For an audio version of this post, please click on the speaker icon (top left).
Welcome to this episode of The Doctor’s Bill (Can You Afford It?).
Wonder if you should buy that big ticket item or not?
Well here’s your chance to have a wealth management expert, Johanna Fox Turner, of Fox & Company Wealth Management analyze your overall finances and make a final verdict on whether or not you can indeed swing for the fences and splurge on yourself or whether you should just walk away.
[Johanna and I have no current financial relationship]
Disclaimer: This is not meant to be a substitute for paid professional advice but only meant to serve as a suggestion/guideline.
The following are the details from our submission form:
Item/Experience Desired:
Vineyard/Vacation Rental Property (to be bought in 10 years)
Approximate Cost:
$3-3.5 Million
How do you plan on paying for this item/experience?
SBA 504 Loan, likely 10-20% down, partially paid for through 1031 exchange from my commercial real estate plan listed below.
On A Happiness Scale of 1-10 (10 Being Happiest), rate what this item/experience will do for you A) Short Term and B) Long Term:
A) 8 at the time of purchase in 2028
B) 10 Long term
Age:
34
Gender:
Male
Occupation:
Anesthesiologist
Marital Status:
Married
Any Children (If so please provide ages)?
One (1 year old)
How Many Years Till Planned Retirement?
16 (or at least hope to be financially independent by then)
What is your total household income?
$700k
Effective Tax Rate (State & Federal):
39%
What is your % Annual Savings Rate? (savings/gross income)
41% gross (30% gross towards investing/retirement)
Estimated Annual Living Expenses (Current):
$140k
Market Value of Primary Home [For Renter =$ 0]
$650k
Additional Real Estate Holdings Equity (Market Value-Debt):
$0 (plan on $120k/yr towards real estate investments for the next 10 years)
Current Liquid Asset Value (Savings, Checking, Etc.):
$150k
Retirement Assets (401k/IRA/HSA):
$550k
Brokerage Account (Taxable):
$100k
Miscellaneous Asset Value (Please elaborate):
$0
Mortgage Balance:
$390k (3.25% fixed 30 year)
Student Loan Balance:
$0
Additional Liabilities:
$0
Unfunded Future College Costs & Years Left Till Needed:
$12k/yr x 17 years (already included in my current living expenses)
Other Unfunded Goals and Years Remaining (Today’s Dollars):
$100k of our liquid assets has been earmarked for a home renovation in the next year.
Any other pertinent information not addressed?
My plan is to use all my annual tax-advantaged space ($54k for 401k, $11k for backdoor Roths) for index funds and additional retirement savings (~$120k/year) toward commercial real estate over the next 10 years.
My commercial real estate plan is to buy a building (presumably $250-300k toward the 20-25% down) every other year over the next 10 years, so that I’d likely to have around $5 million in properties (not net).
I’m assuming an IRR of 10% on my properties.
My hope is that I’ll be able to 1031 exchange my first commercial property into the vineyard.
At 9-10 years, that initial $200-$250k down payment should result in around $500-600k in equity toward the vineyard.
At that point, I plan to reassess.
I’m hoping the vineyard has three revenue streams (grapes sold to winemakers, wedding venue, vacation rental).
The initial plan is to have the vineyard professionally cared-for and source the grapes to wineries while using the home as a vacation rental when we aren’t staying there.
When I fully retire, I’d love to have winemaking be something to “retire to” and make the wine myself after being properly educated.
I don’t have plans to sell the vineyard because I’m not planning on the vineyard factoring into my retirement income.
I hope that the vineyard only makes enough money to cover its expenses and pay down the mortgage. I’d love to leave it to my son if he developed a passion for wine.
Rather than use the vineyard to support my retirement lifestyle (which frankly I don’t think it will help with), I plan to live off the cashflow from the $5+ million in commercial real estate as well as a 3-4% SWR from an additional 16 years-worth of maxed-out retirement accounts.
My plan B is as follows:
Keep working my full time physician job.
If I buy the vineyard in 10 years, I plan to work in medicine at least an additional 6 years until I’m 50.
If it is a bare plot of land that has to be planted, I fully expect it to be cashflow negative for the first 5 years.
If I were to buy a mature vineyard, I’d expect it to cashflow positively.
Note that I’d be looking to source the grapes to other wineries, especially while working full time as a physician.
I’m only hoping the vineyard is long-term cashflow break-even when including the mortgage.
