s preference.

For Location, look at the map of Paso Robles below.  On the ‘West Side’ you have lots of green mountains and on the ‘East Side’ side you have a flat brown valley.  The west side is similar to Napa with more rain, elevation, limestone, and thinner soils.  The east side is similar to Lodi with large flat plots of good soil and irrigation.  Finally you have the middle with low rolling hills (which we like to think is just right and where Hollyhock is).  On the West Side it is harder to plant in bulk, soils are thinner, and less yield = more concentrated fruit, so the yields are lower (2.75 tons) than on the East side (8-12 tons).

Screen Shot 2016-03-25 at 7.35.53 AM

The second factor is what your winery wants for yield.  A rough estimate of the cost of wine is the cost of fruit per ton * .01.  Just like car manufacturers, wineries try to make wine for each price point.  So the $4,000 per ton fruit goes into their $40 bottles of wine and the $2,000 fruit goes into their $20 bottle of wine.

Price per Ton: is a critical factor and where every dollar matters.  Luckily there is a ton of public data released via the Grape Crush Report (United States Department of Agriculture).  It lists all of the grape lots sold and what the prices were.  The good news is that they break out California into 16 different districts.  The bad news is that District 8 not only lumps together the very different East and West Sides of Paso but also San Luis Obispo and surrounding areas.  So you have to do a little bit of excel work to try and estimate what the price for your specific area would be.  Below are two plots showing how many tons were sold at each price point.  For our purposes we will assume the high tonnage and low priced sales were all for the East Side and the $3750+ was for the West Side.  We should be somewhere in the middle.

Screen Shot 2016-03-25 at 7.22.19 AM

Screen Shot 2016-03-25 at 7.22.28 AM

To summarize the research, lets chart it.  Ironically, it seems that no matter the yield you end up with a similar Total per Acre.  Welcome to the rather un-romantic reality of grapes as a commodity (a raw material or primary agricultural product that can be bought and sold).

 Yield per Acre  Price Per Ton
 Total per Acre
Ultra Premium (West Side)
2 to 2.5 tons $3,500 to $4,000 $7,000 to $10,000
Premium (Hollyhock) 4 tons $1,750 to $2,500 $7,000 to $10,000
Bulk (East Side) 8 to 12 tons $500 to $800 $4,000 to $9,600

So for Hollyhock Vineyard lets assume we do 4 tons an Acre at a price per ton about 10% above the average ($2,400 for Mourvedre and $2,000 for Grenache).

  • (4 Acres * 4 tons per Acre * $2,000 + 4 Acres * 4 tons per Acre * $2,400) –
    (Mortgage, Taxes, Upkeep, Farming Costs)

Now you need the Expense part of the equation.  This was the hardest part for us to figure out.  The mortgage and taxes are straightforward enough, but how much does it cost to upkeep (replace old vines, irrigation repair, well, etc) and farm.  Heck we didn’t even know what went into farming.  I was able to find a UC Davis study on Production and Sample Costs to Establish a Vineyard in Paso Robles but unfortunately it was from 20 years ago (1996).  Thus the only other semi applicable data sources I found were from a Tablas Creek blog and a student project for a Bachelors Degree from SLO.

The most valuable information ended up coming from the property seller’s disclosures.  Below I have created a table showing the vineyard costs from 2012-2015 for Hollyhock. The Tablas Creek example is included for comparison.  The top section summarizes expenses where you can see that Hollyhock comes in around $8k per acre vs $6.5k for Tablas.  This makes sense given their economies of scale.

The second section shows the yields and income using the estimated price per ton from above.  You can see that 2012 to 2014 were very productive years at over 4 tons per acre.  However, in 2015 the harvest was down 20-50% due to shatter, drought, and weather and yields were down to 12.53 and 13.74 tons vs. goals of 16 tons each.

Screen Shot 2016-03-24 at 7.34.13 AM

At the bottom we take into account the costs of financing the property (Farming + Finance) and you can see the net loss on paper of $50k to $70k a year .  What the !#$!?

Good thing that there is more to the story…

Show me the Money!

Show me the moneyThe Kennebunkport Cottage we referenced in our last post was purchased at the height of the real estate bubble for $350k with 10% down and had rents of a paltry $9k/year.  It doesn’t take an MBA to see that was not exactly a winner.  However as a good investor you need to think long term and find ways to improve the business.  In this case, the costs per month was fixed via a 30 year mortgage and then thanks to inflation (rent increases) and better marketing the rents increased to $35k/year (vs expenses of $25k) by year 7.  The property then sold for $400k.  So what started in year 1 as a small loss resulted in an average annual return of 44% at the end of 7 years.

