18756 Mariposa Avenue
Investment Opportunities
The following is a brief overview of the investment opportunities created by owning alpacas. We would love the opportunity to discuss with you the details of these common business questions.
Why Invest in Alpacas?
Over the centuries Alpacas were considered the cherished treasure of the Inca civilization. Alpacas produce one of the finest natural fibers in the world. As soft as cashmere, alpaca fiber is warmer, stronger and lighter than wool, it comes in more colors than any other fiber producing animal. Now this Incan luxury is enjoyed by spinners and weavers around the world. Alpacas are considered one of the world’s finest livestock investments for its business tax advantages and income potential for individual investors.
Alpaca Supply and Demand
Historically, the alpaca primarily sustained the ancient Inca cultures in South America. In 1984, alpacas were exported to countries around the world including the U.S., Canada, New Zealand, France, Australia and England. These alpacas were acquired foundation animals for the national herds. Now there is a strong demand for this elite fiber. The textiles produced from this fiber are rapidly becoming known in the fashion centers of Paris, Milan and Tokyo. A larger national alpaca herd is needed.
Alpacas have a slow reproduction rate. A female is generally bred at 2 years of age and will produce one cria (baby) a year for an average of 12-15 years. Recently the 100,000th alpaca was registered in the U.S., a relatively small number for livestock. If compared to the market for wool, 2,000,000 alpacas will be required in order to support the domestic fiber industry. Based upon a growth rate of 10-15% per year, the demand for quality alpacas should remain strong for many years.
Who Owns Alpacas?
Alpaca owners and breeders come from all walks of life. Many ranchers are working professionals and have never owned livestock prior to owning alpacas. While there are a few large ranches which own hundreds of animals most couples and families manage and operate their smaller ranches in the evening.
What are the financial benefits of owning alpacas?
The main financial benefit of owning alpacas is reducing your tax burden by operating a for profit alpaca ranch.
There are two main ways to invest in alpacas.
First, raising alpacas at your own hands-on ranch can offer some very attractive tax advantages. All of the expenses attributable to the endeavor can be written off against your income. Expenses include feed, tack, veterinarian care, etc, but also the depreciation of tangible property such as breeding stock, barns, fences and tractors. (Please consult your personal tax advisor and discuss IRS section 179 and other rules regarding depreciable assets.)
Second, the less active owner can agist animals at another ranch. This is called passive investing. This investor may depreciate breeding stock and the direct cost of maintaining your animals. The main difference being the passive investor may only be able to deduct losses from investment against gain from the sale of animals and fleece. The active, hands-on rancher can take the losses against other income.
Alpaca breeding allows for tax-deferred wealth building. An owner can purchase alpacas and allow the investment to grow over time without paying income tax on its increased value. For example, an alpaca’s offspring, if bred properly, will have a market value of equal or greater than its mother. The AOBA (Alpacas owners and Breeders Association) report an average annual return on investment of 26% after 4-5 years.
What are the Risks?
As with any business there are risks. Proper planning and education are critical to minimizing risks. It is advisable to purchase mortality insurance which will help protect your investment. What other investment can be protected by insurance? Lastly seek honest and experienced breeders who can give you advice and act as mentors.
Again, if you would like more information or have more questions, call us. We are here to help.
18756 Mariposa Avenue