Alpacas & Finances
Wealth on the Hoof
Since 1984, Alpacas have been raised in the U.S. for both enjoyment and profit. They have also proven to be a truly "green" livestock, not a term generally applied to livestock. The world has a long history of raising livestock for profit. In ancient times as well as our own, wealth has been calculated in terms of the size of the flocks and herds of sheep, cattle, goats, camels, and horses. Livestock is worth money, and there is an "Inner Rancher" to be found in most people that creates a fascination with farming and ranching. Many of us have a dream of going "back to the farm", but milking cows and slaughtering hogs isn't quite what we have in mind. The Alpaca provides a way to get in touch with our "earthy" self without a lot of the difficulties of larger stock, while providing an income that allows us to live the way we want to.
The Kinder, Gentler Livestock
Alpacas at truly a different kind of livestock. They are intelligent and easy to train. They are a bit timid, so they would rather run away from a confrontation than initiate one. They don't butt, and a kick from a padded foot is hardly a kick at all. They don't have teeth on the top pallet in the front, so even if they were inclined to bite, it would amount to only a pinch. They do spit, but only when provoked, and usually at another alpaca.
Alpacas produce a luxury fleece that can be made into anything made from wool, cotton, or silk. Their fleece comes in 22 natural colors, and they are very clean animals as a rule. They are hardy and rarely contract the diseases that are common to other livestock. They adapt well to different environments, and usually only need simple shelter due to the warmth of their fleece. They have a lifespan of about 20 years, producing crias for the majority of that time, and can be insured against loss.
Alpacas Are Green
Alpacas have been raised in South America for thousands of years. Their gentle touch on the earth is widely appreciated. Their padded feet make little impression on the ground, and they don't tear up grass by the roots but rather nibble. The fact that they are a ruminant means that they are efficient users of their food, and the waste is low in nitrogen so very little in the way of greenhouse gases are produced. (For more about the environmentally-friendly alpaca, CLICK HERE.)
A Sound Investment for the Future
Investing in alpacas is a sound investment based on a growing industry with a viable end product. Unlike horses that are used for entertainment, alpacas are a farm animal that produces a product. They are recognized by the USDA, the IRS, and most states as livestock. At this point in time in the U.S., alpacas are not raised for meat or hides, as we need to build our numbers on a national level to achieve the critical mass of fleece that we need to interest commercial buyers in a renewable source of alpaca fleece. In South America they are routinely slaughtered for both meat and hides. It is unlikely that this will be a common practice in the U.S. as long as we are building our numbers.
After the purchase of the initial herd, crias that are born as a result of breeding have value very similar to the parents' value. Each female cria that is born will have a value similar to or in excess of her dam's value. Male crias from high-end parents have potential to be herdsires, the value of which is often greater than that of the mother. Other male crias continue to produce fleece, and are of value in terms of deriving income from fleece. They can also be sold as pets, petting zoo animals, and fleece producers for hobbyists.
Because the cria that is born has similar value to the parents, the value of the herd increases accordingly. This is an opportunity for tax-deferred wealth-building. Unlike stocks that pay taxable dividends, alpacas that remain in your herd do not incur taxes until they are sold. What is more, their upkeep is a tax deduction. More on taxes later.
Two Ways to Raise Alpacas
There are two approaches to alpaca ownership. The first is a hands-on approach where the owner personally operates the alpaca farm. The second approach is to board, or "agist", the alpacas on an existing ranch. At Alpacas at Windy Hill, we own our own alpacas, but we also provide boarding for people who want the investment of owning alpacas but do not have their own property.
The most important thing to remember when setting up an alpaca business is that it needs to be sett up like...a Business. Without proper set up, many tax advantages to the serious business owner will not apply. Making sure you have a DBA, a state Seller's Permit, a Quickbooks account, a checking/savings account in the DBA's name, and a company credit card help solidify your alpaca business. Most buyers find it financially advantageous to run their business as a sole-proprietorship rather than forming a corporation or LLC. In many cases, expenses accrued in the alpaca business can be deducted from the owner's other income under a sole-proprietorship.
Hands-on Alpaca Ownership
The hands-on approach to raising alpacas requires the owner to also own or lease a parcel of land suitable for alpacas. It is best if the owner also lives on the property, however it is not essential that the owner be involved full-time if they are working an outside job.
The hands-on owner must acquire all the "tools of the trade"--barns, fencing, tractor, shelters, feeders, buckets, a scale, basic medical supplies and other details. He must also find a reliable source of hay and pellets. One of the most important parts of beginning an alpaca operation is locating a veterinarian who includes alpacas in their practice. I advise people to look for a good vet even before deciding where to buy property.
Other alpaca ranches in the area are usually a good source of information about what works well in the area. The alpaca community is unusual in its level of camaraderie and cooperation. Ranches can do a lot to help each other and coop many chores and resources, such as hay.