So does this doctor have what it takes to create his own little Martha’s Vineyard?
Or will the fiscal toll of this venture cause his financial vines to be barren?
Click on the Doctor’s Bill Image and find out the verdict:
Click on the Bill (image) and find out if can afford it or not
After you see the verdict please come back to this page and comment whether you agree or not with the decision (and no cheating by looking at comments first!)
If you would like to submit your own Doctor’s Bill request please fill out the submission form.
Note:
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Even a steadfast DIY’er can sometimes gain benefit from the occasional professional input.
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A very interesting case. I had a client who owned a vineyard and winery. Dr. N, though somewhat conservative in his assumptions, is underestimating what it takes to run a vineyard. He would not be able to practice medicine and manage the vineyard himself. No way. Depending on its location, the competition for wineries can be stiff. In my area, there are close to 50 wineries on the county next door to mine. Weddings and events are expensive. Labor to run a winery is expensive. I think he’s grossly underestimating what it takes, both in time and money. Failure rate… Read more »
Thanks Fred for the outstanding insight. Yeah I fear that there are a lot of hidden costs to owning a winery. It is romanticized about and we hear of the success stories, but like many things, there are many failures that don’t get mentioned which sort of biases to thinking anyone can do it.
Really appreciate your comments, Fred. Always helpful to hear from someone with direct experience. I will make sure Dr. N is reading this.
I can’t see a way one can work and try to personally plant, grow, and manage a vineyard AND a winery. He’d have to be superhuman. Short of that, he’ll need a vineyard and winery manager. My client did both when he started. Now, he has a general manager, a tasting room manager, and he does the farming. With the competition, he’s still just getting by. It’s a brutal business.
Wow, what an interesting submission! Loved seeing a passion “priced out” in a way. My initial reaction is that this venture would need to be for PASSION, not profit. But that’s exactly what it sounds like. I was about to say that he’d need to partner with someone who truly saw the vision, understood the industry and could help manage the day-to-day functions of the vineyard, but I just scrolled down and saw that y’all already have that covered in the comments, haha. I think it’s a massive undertaking, even without trying to turn a profit. We work with a… Read more »
Wow, that is something I did not know about you MFM, that you are part of the wine industry 🙂
It was definitely an interesting submission and one that I honestly thought would be out of the realm of most doctors (I thought you had to be a decamillionaire or more to really be owning a vineyard).
It is scary that a fire, bad weather, or disease can destroy an entire vintage and put you quickly into the hole. Have to have a lot of reserves/emergency funds in my opinion.
Appreciate the comment 🙂
Haha well, I DEF wouldn’t say I am part of the industry (though I do my fair share of market research on Friday nights 😉 – but I’m in marketing and one of our clients has a wine brand as a small arm of his company. Still, the fridge is usually stocked at the office.
OH ALSO!
I forgot to talk about the wedding venue thing.
You can crushhhh ittttt doing that, assuming you’re in close proximity to accommodations – but do NOT underestimate the costs and energy output required of that, and charge appropriately!
Yes, weddings can be profitable. However, every winery knows that is trying to outdo the others. They’re all chasing the same dollars. Weddings at wineries are all the craze in Northern Virginia where I live. when that wears out, then what. Corporate events? Private parties? That’s a very tough business. And you nailed it on the risks of weather and the farming aspects.
Ok, so this is my submission. I’m not sure if this was lost in translation during the application process, but I don’t have any ambition to tend to the grapes themselves (ie be a farmer), especially when I’m still working as a physician. I do have ambition to be a winemaker, but that would only come after I had fully retired from medicine. My plan during that transition period would be to hire a vineyard manager and source the grapes to other wineries. My hope was grape sourcing income, in combination with vacation rental income (which seems more passive than… Read more »
Thank you so much for commenting (and of course the submission). It definitely gave me lots to think about.
I think wine making would be an awesome thing to do in retirement. It is a very expensive business and lots of potential pitfalls as some commented on.
I’m glad you found the discussion helpful and hopefully whatever decision you do chose you will have success at it (and if by some miracle this website is still around would love to hear about it then)
I say go for it. It is a 10 year plan so a lot can change in the meantime. But it seems you are fully aware of your situation and how to get there. You have even thought about the various revenue streams, pits and even came up with a plan B.
Even if you decide 10 years from now not to pursuit the purchase of a vineyard, you still have a lot of savings to fall back on and to do something else.
Good points sport of money. The savings is indeed a saving grace in this instance