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Smart Buying

The Pitfalls and Profits of Collecting Cars, Wine, Art

Four successful collectors tell us about the joys and difficulties—and the potential for financial gain.

Briand and Samantha Styles own a stable of 20 pony cars from the 1960s and 1970s. Jeffrey Salter/Redux

Many collectibles have seen run-ups in value that might make you think you’re missing out on a sure bet. For example, over the past ten years collectible cars have appreciated more than 450%, and fine art is up nearly 200%, according to the Knight Frank Luxury Investment Index, which tracks baskets of selected collectibles. Meanwhile, Standard & Poor’s 500-stock index has returned 111%.

See Also: SLIDE SHOW: Collectible Cars with Enduring Value

But to make money in collectibles, you have to have the knowledge and skill to choose wisely and ride out the fads. You usually have to hold your purchase for several years before it appreciates, tying up an often substantial amount of money in a volatile, unpredictable asset. To realize a profit, you have to sell—and it can take months to unload an item, assuming you haven’t grown so attached to your darling that you can’t bear to part with it.

Many collectibles are bought at retail prices and sold back to a dealer at wholesale. If you sell at auction, you’ll get closer to retail prices, but commissions and fees take a big bite out of the sale price. On top of that, you’ll need to insure your collection, store it, and hand over a portion of your profits to Uncle Sam.

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If you’re still interested, consider collecting as a supplement to your core investments, as an inflation hedge and, above all, as something that you can enjoy.

Hot wheels

When he was a kid, Brian Styles had the biggest Hot Wheels and Matchbox car collections on the block. Thirty years later, after he sold the software company he started, the cars of his youth still called to him. His collection began with an impulse buy ten years ago—a 1970 Ford Mustang Mach 1—but it has grown into a stable of 20 pony cars from the 1960s and ’70s. Styles and his girlfriend, Samantha Styles (no relation), share the collection, from the thrill of the hunt to caring for their cars and entering them in shows.

Collectible cars aren’t just objects to admire. Part of the fun is that you have to drive them to keep them in good condition. “Buy what you have a passion for, and the investment side is the icing on the cake,” says David Kinney, publisher of the Hagerty Price Guide, one of the bibles of car collectors.

While Styles’s fleet has matured to include more valuable cars, the Delray Beach, Fla., entrepreneur sees himself and Samantha more as caretakers than investors. “It’d be nice to realize a gain if these cars ever leave us,” he says. “But if not, I’m okay with that. The primary benefit is that it makes me happy.”

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How to get started. You don’t have to be super-rich to get into the classic-car market, but it helps if you have a pile of money to play with. You can find vintage Chevrolet Corvettes and Ford Mustangs for less than $30,000. But unless you are a do-it-yourselfer, you could pay a king’s ransom for restoration. Just the chrome on a 1950s-era Cadillac could cost $25,000, and a full restoration of most classics runs into six figures.

Start with makes and models you are interested in. Consider joining a car club to learn more about them and network with owners. Styles eventually focused his collection on convertibles with big engines; it’s rare to find that combination today. “Where rarity and desirability intersect, you have value,” Styles says. Case in point is the jewel of his collection: a candy-apple-red 1967 Shelby GT500 con­vertible that belonged to Carroll Shelby, famed automotive designer and race-car driver.

You can get an idea of what to pay from the Hagerty Price Guide (prices are also available at Hagerty.com). Collector car dealers can help locate what you’re looking for, or you can try an auction—but get someone knowledgeable to join you.

Besides the car’s looks, you need to know its history. Has it been well maintained? How many owners has it had? Has it been shown or won awards? If it has been restored, when was it done and by whom? Unless you have a lot of money, steer clear of cars needing bodywork.

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What’s hot. As with any collectible, there are blue-chip examples of collector cars. Don Rose, car specialist at RM Auctions, says prewar classics, such as Duesenbergs, Packards and Bugattis, still have cachet, but postwar European sports cars are exploding. Ferraris are most notable for their recent run-ups in price (seven figures at minimum), but nearly anything Italian with some age on it is hot. Prices for Lamborghinis and Maseratis are likely to follow those for Ferraris fairly quickly.

German cars are rising in value as well. Porsche 911s from the late 1960s and early 1970s have spiked lately. One of the most iconic collector cars, the Mercedes-Benz 300SL, with its gullwing doors (hinged from the top of the car), has been in demand since its 1950s debut. Prices today top $1 million.

Muscle cars are among the most affordable classic cars. Although they took the hardest hit in the last economic downturn, values are returning to pre-recession levels.

Ray Arondoski collects hard-to-find antique furniture. Jeffrey Salter/Redux

Art deco detective

The art deco antique furniture that Ray Arondoski collects wouldn’t look out of place in The Maltese Falcon or The Big Sleep. So it makes sense that Arondoski’s collecting style resembles that of a film noir detective. He’s a sleuth with a lot of patience, a keen eye for quality and a love of the chase.