Boarding Your Herd
Boarding, or agisting, is a viable way to approach herd ownership, particularly in the beginning if the new rancher does not own property. Alpacas are purchased, and then placed in the care of an established breeder for a monthly fee. Boarding initially means the new owner can begin without the capital outlay of the physical ranch, making for a more gradual transition to ranch life. The established breeder has already done the work of set up, owns the equipment, has a relationship with a veterinarian, and can provide education to the new owner.
The alpaca owner is in charge of all important decisions about breeding and care in general. There is the added advantage of having the ranch owner to consult with. And on muddy mornings, he is doing the work while you are in your clean office.
If the alpaca owner is involved with her herd, visits frequently, and keeps track of the hours spent directly involved with the business there is little financial difference between the two in terms of expenses and taxes.
Planning Your Alpaca Purchase
Everybody who has a desire to raise alpacas has a picture in his or her mind of what they want. Now the time has come to get down to the details. There needs to be a plan.
Purchasers need to set goals based on available cash and where they want to be with their business in five years. In order to do that, there are some issues that they need to be aware of and some choices to be made. For instance, alpacas have a gestation period of 11.5 months and almost always have single births, so herd growth is slow. Marketing skills are necessary in order to sell alpacas, so the buyer must realistically evaluate his own skills and determine the need to learn them or hire someone to do it for him. How soon you want to recover your initial outlay will help determine how soon you expect to start selling alpacas. If the plan is to sell alpacas immediately, then a larger purchase will be necessary due to the slow herd growth. If you are content to let your herd grow for a few years, a smaller initial purchase will do. If you plan to board your alpaca(s), it is even possible to start with a single alpaca since she will already be in a secure herd environment.
It is important to factor in all the costs before you begin. This is an investment in quality of life as well as gain, so although it is tempting to start with a bigger herd, staying on the small end of it at first is probably wise. Alpacas are not inexpensive. The current price range for breeding stock is $3000 to $50,000, depending on quality, bloodlines, show record, and fleece records.
A conservative start might include 1-3 females. Sellers often include a free "breed-back" with the sale of a female, meaning that the need for a male is put off for at least a year. Breedings to good studs can be obtained from other breeders, also, so owning a herdsire can be delayed for several years.
Purchasing Your Alpacas
Most alpacas are sold for cash. Some buyers convert other assets to purchase their first alpacas. Some people have a line of credit for investment purposes; others use their equity in real estate to secure funds.
Since the recession, many breeders now offer financing for your purchase, and Alpacas at Windy Hill is no exception. We are invested in your success, and giving you the opportunity to start your herd through flexible financing is one way we do that. Purchases that are financed require that the buyer purchase insurance for the alpaca until it is paid off, and the alpaca must remain on our ranch until the payments are complete, but it allows the buyer to start sooner, and most buyers find that they pay off their purchase much sooner than they expected.
For breeding stock, buyers should always insist on a written contract. This provides security for both buyer and seller, not only during the transaction, but down the road as well. We offer each female alpaca we sell with our "You Gotta Love 'Er" guarantee. If at the end of 2 years you are dissatisfied with any female you bought from us, we will replace her any female on our sales list worth up to 20% more than your original purchase. We also offer standard fertility guarantees on all breeding stock, male and female.
Alpacas and Taxes
Alpaca ownership can open an avenue of tax relief that was not formerly available to you. If you have never owned a small business before, as a sole-proprietor you will now find that you are eligible to write off expenses for your business. This may include mileage, feed and veterinarian costs, boarding fees, internet access as part of a home office, breeding fees, property improvements, education, ranch-related travel expenses, show fees, and professional membership fees among others. In some states and counties, raising livestock also provides a reduction in real estate taxes.
One of the immediate rewards of alpaca ownership comes in the form of depreciation. Investments in the stock market cannot be depreciated. Neither are the insurable. But alpacas do both! The alpaca owner experiences a "return" in the form of tax savings while the herd is growing.
Section 179 of the federal tax code allows for rapid depreciation on the purchase of capital expenditures for a business. This can include alpacas, barns, tractors, computers, and other items. The rate of depreciation can be stepped up to as little as one year in some cases. The cap on this depreciation at the beginning of 2018 is $1,000,000!
Be sure to consult with a tax expert in planning your alpaca business to see what applies specifically to you, and to account for changes in laws.
Your Alpaca Business
Your alpaca business is tailor-made for you. The only boundaries are the limits of your creativity and desire to succeed. It is normal for alpaca ranchers to employ several income streams within their business. We provide boarding for new ranchers without a ranch. We also offer studs for hire, yarn sales, education in both alpaca care and fiber arts, and consulting. Some ranchers offer alpaca transportation, ranch equipment, marketing consultation,and agri-tourism.
The alpaca industry is young and presents great opportunity for new ranchers. We need new owners in order to multiply the national herd to the point of having commercial quantities of fleece. And few investments have the potential to replicate themselves on an annual basis like alpacas do. It is the most enjoyable career we have ever been involved in, and we look forward to seeing it continue to grow and mature. We hope you will join us!
Cindy Harris, Alpacas at Windy Hill