When buying art as an investment, buy what you love — but do your homework first

For wealthy art collectors around the world, Art Basel Miami Beach — Dec. 5-8 at the Miami Beach Convention Center — offers an excellent opportunity to add to their collections. It’s the headline attraction for Miami’s Art Week, where galleries, pop-ups and satellite art fairs will display pieces at a wide range of price points.

Both experienced and novice collectors will be looking for works they enjoy, while considering the financial aspects of their purchases. After all, art is an important asset class that can contribute to one’s net worth. It’s also a sector that has been growing in recent years with global art market sales of $67.4 billion in 2018 — a 6 percent increase from the prior year, according to a recent report, “The Art Market 2019.”

A personal note

As an art collector who focuses on works by contemporary black artists, I understand the joy of finding the right piece. My collection first began with work from an African-American self-taught artist who had begun painting in prison. He would give me a piece of his art for the price of some wood and paint for his small studio. It took 30 years before his art had any monetary value, but that was not why I was drawn to his work. I fell in love with his expressionist vision of urban life and the emotional rawness in which he painted, which fueled my passion for the art industry.

Ever since then, I’ve been collecting works by living artists because I want to build a personal relationship with them, watch them evolve, understand the messages behind their works, and support them monetarily.

I believe it is essential to purchase works you love, rather than only as an investment vehicle. Nevertheless, you should consider each work as a potential asset that can at a minimum, at least retain its value.

Making smart purchases

When buying art, you need to do your homework. Many seasoned collectors turn to art consultants who can provide advice on artists, potential purchases, and analyze the history of the piece. If working on your own to determine the right price, one option is to look for comparable sales using online auction-history sources.

If you’re looking at older works that may have already been sold privately or through galleries or auction houses on the secondary market, there are some extra steps you need to take. To ensure authenticity, you should review the documentation tracing ownership from the creator to the seller, including comments by appraisers or other experts. You may want to hire an art attorney to review the bill of sale, title to the piece, and provide suitable documentation for the future.

Before making a purchase, you should also think about your personal goals. Do you want to purchase art to display in your home or workplace? Do you want to support a promising younger artist? Do you want to get your family members involved in the world of art? Do you want to build a collection that can serve as a legacy? The answers to these questions can help shape your buying decisions.

An investment perspective

From an investment perspective, art is comparable to various asset classes. For instance, pieces by Renaissance, Impressionist and 20th-century masters are the “blue chip” stocks of the art world. Alternatively, you could look for pieces by up-and-coming artists hoping their works will appreciate in value — a strategy similar to buying emerging market stocks.

Like gold, silver, or other precious metals, art generates expenses rather than income while you own it. Those costs may include appraisals, insurance, and storage fees that will need to be covered by you.

As an asset class, art most resembles real estate. Like a commercial or residential property, no two pieces are exactly alike, which can make it difficult to find comparable values. There are high transaction costs, including commissions, when buying or selling. Most important, art is typically a very illiquid asset, taking months or even years to sell. There may also be unfavorable tax treatments based on how you manage the asset. So, if you are thinking of art as an investment, you need to have a long-term perspective.

Becoming art savvy

Here are several other tips for collecting art whether that be for an investment or personal purchase:

▪ Focus on the art you personally enjoy.

▪ Make sure to buy from a reputable dealer, gallery or auction house.

▪ Talk with your financial advisor about how art fits into your investment portfolio.

▪ Keep comprehensive records of your purchases.

▪ Consult with an attorney and tax advisor regarding the bill of sale, as well as tax and estate planning issues.

▪ Include the value of your art collection in your overall net worth.

My final tip is to take advantage of Miami Art Week to talk with dealers about their artists and their styles. It’s an ideal opportunity to learn about this fascinating market, while looking for just the right piece to add to your collection!