People have been purchasing works of art for centuries, and as an investment formula, it’s open to all budgets. In many cases, perhaps most of them, a work of art is purchased for the mere pleasure of owning it, collecting it and enjoying it. However, we can’t ignore the fact that there is an investing public whose transactions are exclusively geared to obtaining returns. This aspect of art leads us to consider what the right criteria are for investing properly in art. Do you have to know about art? Do only aesthetic considerations matter? What points should be evaluated before entering into a transaction?
When we talk about art and its valuation, there are always two conditions present: an initial subjective assessment of the art work in question, and a more rational or objective evaluation. Although we already have formulas on the market that allow art works to be traded like any other financial asset, there is still room for improvement in this field. However, there are valuation formulas that involve an in-depth knowledge of the market, which can lead us to settle on a fairly objective amount for the works. The advice of an expert in this process will be critically important to identify the best formulas for engaging in any transactions, as well as market trends. A professional is able to analyse the work from every perspective.
So what should we consider to make the right investment? First, it should be noted that art as an investment is not without risks, and when the goal is not merely aesthetic enjoyment, it will be necessary to analyse the risk factors that could come up in this type of transaction. By way of example, potential risks include paying an excessively high price, future market trends and even forgeries.
What works can be considered to have more potential when the goal is to maximise returns? It seems that when the goal is to obtain a return due to appreciation, opting for up-and-coming artists with no established reputation and waiting for the work to increase in value over the years could prove successful. By contrast, more valuable pieces from established artists could be more profitable in loan or rental markets.
However, as when dealing with a financial portfolio, it doesn’t seem advisable to focus all the investment on the same asset, or even on the same type of art. Diversification by types of art, periods, styles and artists should be a primary consideration.
Another important factor to take into account, as in any other type of investment, are the tax implications associated with purchasing the works, as well as their future disposal or generation of income. It could well have international implications. We can’t rule out interacting with art markets in other countries, not only when purchasing the works, but when transferring or lending them.
Analysing potential tax benefits, whether from owning or transferring the works, could tip the scales toward one type of art or another, taking into account the valuation, age or certification, and also whether they are held for personal enjoyment or loaned for society to enjoy them. Favourable taxation will contribute to higher returns on these works, so an analysis in this regard will be needed to evaluate certain pieces.
In short, investing in art guided by an expert with knowledge of the market, trends, transactions and tax implications will be crucial for a successful investment, regardless of the reason that led us to invest.
Published in Rankia 31.05.2024