The idea of owning a vineyard and creating one’s own wines is a romantic dream for some, but entirely out of reach for the vast majority of people. A modest, 5-acre vineyard in Napa or Sonoma can cost $1.25 million. Unless one is a master winemaker (enologist), one probably won’t see any tangible return on investment before selling the property. However, the lower cost of living and production and cheaper land in other wine-producing regions of the world allow some investors to live their dream and see returns on their investment while living amid the vines. Some also suggest that there is a welcome lack of pretension in these regions when compared to those in more affluent countries. One such region is the Mendoza valley in Argentina.
Argentina is the world’s fifth largest wine-producer, ranked just behind the U.S., according to a 2005 U.N. report. It is the largest producer of wine in South America; neighboring Chile, ranked tenth, produces about half of Argentina’s volume. 70 percent of Argentina’s wine comes from its famous Mendoza province, whose high elevation and ample meltwater from the Andes makes it ideal for growing several varietals, including Cabernet Sauvignon, Chardonnay and Argentina’s signature red: Malbec. The U.S. is one of the largest importers of Argentine wine—imports increased 40 percent in 2007—and some industry experts predict that the U.S. will soon eclipse Italy as the number one consumer of wine in the world.
Gastro-tourism has attracted international epicures to the Mendoza region
Mendoza is located on the western border, 250 miles east of the Chilean capital of Santiago, just a 30-minute flight over the Andes. Flights are also available to and from the Argentine capital, Buenos Aries, 650 miles east of Mendoza. Ease of access by plane has been important to the region. Tourism has long been one of the province’s primary sources of income, attracting skiers to the Las Leñas ski resort and wine enthusiasts to the many vineyards in the valley. One area that has become particularly popular for its gastro-tourism is the town of San Rafael. Two hours north of the ski resort and two and a half hours south of Mendoza, this picturesque community attracts international epicures who come for the fresh air, equally fresh regional foods and delicious wines. Some who come never want to leave. Thomas and Yvonne Phelan are good examples.
The Phelans dreamed of establishing their own vineyard, but, like many others, they could not afford prices of $250,000 and up for an acre of land in Napa and Sonoma County vineyards. To realize their dream, they knew that they had to look elsewhere.
The couple visited Argentina for the first time in 2007 and stayed for three months. There, they explored the possibility of affording a vineyard in the area. The couple used the lessons they learned from their experiences during this process to author The Argentine Vineyard Buyer’s Guide.
"The scouting and buying process was long and arduous because there was so much to learn," says Thomas. For instance, though the valley has ample water, "that doesn’t mean water automatically comes with the property."
After much care, the Phelans purchased 108 acres of ideal vineyard land with three water sources and named their project La Vida Buena Vineyards. It is located just 7.5 miles from San Rafael’s town center, which was also an important factor, as Yvonne explains: "Being too close to town subjects you to being surrounded by industrial buildings and traffic noise. Being too far away from the center of town can make one feel isolated and dread the hour and a half round trip just to buy provisions."
The Phelans are selling boutique turnkey vineyards of 5-acre parcels on their 108-acre property. Only six home sites are available, but boutique vineyard owners will be able to stay at an estancia (ranch house) while visiting and enjoy the 14-acre La Vida Buena Wine Club currently under development. Boutique vineyards are planted according to the owners’ specifications and the Phelans will provide maintenance free of charge for the first two years as the vines develop. Grapevines begin to produce grapes year three and can yield a full production of 30,000+ pounds at year five. Vineyard owners begin to pay $200 monthly at year three and thereafter for maintenance.
"It’s quite difficult to get a worker to come to your 5-acre vineyard when it is so small and 30 to 45 minutes outside of town, and if he does he will likely want full time pay ($650.00 monthly) for part timer work ($200.00 monthly). With our 108-acre project we are building a worker’s home where he gets to stay free, and he and another worker will maintain the entire project."
Each additional step in the bottling process offers a better return on investment
This allows vineyard owners to take a more passive approach in the care of their vineyard if they like, but for those who want to be completely involved, there are many options. La Vida Buena will have a winery on the property and will guarantee the sale of grapes from boutique plots of the owner wishes to just sell the grapes at harvest time, early March each year. Owners can opt to have the grapes crushed and then sell the juice in bulk, whether fresh or fermented (2-4 weeks), or they can age the wine and sell it in bulk. The aging process can take 6 months to a year depending on the wine. True enthusiasts can bottle and privately label the wine or sell it to someone else to label.
Each step requires additional time and capital but each step offers a higher yield. If a Vineyard Owner opts to sell the grapes, the return on investment might be as low as 2 to 5 percent. Owners who take the grapes all the way through the bottling process can expect a respectable ROI of 15 to 25 percent and higher, according to the Phelans. More specifically, a 5-acre boutique vineyard can produce 30,000 pounds of grapes or 7,500 bottles (750ml each) of wine which could retail at $10.00 or more per bottle.
Owners can choose which grapes they want to plant, but Malbec is the favorite for the Phelans. World-renowned wine Critic Robert Parker Jr has commented, "This French varietal has reached startling heights of quality in Argentina. Both inexpensive, delicious Malbecs and majestic, profoundly complex ones from high elevation vineyards are already being produced, and by 2015 this long-ignored grape’s place in the pantheon of noble wines will be guaranteed."
Bringing out the full potential of a vineyard is a serious undertaking and owners can’t do everything by themselves, especially if they are just starting out. To keep La Vida Buena in top order, the Phelans assembled a team which includes an agronomist who designed and planted the Mumm’s Champagne vineyard in San Rafael, a gold medal winning enologist, a vineyard manager and a lawyer and an accountant to certify that all of the required paperwork is filed correctly and that rules and regulations are properly followed.
Vineyard ownership isn’t for everyone. The knowledge required to start and then run one is more than a job—It’s a lifestyle, especially if you start from scratch rather than investing in a turnkey operation such as Vida Buena. This makes a boutique vineyard ideal for enthusiasts who would rather not fully retire, but continue doing something that they love. Using IRA funds—especially from a self-directed IRA—is an excellent way to find the capital to start, but it requires a passion for wine to continue. However, as the Phelans will attest, for those who want to walk among the grapevines, watch their grapes grow and make delicious wine, there is nothing better. If you don’t have one and a quarter million dollars for a five-acre vineyard in Napa or Sonoma, looking abroad may be your best option. Cheers to the good life.
Copies of The Argentine Vineyard Buyer’s Guide are available on the Phelans' website: www.Argentinevineyardsforsale.com. You can reach them by e-mail at Tomphelany@yahoo.com.