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Arondoski, of Grosse Pointe Park, Mich., whose day job is restoring cars produced before World War II, focuses on hard-to-find furniture made about the same time: the late 1920s and mid 1930s. He sometimes spends hours flipping through old magazines, taking note of the furniture in the ads. Next, Arondoski scours the Web for pieces he has identified to see whether they’re hard to find. If so, he knows that they’re worth scooping up.

For example, Arondoski discovered a Walter von Nessen lamp made between 1928 and 1932 on eBay for $850. He suspected that it was an original because he’d seen its picture in a magazine, but the designer’s signature was on the inside tier of the base, meaning he’d have to take it apart to verify its authenticity. His hunch paid off. When the lamp arrived, Arondoski removed the outer layer and uncovered the original markings. “It takes a keen eye and a certain level of risk,” says Arondoski. He has held on to the lamp and estimates that it’s valued somewhere between $25,000 and $35,000.

How to get started. Anybody can list a hand-me-down desk as an “antique” on Craigs­list or eBay, but truly valuable items are tough to find. Successful collectors avoid the bottom of the barrel, focusing on the high-end and the rare. “You should buy the best that you can afford,” says Neil Ingber, an antiques dealer in Connecticut. If a must-have item is pricey, dealers will typically work with you to pay for it in installments.

To develop a sense of what’s high-end and what’s overpriced, you need to get to know the furniture market. “Nothing beats hands-on experience,” says Dan Farrell, an independent appraiser and art adviser for Antiques Roadshow. Head to garage sales, flea markets and auctions to scope out the offerings. Ask antiques dealers questions about their products so that you can build knowledge before building your collection. Arondoski’s collecting “started as decorating my home and escalated,” he says.

You can sell antiques through a direct private sale, auction house or dealer. Expect middlemen to take a cut of the selling price, starting somewhere in the 20% range—though auctioneers and dealers charge a lower percentage for more valuable items, says Farrell. Auction houses also charge a buyer’s premium of about 20% to 25% of the selling price.

What’s hot. Styles of antiques go in and out of fashion, with fluctuating prices to match. Certain standbys, such as glass-shaded Tiffany lamps, have maintained their value. Mid-century modern, as well as the style that Arondoski collects, is big. Other periods, such as 18th-century and Victorian-era furniture, have fallen out of favor. “The very top end, the very expensive pieces, are doing just fine, even appreciating in value,” says Farrell. Demand for lower-end antiques “is dying on the vine,” he says.

The local art scene

If you picture art collectors as globe-trotting one-percenters throwing millions at recently discovered Picasso gems, then Mike Lightsey has some news for you. “Everyone can afford original art,” says Lightsey, the president of the Mississippi Federal Credit Union, in Madison, Miss., who has collected paintings for 40 years. “It comes at all price points.”

Lightsey’s introduction to art collecting was nothing fancy. He took a painting course with a local artist whose work he admired. Lightsey purchased a painting from his teacher for a few hundred dollars, and it is still among his favorites. Today it is worth a couple of thousand dollars.

For Lightsey, collecting has been an investment in his art community and his living space, not a supplement to his retirement account. He displays his finds, some of which cost as little as $5, on the walls of his home.

How to get started. You can start small, spending just a few hundred dollars on original artwork, as you develop relationships with galleries and an eye for quality. For good-value art, check out photographs and prints, which tend to be cheaper because they’re produced in multiples.

Or head to a graduate student art show or studio open house. “That’s where you’ll discover the next generation of artists who will be in galleries and museums one day,” says Ginger Shulick Porcella, director of Big Deal Arts, which offers advice to collectors and artists. Revisit works that intrigue you to see whether they still captivate you after repeated viewings.

Talk to gallery workers and research promising artists by reading show reviews and clicking through their Web sites. Ask yourself whether a young artist has staying power and whether he or she is serious about art as a career. “Buying art is like buying a stock,” says Alan Bamberger, author of The Art of Buying Art. “You want to read the company’s annual statement before you buy any shares.”

Hone your search by collecting work that represents a specific theme, technique or geographical location. Lightsey collects landscapes and scenes depicting the region where he lives.

It’s generally frowned upon for buyers to haggle with a gallery or an artist. But ask about a collector’s discount, which is typically about 10%. Many collectors pay in three- to six-month installments.

What’s hot. The works of blue-chip artists, such as Pablo Picasso and Andy Warhol, typically hold their value. Their most famous works are out of reach for most buyers, but their etchings, lithographs or drawings are usually more affordable. For example, Picasso ceramics recently sold for several thousand dollars at auction.

Among genres, collages and found objects are big this year, says Porcella. But only time will tell which works run up in value. The goal is to appreciate your collection enough to mount it on your walls or display it on your shelves for the long haul.

Liquid assets

Mike Benvenuti started his wine collection 20 years ago, using a bonus he received from work. He went to a local wine merchant in Orange County, Cal., with a friend who had a 10,000-bottle collection. As Benvenuti pushed the cart, his friend loaded three mixed cases of 1989 to 1993 Bordeaux and a case of 1991 Dominus, a Bordeaux blend from Napa Valley.

