Bourbon Verse the US Property Market

Bourbon Verse the US Property Market

Bourbon Verse the US Property Market

Who would have thought that spending your money on whisky was a sensible and prudent investment decision when compared to US real estate?

A 62-year-old bottle of Macallan from 1926 sold for  $1.9 million at Sotheby’s auction in 2019, crushing the previous world record for a bottle sold at auction by more than £300,000.

A Very Old Fitzgerald Bourbon bottle purchased at a median 1950 price of $7.42 sold for $1,589.57. 

US home prices.

  • 1950 Median home value (unadjusted): $7,354
  • 2020 Median home value (inflation-adjusted to 2020 dollars): $79,063

According to the U.S. Bureau of Labor Statistics, prices for whiskey at home are 276.06% higher in 2022 versus 1952 (a $20.48 difference in value).

The current national average price is $7.42 for “Bourbon whiskey, 375 ml-1.75 liter (cost per 25.4 ounces/750 ml)”. This data is collected by a national survey and can vary from region to region.

Between 1952 and 2022: Whiskey experienced an average inflation rate of 1.91% per year. In other words, whiskey costing $7.42 in the year 1952 would cost $27.90 in 2022 for an equivalent purchase. Whiskey’s inflation was lower than the overall inflation rate of 3.47% during this period.

Investors Are Investing

UK Info

Over the past decade, rare whisky bottle investments have increased by a staggering 586 percent over the past decade or 58.6 percent per year, according to the Knight Frank Luxury Index. The index measures the sale of luxury whisky bottles at auctions alongside various other treasured assets, including fine art and fine wine.

With that level of return, whisky outperformed almost every other investment class, including UK real estate. According to information from the UK House Price Index. average UK housing prices peaked at £250,000 in November 2020- up £80,000 or 47 percent over the past ten years.

The Index is compiled by the Office of National Statistics, and the gain is approximately four percent yearly. Surprisingly, even the London area didn’t surpass the Knight Frank Luxury Index for whisky bottle investment returns.

The average property in London experienced an uplift from £282,000 in November 2010 to £514,000 in November 2020- an increase of £232,000 or an 82 percent return on investment.

Taxes Are Everything

Whisky investments, when compared to real estate, are far more accessible. The initial outlay is much lower and requires little effort to maintain. Perhaps of greatest importance, there are potentially significant tax breaks if the whisky is left in casks instead of bottles.

As long as the alcohol is aging, it is considered a net loss.

If the cask is considered a wasting asset, no capital gains taxes would be triggered until the point of sale. However, if you choose to bottle the whisky, some potential tax advantages are lost; bottled whisky is not considered a waste asset.

Capital gains could be triggered when selling bottles, and other taxes must be paid because the bottles are now considered a retail commodity ready for consumption. For investment purposes, leaving whisky in casks clearly has its advantages.

Under Scottish law, all Scotch casks must remain within the boundaries of Scotland in a government bonded warehouse. While in the warehouse, there are insurance and storage costs amounting to around £50 a year. Sometimes, these fees are complimentary for the first year after purchase.

If you sell your cask under bond, you’ll potentially realize a huge tax-free gain. Again, this only applies to whisky sold in casks, not in bottles. Before making any transaction, you should always seek professional advice from a qualified investment advisor or accountant.

Investment Comparison

Whisky cask investments vary in appreciation rates anywhere from 7 percent and upwards. The level of growth will vary depending on the distillery, age statement, and market conditions, among other factors. If you invested in a $100,000 whisky cask portfolio, which grew at the low end of seven percent for ten years, it would double.

In the low end of the tax bracket, that capital gain tax would be 18 percent, and in the higher end, 28 percent. In the higher tax bracket, you would have to find a property that would have appreciated $239,000 before taxes  (or 9 percent) to achieve parity with the post-tax 7 percent whisky cask investment. 

The only place that happened was in London; for most, it would have been difficult to find a place for only $100,000 back. It would be even more difficult today.

Worse still, real estate has all kinds of expenses and costs, such as property taxes, insurance, maintenance, and utility costs. Even when you make the initial property purchase in the US.

For the most part, whisky investments come with less worry and fewer overheads. In the US, rent regulations limit how much landlords can raise rents, thus limiting returns and often causing issues for landlords. Currently, these landlords are experiencing a heightened level of difficulty with unpaid rent due to the Covid19 pandemic.

All these factors make rental income an increasingly risky investment strategy, especially if future pandemics or economic slowdowns exist.

Whisky casks can be purchased anywhere from $5,000 to $100,000, depending on the distillery and age statement. Real estate almost always requires a far greater initial outlay and remains out of reach for many US investors.

Whisky casks quietly and reliably mature in the warehouse and appreciate with fewer costs, fewer worries, and often higher rates of return when compared to US real estate. It’s a passive investment- buy, hold, and sell it for future long-term profits.

Bourbon whisky, both bottled and in the cask, can be a great addition to anybody’s portfolio. However, investors should be prudent and never put all of their eggs into one basket. A diversified portfolio of many different asset classes, including whisky casks, is the best way to avoid risk and grow your portfolio.

Contact Binyomin Terebelo of Terebelo Distillery today to see how you can invest. Call WhatsApp 5512387791 or email ben@terebelo.com

This article is for information only and does not constitute investment advice. Before making any investment decisions, do your research and consult a qualified investment and tax professional

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