Going back to the vineyard example, it is obvious an 8 acre vineyard can not pay for the entire property.  But don’t forget the property also has a house and two cottages on it.  When you put those to use as vacation rental units (2 cottages at $125 and 1 House at $300) and assume that only weekends will be rented (27% of the year) you have the following equation which adds up to the $48,000 of rental income from the table.

  • ($550 Average Nightly Rent * 87 days a year) –
    ($0 Mortgage , $0 Taxes, $3k Upkeep, $4k Expenses)

This leads to a break even balance sheet.  In good years you will make $6k in cash flow and in a bad year like 2015 you could lose $15k.

You may think I am crazy since you can make $0 just sitting on your couch doing nothing!  However, we are thinking long term and there are a number of factors that can/will impact the investment returns.

  1. Principal Reduction: You may be breaking even, but don’t forget that you are paying down a mortgage each year.  For the first 10 years you will be paying down $25k+ a year 
  2. Fruit/Rent Increase: Every year there is something called inflation.  Things get more and more expensive every year (usually about 2-3%). This is the reason why you can’t get a hamburger for a nickel anymore.  This means your income will rise by 3-5% per year but your expenses will remain mostly the same (because your mortgage is fixed).  In 5 years your cashflow could be $34k higher.
  3. Appreciation: When Jason Haas evaluated a property in his Tablas Blog he caveated his reason for passing: “a savvy investor in land might take a chance, given that the price of prime vineyard land here is almost certain to appreciate.  Someone who bought it and covered most of their annual costs through selling grapes could come out ahead given that in a dozen years it might sell for double what it’s worth now.”  What this means is that the price of housing increases at the rate of inflation (~2.5%/year) as a minimum and could increase more as Paso Robles Vineyards become more well known.  Heck even Harvard’s endowment is betting on Paso Robles vineyard land. Assuming only a 2.5% appreciation your property value would increase by $28K+ a year
  4. Taxes: This is a tricky one and I will endeavor to create a standalone post to cover things like depreciation, loss carryovers, etc.  For now, lets keep it simple.  Any money you spend related to the house or vineyard is tax deductible.  This includes portions of your vehicles, supplies, depreciation, and other ‘activities related to the pursuit of furthering your vineyard business’ 😉   In the beginning you will likely show a ‘paper loss’ but have neutral to positive cash flow.  Depending on how you structure things these losses could flow through to your personal W2 and reduce your income tax.  This can amount to 28-39.6% based on your tax bracket. (Caveat, I am not a tax professional and do not take this as advice).
  5. IMG_2338You own a freakin’ vineyard – duh! Don’t forget that 73% of the year when you aren’t renting the property, you get to use that romantic vineyard with the great views.  Family and friends get to visit. You no longer have to spend $300 a night at the Hampton Inn – that alone should be worth $4.2k (14 nights).  You get to name drop at cocktail parties, “Ya I own a vineyard, I am a bad ass”.
  6. IMG_0734Industry discount: this was a welcome surprise and I will write a complete post on it later.  In a nutshell, when visiting wineries most will ‘comp’ you the tasting fees and let you visit for free.  Furthermore, most will give you a 30% discount on wine purchases.  If you are a big wino (you did decide to buy a vineyard after all) and assume 20 winery visits a year and 4 cases of wine that should be worth at least $2k

So add up all the variables above and that net neutral investment becomes a positive ~$70k a year.  And…  you own… a freakin…. vineyard! 

Yeah but I don’t want to be a Landlord or a Farmer

No worries, there is an app for that.  It is 2o16 and you can use an app on your iPhone to order 6 cookies from Specialty’s Bakery and have them delivered to your house in under 45 minutes. (Trust me, I just tried it out yesterday via the DoorDash App).  You can do the same thing for your rentals via a service called Guesty.  They will respond and manage all of your reservations for a 3% fee.

As for the vineyard, a vineyard manager is already included in the cost projections and for <10 acres it will usually run you about $5k a year.

Give Me Some Money! …. Please?


I was planning to detail the financing portion which is a better different than a standard mortgage.  Unfortunately this post is already quite lengthy so I will use the topic for my next posting.





Future Topic Ideas

  • Next up – Learning How to Not Fail (and ideally 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

So you want to buy a vineyard?

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.
IMG_5799 (1)
Since I was no longer utilizing the Kennebunkport cottage I began doing short term rentals on VRBO/, 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.
Our Criteria:
  • 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.
A big shout out to Ryan Pease at Paix Sur Terre Winery for his vineyard site advice.
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