ALPACA OWNERSHIP / FINANCIAL BENEFITS

A major investment benefit of owning alpacas is based on the concept of compounding. Savings accounts earn interest, which if left in the account, adds to the principal. The increased principal earns additional interest, thereby compounding the investor's return. Alpacas reproduce almost every year, and about one-half of their babies are females. When you retain the offspring in your herd, they begin producing babies. This is "Alpaca Compounding." Tax-deferred wealth building is another "Alpaca advantage." As your herd grows, you postpone paying income tax on its increasing value until you begin selling the offspring.

The other very attractive benefit is the tax consequences- particularly now with added available credits. The major tax advantages of alpaca ownership include the employment of depreciation, capital gains treatment, and if you are an active hands-on owner, the benefit of offsetting your ordinary income from other sources with expenses from your farming business. This is discussed in detail on the next page.

There are essentially two ways to own alpacas. The first approach is to simply purchase the animals and begin raising them. The second approach is to purchase the animals and place them in the care of an established breeder. This arrangement for care and boarding of an animal on behalf of another is known as agistment. Under this method, you, as owner, would still make the important decisions about care, breeding, sales, etc.

The following examples are given from AOBA

Flat Herdsize scenario
The average annual before-tax cashflow return on the original investment is 26% (27% in years 2-10). This is an impressive return, but remember to consider all the hard work your family puts into nurturing this investment, although most alpaca breeders delight in the fact that they are being paid so well to live the lifestyle of their choice. The payback period, based on before-tax cashflow, is slightly over 4 years, with the original herd still intact.

Growth Herd scenario
-Cashflow return %'s are fixed at 27% in the Flat Herdsize scenario. The cashflow return %'s in the Growth Herd scenario increase to 64% by year 10.

• The 10-year cumulative cash flow is $93,000 higher than the flat herdsize scenario. Cash flows are lower in years 1-3 and higher in years 4-10. The payback period, based on before-tax cashflow, is 5 years, which is one year longer than the Flat Herd scenario. This is a result of foregoing short-term sales in favor of putting additional females in production.
• 8 breeding females have been added to the herd, a value of $180,000 at the end of year 10, which is in addition to the overall cash flow benefit as compared to the Flat herdsize scenario.
• Growing the herdsize is a tax-deferred method of wealth building.