Why are there so many wineries for sale (very secretly I guess - I can't find them on the internet - certainly no multiple listing - 111 in Napa and Sonoma and not so much as a hint on the internet)? It might be that wineries have a very poor ROI and are just waiting for a sucker to show up on the front doorstep with a suitcase full of cash.
How do you figure ROI. It is really simple, although brokers and real estate agents want you to think it is very complex. Simple take your gross income, subtract your expenses and you have gross profits. Gross profits should be7% of the value of the business for a good investment. It helps pay the mortgage if you have to take out a loan to buy a winery.
Here is the problem. A fictional winery has land, buildings, and equipment worth two million dollars, but a typical winery of that size may only return $100,000 per year gross profits. That means that the ROI for that winery is only 5%, so working the equation backward, the selling value of the winery is $1,428,571. How many winery owners want to sell their winery for $575,000 less than the equipment and land are worth.
The second problem is that if the winery has been in business for years, the value of the equipment, although depreciated to zero (the real estate guys will say it has no value because it is depreciated), may be worth more now than when purchased because the price of stainless steel has increased dramatically and the US Peso has fallen against the Euro. This means that the junk value may exceed the ROI value. In other words, if the winery owner wants to retire, it might be more beneficial to sell off inventory and equipment and simply go out of business. Then the land can be sold simply as real estate. We may see a lot of wineries just 'going out of business.' It beats the hell out of dying in a tank.
The third and really final problem is with the family winery. The investment is two million, and the return is $100,000. The winemaker and his wife live quite nicely on this money, although it is not nearly as much as they would have made had they stayed in the city working two jobs. The life style is great and you can hobnob with the rich and famous even though you are neither. But wait, the husband and wife work full-time managing the winery and making the wine. A professional manager at $50,000 a year and a winemaker at $50,000 a year make the ROI for the winery zero. The family winery has no investment value at all! Most family wineries are worthless! Overpriced real estate with a built-in headache.
Psst. Does anyone want to buy a winery? It's secretly for sale. Contact me, but I guarantee you it won't be sold for ROI. You need more dollars than sense to buy a winery.