Investing in Alpacas
Investment Advantages
Those of us fortunate enough to own alpaca garments know that once people wear alpaca they will never wear wool again. This is the difference between alpacas and llamas, emus, etc. Today's North American alpacas represent the foundation of a national herd, which will result in a new industry - the alpaca fiber industry. Today there are 8.5 million sheep in the United States, but only approximately 60,000 alpacas. Given the alpaca's long gestation (11.5 months) and the fact that no more can be imported into the national registry, it will take over 15 years to reach only 1 million alpacas. There simply isn’t a better time to invest in alpacas, nor does any other investment with the growth potential of the North American alpaca.
Most of us in the business are looking for a way to support a rural lifestyle and have found that by raising alpacas this is not only possible, but also profitable. Alpacas are wonderful animals that are delightful to be around, and alpaca owners will agree that you can't find a more relaxing and satisfying way of life. However, if you're not in the position to have alpacas on your property, there is another way to reap the rewards of alpaca ownership: Agistment.
Agistment simply put means you buy the alpaca and then allow another alpaca farm to board and care for the everyday needs of the animal. You can still reap the rewards of selling offspring, which is where the major value lies today.
An investment example: Beginning with 5 pregnant females costing $22,500 apiece, over a ten year period of time (assuming you keep all your animals) you would have 126 alpacas valued at well over $1,000,000. Or, if you retain one female a year starting in year 2 and selling all other offspring, you would end up with 19 alpacas in ten years and along the way may have generated over $400,000 in sales, recouping your original investment by year 4. This scenario assumes that alpaca prices remain constant over the ten year period, and given the rarity of and demand for alpacas this is a reasonable assumption to make.
Further for each 10% drop in price anyone investing in alpacas today would only realize a 3% drop in income, which means that even if prices did drop 10% per year from years 2 through 10 you would still realize over $300,000 in sales and still have 9 females compared to your original 5 at the end of ten years. By being a hands-on owner you can realize even a greater return on your investment. Many people are using agistment to begin growing their herd today while planning for a future date where they can retire or make the change to a home-based business in a rural setting.*
Tax Advantages
Raising alpacas offer some significant tax advantages. For those agisting these advantages can only be used to offset actual income from your alpacas, but for the hands-on owner alpaca-generated tax losses can be used to offset other income.
Some expenses you can deduct include:
- Feed, fertilizers, animal supplies and vet care
- Farm repair and maintenance, fuel and oil
- Interest, taxes and insurance
- Breeding fees
- Educational expenses (to improve your farming expertise)
- Advertising and marketing expenses
- AOBA and other association dues
- Vehicle mileage for all farm business
Some expenses you can depreciate include:
Purchased breeding stock may be depreciated. If you borrowed to buy the breeding stock, the interest is fully deductible from your income as well. Capital improvements, such as barns, fences, ponds, driveways and parking lots, can be amortized over their useful life. Equipment such as tractors, pickups, trailers and scales, each has an appropriate schedule for depreciation.
In addition to the above deductions, when selling breeding livestock over two years of age your income represents a long-term capital gain and is taxed at a much lower rate. Farm expenses can be used to reduce this income and thus social security taxes when income is reported as a long-term capital gain. The results can be a significant reduction in your tax bill.
PLEASE NOTE: Given that tax laws are constantly changing, anyone considering investing in alpacas should confer with an appropriate tax professional to determine how alpaca ownership will effect their individual situation.
*Information available in "Alpacas - Financial Aspects of Alpaca Ownership" published by AOBA (Alpaca Owners and Breeders of America).
Courtesy of SAFA Member
Dr. Allan Kirkendall
Jubilee Alpacas
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