With interest rates remaining high and the Federal Reserve taking a hands-off approach in the face of stubborn inflation, many real estate investors are trying to think outside the box to turn a profit.
Year-round vacation rentals have proven to be highly profitable, with incomes more than triple that of regular rentals. But competition is fierce, and relying on a full guest schedule can be stressful.
Fortunately, other lesser-known real estate assets can also bring significant profits if done correctly. Let’s take a look at some of them.
winery
Investing in wineries isn’t just the preserve of rock stars, hedge funders or tech tycoons, and they aren’t limited to California’s Napa Valley. True, the United States produces more than 800 million gallons of wine each year, 84% of which is produced in California. However, fine wines also come from New York, Pennsylvania, Virginia, Maryland and Oregon. Of course, wine is also produced in large quantities in the Mediterranean and around the world.
Purchasing a working, fully functional winery is not cheap and is not suitable for beginners. If you want to learn on the job, no reliable winery will sell to a novice. Instead, they want to see your connections and visibility in the industry.
If you want to buy wine in Napa, it can be helpful to join an association like the Sonoma Valley Vintners and Growers Association or the Napa Valley Vintners Association and maintain good relationships with other winery owners. These connections can take years to make, so working with someone who has them and understands the wine industry is the right choice.
What’s the fare
As you can imagine, the cost of purchasing a winery ranges from hundreds of thousands of dollars to millions of dollars, depending on size, location, and profitability. Assume that you are not a vineyard expert and want to purchase a working vineyard and expect to pay $35,000 per acre. Considering that you need about 20 acres of land to establish a profitable vineyard, the minimum investment you need is $700,000.
If operational, the vineyard should already have machinery on site. You should be able to reach an agreement with the seller. If you have to buy equipment from scratch, expect to spend at least $200,000. Overall, expect to earn an average profit of $80,000 to $100,000 per year.
Larger wineries can increase profits by hosting wine tasting events, wine classes, estate tours, bachelorette parties, food and wine sales, and pickup and delivery sales. It can also double as a bed and breakfast, charging guests staying on site for an additional fee.
Ski resorts and vacation rentals
Investing in ski resort towns has been a hot topic on the BiggerPockets forum. The advantages are obvious – incomes are high during the ski season, and hikers and outdoor enthusiasts earn more in the summer. On-site management and booking also eliminates the stress of being hands-on.
However, investing in cabins and hotels in upscale ski resorts can be expensive. Deep-pocketed Wall Streeters and tech moguls (Netflix co-founder Reed Hastings invested $100 million in Utah-based Powder Mountain in September) have been spending big money, which means at least On a macro level, ski resorts are a great choice. The addition of a helicopter landing area ensures that high rollers can fly in as they please and pay big bucks for the privilege.
On the micro level, there are subtle differences. If you’re not wealthy and can’t imagine buying a ski home in Colorado or Lake Tahoe, there are plenty of other opportunities in Maine, Pennsylvania, New Hampshire, Oregon, and Vermont.this New York Times The article shows that the areas with the highest ski vacation rental caps in the United States are Oregon and Pennsylvania, where the median home purchase price is less than $300,000.
driving range
You’ve probably passed modern driving ranges like Topgolf, PopStroke and Drive Shack on the highway. They are huge, sky-high monolithic camps with mesh walls and neon letters on huge concrete walls.
Unlike regular golf courses, the driving range is not affected by the weather. All players hit the ball in a covered enclosure, with catering and scores displayed on a digital screen, just like a bowling alley.
Investing in one of these institutions, like a real estate syndicate, can cost millions of dollars to get started and operate. However, these assets are on an upward trajectory in terms of expected profits. Last year, 32.9 million people participated in off-site experiences, a 41% increase since 2019.
Once completed, the centers will become revenue machines for golf membership fees and food and beverage sales, and serve as year-round destinations for professional golfers, casual golfers and the party crowd.
Franchise
The average investment in a Topgolf franchise is $18 million, including construction costs. As of 2021 data, annual revenue per venue is typically around $17 million.
The advantage of this franchise over traditional real estate investing is that there is no need to deal with tenants. On the contrary, there is an endless stream of new visitors every day. The disadvantage is that once built, management of these sites is labor intensive.
cost effective approach
Buying cheap land and building a traditional grass driving range is a much cheaper approach. Of course, there will be no catering or pop music, but startup costs will also be low.
Overseas holiday rentals
Considering the lower purchase price, buying a vacation home in Central America, Europe, or the Caribbean and marketing it to U.S. tourists can be a huge win. However, management and cleaning services can be a stumbling block if you don’t contact a reputable agent.
On the plus side, investing overseas means it is protected from U.S. domestic courts and liens and provides an excellent second home and eventual retirement location. Overall, a strong dollar, high U.S. home prices and interest rates have led to an influx of U.S. buyers overseas.
International Living specializes in finding homes for U.S. residents looking to invest and/or retire overseas. Its recent report lists the top five places in the world to buy property in 2024, taking into account the country’s climate, income potential and stability:
- Los Cabos, Mexico
- Caminha, Portugal
- Mexican Riviera Maya
- Estepona, Spain
- Uruguay Rocha
farmland
Food is a necessity that is always in short supply.Not surprisingly, Bill Gates is the largest private farmland owner in the United States
Agricultural land can be invested through real estate investment trusts or through private direct investment, either by owning and cultivating the farm, leasing it to farmers, or working with farmers.
You can purchase farmland through land auctions, but not just any piece of land will do. Some serious research is needed. According to the USDA, the average farm size in 2022 was 446 acres and the average reported land value was $3,800 per acre, meaning the initial investment for the average-sized farm was nearly $1.7 million.
There are also farmland syndication and crowdfunding platforms such as American Farm Investors, AcreTrader, FarmFundr, FarmTogether and Harvest Returns. According to data cited by AcreTrader, the average return on U.S. farmland over the past 20 years was 12.75%. At this rate, $10,000 invested in farmland in 2002 would now be worth more than $105,904. Farmland returns include two values: land value appreciation and property capitalization rate.
final thoughts
Unless your interest rate is 4% or lower, if you’re planning to invest in real estate but can’t afford to buy it with cash, you’ll be forced to think creatively about the best ways to use your money. The best returns on capital are often generated by adding a service component to a real estate asset.
A short-term rental is basically running a hotel – cleaning the unit; adding amenities like kitchen supplies, clean towels and toilet paper; and taking care of all utilities. For driving ranges, management includes facilitating play, providing equipment and catering. Working with wineries, it can conduct taste tests, sell wine and provide accommodation. This is where the extra markups and profits come from.
The advantage of many of these businesses is that you can passively invest by working with experts in these businesses, adding service fees, thereby increasing profitability over time.
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Notes on BiggerPockets: These are the opinions written by the author and do not necessarily represent the views of BiggerPockets.
