The Pros and Cons of Investing in Fine Wine
Is it really possible to turn wine into gold? What are the benefits of buying wine as an investment strategy? As I started to research the pro and cons of purchasing wine as an investment, I immediately noticed that there are a lot of apps and websites available with helpful information to assist you on this venture.
Despite the wealth of information and assistance available, the purchase and sales of wine are not regulated by any particular government agency or regulatory body aimed at safeguarding buyers and sellers from charlatans and con artists. Being an educated consumer of wine is critical to insure you buy and sell at the right prices.
So where do we start the process of buying wine as an investment? It all starts with education. I can't stress enough how important it is to be well informed about every facet of wine production. Your success will depend on buying right. Your initial entry into the wine trade should be a willingness to invest about $10,000. That amount of capital will give you the ability to purchase a least 5 cases of investment grade wine. The wine should be from a vintage that is in high demand globally. The approximate turnaround time for a purchase of that type is 5 - 10 years.
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Of the 5 cases you own, you might want to enjoy a case for your own personal consumption, with confidence that when you sell the remaining 4 cases, your gain will more than compensate you for the one case that you enjoyed. The sale should also provide you the means to purchase a younger wine of good quality and repeat the process.
The storage of your wine during the 5 to 10 year turn around is extremely important. The wine must be stored in an area with some moisture, so the cork will not dry out and air doesn't enter the bottle. The ideal temperatures for wine storage are between 45F degrees and 65F degrees, with many experts commenting that 55F degrees is the perfect temperature.
Creating an area such as an actual wine cellar with controlled conditions to store 200 bottles of wine optimally, may have a sizable price tag attached to it. Many wine merchants offer storage services at reasonable rates, which may very well be a better choice for storage. This is especially true for purchases of 100 cases or more for investors that want to swing for the fences.
To give you a visual perspective the unit above can hold 166 bottles at a cost of approximately $1,300. A storage locker that can hold a couple of magnums and 10 cases of wine runs about $170 per year.
With the prerequisites out of the way, let's get to the meat on the bone. What type of return is possible given the optimal market conditions on a $10,000 investment in wine?
Gains have the potential to be as high as 150%. Yes that's right. If you do it right and your bottles are in demand, then $10,000 has the potential to generate $15,000 of additional revenue. The odds of you or me getting this trade right the the first time around the track and winning the grand prize are low. The odds of us coming out on top with some gain after gaining experience have a much higher potential of reality. Therefore, swinging for the fences and investing amounts of $100,000 or more is generally not advisable.
The reality is, that gains of around 150% will attract a lot of thieves and wolves in sheep's clothing. These are individuals who have the phony networks in place to take advantage of people looking to get rich quick. Your first few purchases should help you establish relationships with reputable wine merchants. This insures that when you're ready to swing for the fences, relationships are in place and everyone involved is likely to be reliable and able to execute their portion of the trade professionally.
What I really found interesting is how the tax for wine is handled. 'The Telegraph' provided me with this simple explanation of the tax code on Fine Wine.
“Fine-wine investment is often advertised as ‘tax-free’, due to it being exempt from capital gains tax – it is deemed a wasting asset ‘whose predictable life does not exceed more than 50 years.' Another potential tax advantage for investors to consider is, wines stored In Bond are not liable for certain taxes as they are considered ‘in transit’. In fact, a case of In Bond wine may change hands multiple times without ever leaving the bonded warehouse, removing the risk of damage and disruption. Only when the wine is removed from bond are these taxes paid.”
This was the simplest explanation of the tax code I could find, and I will still suggest strongly that you seek professional advice regarding any tax issues you may be liable for during the purchase or sale of wine in large quantities.
From all of the information I could find about wine as an investment, the possibilities appear very positive. You would still be well advised to become a connoisseur yourself. Supply yourself with the knowledge necessary to get it right by buying and selling the best fruit of the vine you can find at the right prices.