Should you buy art as an investment? It is a good question, and one that merits some careful consideration. Although I love art, my job as the accountant is to advise my clients regarding the tax ramifications and keep them compliant with the tax rules. But sometimes clients need a sounding board so my general advice breaks down into these key points:
1. Love Your Art
Only buy art if you enjoy it. Part of the allure of buying art is being able to enjoy the piece on a day to day basis. Your investment may hang on your wall for quite a while, so you need to really enjoy looking at it. Remember to consider your spouse in this decision, as they will also be looking at it daily. I have accumulated a collection of art that stays in my office merely because I purchased pieces that did not appeal to my wife however I like the work.
2. Be an Educated Art Buyer
Do your research. Especially if you buy art for an investment, you should understand the artist and the art market. You have to research the market and educate yourself before you acquire art as an investment.
The approach to art should be the same as if you were investing in the stock market or in real estate. If you found a piece of real estate that you absolutely loved, you would consult a real estate agent to get comparable sales information for similar properties, and their advice would help you determine how much you want to pay for it. You would go through inspections and research the title. The same principals should be applied to a prospective art purchase.
Join a museum to educate yourself on many different artists and to find trends in art. Attend the events the museums have during the year. It can be fun and rewarding at the same time. Your cost of joining a museum can be a charitable contribution to the art institution.
A good way to learn about art for investment purposes is to find galleries who specialize in art that may appeal to you. The gallery staff can share knowledge of current trends, and can show you works that have a similar feel to ones you are considering. Museums docents are also a good source of information about particular periods in art so take the tours that they give at the museum. This acquired knowledge can be a huge benefit in narrowing your choices with a purchase of art.
Attend gallery openings and talk to the artist about their work. After all, the artist is there to sell their work and you could be a potential buyer. Do not be afraid to talk to the gallery director and the artist. You are at the event to learn about the art and the artist.
But remember, even if you find a gallery you like and let them guide you on what and how to buy, do not do it for investment unless you know the subject and you believe in the work of the artist. It’s like the stock market, if you don’t know about what you’re buying, don’t buy it.
3. Keep an Art Paper Trail
Keep adequate records. Trace the source of the art and the trail of ownership also known as the provenance. When you finally take the leap and buy the piece that has been calling to you, make sure you keep records of the purchase and any costs involved. The general rule is to keep tax records for five to seven years, except if the records relate to an asset that you still own. If you ever sell the piece of art, you will need evidence of the monies spent on this investment. This would include the original purchase receipts, costs for delivery, framing, storing or moving the piece, or the cost of any restoration work.
4. Protect Your Prized Possession
Insure your investment. Once you have made the decision to buy the art, you should not neglect to insure the new asset. Fine art can represent an important investment for you and it makes sense to have that investment insured. Going back to the comparison with real estate, you would not own a building without having insurance on that building. Do not make this mistake with your important fine art purchase.
Fine art and collectible insurance is not expensive when it comes to protecting your investment. The insurance usually includes as part of the policy earthquake and theft coverage with no deductible if you should have to file a claim for a loss. Be sure to consult with an insurance broker that understands fine art and collectible insurance coverage. Some of my clients use art insurance as the hedge against the deducible portion of the earthquake insurance on their home in case of a catastrophic loss.
If you are careful and consider these points, investing in art can be a very rewarding experience. You can enjoy your piece while it may appreciate in value. Or you may find that you love your art enough that selling is no longer a consideration.