With wine sales skyrocketing around the world, California vineyard real estate is seeing high prices, as well. This is great news for the ground-up construction market, because many California vineyards remain distressed and ready for real estate flippers.
Late last year, Napa Valley real estate agent John Bergman noted that a mix of government restrictions, growing demand for California wine, and a lack of knowledgeable investors in the market made California vineyards a high-yielding real estate opportunity.
Bergman predicts Napa Valley vineyards will cost $1 million per acre in the next 30 years. That’s a trebling of current prices, which are still high. According to Wine Searcher, many properties cost $300,000 per acre in Napa County, while they only cost about $33,000 per acre a generation ago. Sonoma County is much cheaper, with vineyards selling at less than $100,000 per acre, with more large-scale vineyards attracted to the favorable conditions and low prices in the county.
Wine Producers See Growing Potential
When it comes to making a profit in California’s wine industry, there are two ways to go about it. You can be a wine producer or you can cater to wine country tourists. Let’s take a look at both business models and consider the potential.
As a wine producer, your income stream relies on the crop yield and wine production from your grapes. This kind of wine industry has boomed in Sonoma County, where vineyard prices have stayed reasonable, although they are growing at a tremendous rate. Wine producers look for quality land and on-site facilities for wine production. A new vineyard that cultivates both can easily be flipped for a handsome profit, or rented at a high yield because of the large gross margins of wineries, which can exceed 50%. Additionally, with 6-10% growth in wine consumption expected from 2014 onward, there is plenty of room in the market for more vineyards and more wine producers.
Wine Country Tourism on the Rise
The second opportunity is for wine tourism, which has become the mainstay for Napa Valley’s pricier land plots. Although Napa’s smaller vineyards lack the economy of scale, they make up for that in charm, which is easily leveraged for tourists to the region.
This is especially true because tourism to the region has grown by double digits for four years straight. That trend isn’t expected to end anytime soon, thanks in part to the economic recovery at home and growing wine consumption in Asia. With California a respected and relatively close wine-producing region, it is seeing an influx of tourists from both at home and abroad.
For real estate investors seeking to develop travel-related properties such as hotels and inns, Napa Valley is a great opportunity. While the vineyard can cater to visitors, it can also develop and produce wine, providing two income streams. This makes it a great opportunity.
And when there are great opportunities, there is a need for real estate development and growth. Expect much more of that in California’s wine country in 2015.
Hard Money Loans Assist in Vineyard Financing
While prices are rising, this doesn’t mean large investors are the only ones to benefit. Because the vineyards vary in pricing, small investors in the region who are looking to start a new vineyard or renovate an existing one can still return a profit rather quickly.
The key is securing financing, and that is getting easier and cheaper. Hard money loans are popular with creditors and borrowers alike, because they provide low-cost funding for exciting opportunities, while being low-risk to creditors who see potential in the developer’s project. Hard money loans are also getting cheaper, because interest rates are falling nationwide as U.S. interest rates continue to fall.
To finance a vineyard project, investors can turn to a private money lender like Socotra Capital, who can lend as little as $30,000 and as much as $6 million for a single project. Contractors looking to develop vineyards can use the lending from Socotra Capital to capitalize on the growing popularity of California wine. If you want to invest in this booming industry, or if you are already a wine expert looking to expand your operations, Socotra can help. With hard money loan services of all types, they are ready to help you grow.
Your real estate assets are your best investments for the future. At Socotra Capital, we’re proud to be the premier direct hard money lender for California real estate. Contact us today to learn more about how we can help.