Alpaca Investment page

Business Overview
Alpacas originated from the South American countries of Chile, Peru and Bolivia where they lived high in the mountains and adapted to the harsh conditions by growing dense fiber that is used world wide for luxurious clothes. The Alpaca fiber is well known in other parts of the world and was highly commercialized by the English textile industry in the mid 1800’s.Alpaca fiber is stronger and warmer than wool, softer than cashmere and silkier than mohair. It is truly one of the world’s finest fibers and is in constant demand by the textile industry. The popularity of this fiber and its potential is just gaining mainstream awareness in the United States.

Alpacas were first introduced to the U.S. in 1984. Further importation of the Alpacas was and is still closed and so the American herd has grown slowly. There are two types of Alpaca, Huacaya and Suri with a United States herd totaling only 60-70,000. Suri’s are in the minority and approximate only 10,000 Alpaca out of the national Alpaca herd. The main difference between Huacaya and Suri is the characteristics and style of their fiber and lock structure. Huacaya have a teddy bear appearance and Suri have wonderfully long strands of pencil shaped locks draped from their bodies. Both types of Alpaca are highly prized and sought after.

The scarcity of the Alpaca in the U.S. and the demand for their fiber has contributed to an ever increasing demand for these wonderful animals. Financial trade publications have referred to Alpaca as the “world’s finest livestock investment”. Prices range from $1,000 to $2,000 for pet quality Alpaca, and upwards to $15-$25,000 for breeding quality males and females. These prices are about the same as when they were originally introduced in the United States. Many Alpaca earn much higher prices at annual auctions and shows. What has occurred recently is prices are starting to trend upward as more and more farms are being established and the demand for Alpaca is exceeding the current supply.

Ownership
Raising alpacas is a very rewarding lifestyle for everyone but can be especially rewarding for families wishing to experience a country lifestyle and to impart to their children the values of responsibility and work ethic. Alpaca are truly easy to care for and can be done while maintaining full or part time jobs. Remember Alpaca adapted to the harsh climate of the Andes Mountains and are use to extreme cold and require minimal food each day.* However Alpaca do need to be cared for daily; fed & watered, toe nails checked & shots given monthly, some grooming and animal waste to be cleaned up twice a day. Consequently ownership requires responsibility and commitment for the long-term. Hands on ownership may not be for everyone or a possibility due to job or other constraints. However there are ways to still enjoy the income and tax advantages of ownership. There are many investors who board their Alpaca at area farms, visit and care for and show them as opportunity allows. This affords the investor some of the pleasures, and many the income and tax advantages of ownership.

*(Generally they eat 2 cups of grain and 2 lbs of hay each day. Annual food costs are therefore very low and can be less than that of a large dog.)

Tax Advantages
Ownership offers the Alpaca breeder with some very attractive tax advantages if your business goal is to generate a profit. Then the expenses and your capital investment are deductions from your income for tax purposes.

One of the most immediate financial benefits of the alpaca business is tax write offs and deductions which can help provide some cash flow during the first few start up years.
What qualifies as business deductions?
All legitimate business expenses and improvements are either direct farm deductions for that taxable year or can be amortized (depreciated) over several years. In some instances the owner has the option of taking the deduction all in the first year or amortizing over multiple years. Either option offers different types of taxable benefits to the business owner and should be made with the advice of a reputable tax accountant.

Deductible expenses include:
- Vet bills
- Feed, fertilizer and chemicals;
- Membership dues
- Repairs and maintenance associated with the business
- Interest, taxes and insurance;
- Tax and legal fees;
- Educational expenses
- Advertising and marketing;
- Business related mileage.
- And less obvious expenses
- A portion of your household utility and phone bills
- A portion of your property tax
- An allocation of your land and outbuildings used in the business
- Lawn and snow removal equipment used in maintenance
- And many, many more.

Section 179 deductions
The IRS section 179 has been around for many years and is intended to serve as an economic incentive to spur small business growth and development. This IRS code allows businesses to take the full amount of deduction in the first year for significant capital outlays. The business owner can also choose to depreciate the investment over several years as well; it is the business owner’s choice. Originally the allowable deduction was considerably smaller (25K) than it is today. In recent years 2004 and on the allowable section 179 deduction has been at or greater than $100,000. What does this mean, the Alpaca investor who buys 3 females for $60,000, builds a barn for $20,000, a fence for $10,000 and purchases other needed equipment for an additional $10,000 can take all of these expenses as first year deductions up to maximum of $100,000. Depending on your personal tax bracket the tax benefits can be significant and provide the investor with an economic stimulus to get started in this wonderful adventure. What can be better a wonderful lifestyle, income potential, wealth accumulation through herd growth and a tax refund from Uncle Sam to help you get started?

Tax deferral & wealth accumulation
One of the very real benefits of Alpaca farming is the tax deferral and wealth accumulation that can be achieved by growing the herd. Many investments become taxable as they occur. For example interest on savings or gains on investments are taxable as they occur. With Alpacas the owner can grow the herd and your balance sheet assets but not realize any taxable consequences until they are sold. Also assume you start with 7 Alpaca and allow the herd to grow to 50 over the next few years. Assuming an average sale price of $10,000 (depends on mix and quality of male and female) it is possible to liquidate the herd and realize a windfall of $500,000.

Please Note:
Tax laws are complicated, are changed frequently and certain advantages benefits may depend on your own personal circumstances. Therefore be sure to consult with a tax professional or licensed CPA for further details on income tax advantages. A very helpful IRS publication (#225, entitled The Farmers Tax Guide) can be obtained from your local IRS office. Additional information on Alpaca farming and their business benefits can be found by clicking on the flowing links; www.alpacainfo.com or www.alpacasupreme.com