First rule for investing in local art: buy what you love

The painting, pictured above, is by Columbian Paul Jackson and the glass is by national artist Dale Chihuly.

In the art world there is no paint-by-numbers solution to guarantee a return on investments.

While an art aficionado can determine what’s up and down, sometimes literally, in the contemporary art world, someone more familiar with the stock market or real estate may struggle with the swirling concepts behind art investments.

The term “investment” is something of a misnomer. It is rare that a piece of contemporary art will yield a large windfall in the future for a novice investor, said Rosie Gerding, a certified public accountant with Gerding, Korte & Chitwood in Columbia.

“We consider investments to be things that you put money into, like a mutual fund, with the expectation that it will grow in value and that you’ll later sell it at a profit,” Gerding said. Instead, Gerding compared buying art to buying a diamond ring. It is a purchase that people rarely make based on the future resale value.

The art investments that are hailed in the news for rich returns are from high-power auction houses Christie’s and Sotheby’s, which deal with fine art pieces. Keeping in mind beginning investors seldom stumble upon these gold mines, there are several things they can do to increase the chance of smaller gains.

What’s most important is finding a piece you will enjoy since the reward of your work will likely be hanging on a wall in your home, buyers and sellers say.

“Art is one of those things, when you fall in love with a particular piece, for me that should be the primary focus,” said Jennifer Perlow, co-owner of the Perlow-Stevens Gallery. Perlow personally owns a piece by local artist Joel Sager that has appreciated an estimated $600 since she purchased it, but she has no plans to sell it.
It is difficult to separate the aesthetic side of art from the investment side. Naturally, they intertwine in the same way that the public’s taste for art may change the value of a piece. If you can place aesthetics aside, art is just another investment in that background research is key. Before purchasing, Perlow suggests first, “doing your homework.”
That homework includes determining the artist’s background in the field, how much the artist’s previous works have sold for and, if he or she was formally taught, where they went to school.
Rely on the basics of supply and demand, Perlow advised. If an artist is well known or established, buy before a retirement or a change in career. If an artist is emerging in the art world, buy before the value of their work rises.
“If you invest in a young, emerging artist much like a young company, you can hope that they continue to grow and produce so the opportunity for a quick rise is greater, and you pay less,” Perlow said.
Gerding owns several local artists’ pieces but has no qualms about whether or not investing in art on a small scale is wise, financially.
“There have certainly been instances where art does very well, but it is not a common thing at all,” Gerding said.
There is a tax benefit that many collectors don’t realize when they donate to a charity. Gerding explained that a tax deduction for donated artwork is limited to the amount that was originally paid to purchase the piece, and it is not based upon the art’s value as of the date of donation. An exception is when artwork is donated to a charity that plans to keep and use it, such as a museum. In that case, the donor can generally deduct the current appraised value.
But not all art is the kind framed by wood and hung on a wall.

Perlow said women who have been collecting jewelry can see how the art market is influenced by other factors.
“There are women who collect jewelry and the steep rise in gold and silver have caused previously purchased work to increase in value simply because of the price of metal,” Perlow said.
For Nikki Krawitz, vice president of the University of Missouri’s Finance and Administration office, investing in art is investing in something for more than financial gain.
“My husband and I buy art because we love living with art,” Krawitz said. “We have never bought art thinking of it as an investment that will someday generate a return.”