Benvenuti now has a 2,000-bottle collection that fills a room customized for wine storage in his Newport Coast, Cal., home. Benvenuti, the chief operating officer for a chain of beauty schools, has bottles that have appreciated tenfold, but he doesn’t trade his wine for profit. He sells parts of his collection when he runs out of space or his tastes change. For example, he started collecting Bordeaux and California cabernet sauvignon, but he now prefers Burgundy and pinot noir. His axiom: “Buy what you like and share it with friends.”

How to get started. You have to strike a balance between enjoying your collection and drinking it (the average drinking age for investment-grade wines is ten to 15 years). Consider buying two cases at a time—one to drink, the other to sell down the road. A full case carries a premium, as does one in its original wooden box from the vineyard.

Peter Meltzer, auction correspondent for Wine Spectator and author of Keys to the Cellar: Strategies and Secrets of Wine Collecting, recommends establishing a relationship with a wine merchant who can help assemble mixed cases to both cultivate your tastes and see which wines you want to acquire by the case. You can also buy at auction; Sotheby’s and Bonhams have wine specialists and run auctions January through June and September through December. Wines sold at auction tend to be the finest or rarest vintages.

Look for well-known vintages and high scores from wine critics. For scoring, Robert Parker has been the go-to expert for more than 30 years. Scores above 95 are considered investment grade, but you’ll see the biggest appreciation among wines
that achieve a perfect 100. The vintage matters less in California, where the climate is fairly steady year to year, than it does in France, where temp­erature swings can make some years perfect for growing and other years terrible.

If you store your collection at home, you’ll need a temperature- and humidity-controlled cellar, with a backup system in case of a power outage. Major metro areas and other big cities offer wine-storage facilities, where you’ll pay $20 to $40 per year, per case—and they’ll help you catalog your collection so you’ll know what you have and when it will be ready to drink.

What’s hot. For wines proven to appreciate over time, look to France first. Rating systems for the vineyards in the Bordeaux and Burgundy regions let you know what is historically best—the “first growth” Bordeaux vineyards include Chateau Latour and Chateau Margaux; the most collectible “Grand Cru” Burgundy vineyard is Domaine de la Romanée-Conti.

Among the best recent vintages for Bordeaux are 1982, 1990, 2000, 2005 and 2009. There is a price premium for wines at, or approaching, their drinking age. For example, a bottle of 1990 J.L. Chave Hermitage, from the Rhône region of France, cost $50 when it was new and now sells for about $600.

Although Napa Valley doesn’t have the long history of French wines, limited-production runs coupled with long waiting lists of buyers have made wines from Screaming Eagle and Harlan Estate in demand. Benvenuti drank all of his 1993 Harlan but sold his 1994, purchased for $110 a bottle, for $750 a bottle.

Caveats for collectors

The thrill of the chase and the joy of bringing a newfound treasure home can overshadow the more mundane—and expensive—aspects of collecting.

Commission. It’s common practice to use a merchant, broker or auction house to buy or sell (though cars are usually bought and sold directly). If you buy through a broker or at auction, you may pay less than you would from a merchant who charges retail prices—but then fees come into play. Auction houses charge a buyer’s premium of about 20% of the winning bid (10% for cars). You typically sell to a broker (at wholesale) or at auction, where seller’s fees are on a sliding scale depending on the value of the item and how much work has to be done to prepare it for sale.

Paperwork. Documentation on a piece’s provenance (where it has been and how it has been stored, if it was owned previously by anyone famous, and whether it has been published, exhibited or sold at a major auction) helps determine its worth and whether it’s the real deal. Save receipts, certificates of authenticity, images of the piece and records of how it was cared for. This will help if you need to make an insurance claim, you decide to sell, or you leave part of your collection to your heirs.

Insurance. Consult your insurance agent about the coverage limits for your collectibles—you’ll likely need to purchase a rider to cover their value. A typical homeowners policy covers $2,500 or less for select valuable items, and that doesn’t include breakage—a concern for collectors of antiques, sculpture or wine.

A rider may add perks, such as a zero deductible, coverage for breakage and mysterious disappearance, and reimbursement for claims at replacement cost rather than at actual cash value. Riders aren’t terribly expensive; to cover a wine collection with a Chubb policy, for example, you’ll pay 42 cents per $100 of value. Insuring a classic car costs about one-third of the cost to insure a new vehicle—$600 to $700 a year for a $100,000 car.

You may need an appraisal if the item wasn’t purchased recently. Jim Fiske, U.S. marketing manager for Chubb, recommends updating values every three to five years—or every year if your collection is in a hot market in which values are appreciating rapidly.

Taxes. Expect Uncle Sam to take a bite out of any profits from the sale of your collectibles. If you hold them for a year or less, your gain is taxed at regular income tax rates. For items held more than a year, you’ll be taxed at a maximum of 28%. As with other investments, you can offset gains with losses.