Have you ever wondered about making money by investing in one of your passions, such as luxury buildings, fine art, or even rare whiskies? If you’ve spent many years deepening your knowledge in these areas, using your acquired expertise to create a long-term investment strategy, could be both lucrative, and rewarding. However, passion investing is not for the faint-hearted. It can take up a great deal of time, and of course the value of your investments may continue to waver overtime. As children’s author JM Barrie once said, “Nothing is really work unless you would rather be doing something else." Committed passion investors may feel about their 'work' the way he did about writing Peter Pan.
No one wants their money to take a one-way trip to Neverland, so it’s important for all passion investors to know the risks involved. The first rule is that luxury investments, such as wine or property, should only be considered as part of a wider wealth management and financial planning strategy. That is because these types of passion investments can be volatile – meaning the price fluctuates – as well as illiquid (yes, even the wine), meaning they can be difficult to sell quickly when you need cash.
Varied luxury investments have their pros and cons, but it’s best to focus on the one you love and are knowledgeable about. They are called passion investments, after all.
Knowing when it is time to move into the real estate market as a full-time investor can be a challenge. You may feel the time isn’t right. Or, you may be anxious to get started. First of all, risk tolerance is a key factor, as it takes a leap of faith to jump into the field of full-time real estate investing. The investor will want to have significant capital reserves to go into the business full time, in order to weather the ups and downs in the market.
The factors to consider are experience, confidence, contacts, management and understanding of how to understand real estate markets and finance. But the most important is enough capital, net worth and experience to close the deal and have a sustainable future flow of equity to continue to do deals.
When it comes to passion investment, let me tell you, luxury property, art and antique investments, like classic cars, can be enjoyed by you while they appreciate in value. You could strike lucky by picking a new artist who becomes popular; however, it still isn’t full proof. If buying antiques, beware of the vagaries of fashion.
There is a growing recognition of art and real estate as an investment asset class. People are becoming more sophisticated in their financial and estate planning and thus, beginning to view art, as an investment.
At the end of the day, there is something about passion investment in assets such as luxury spaces and art. In the last 10 years, mass-affluent investors have increased their allocation to these assets. Because here, it's not just the brain alone, it's also the heart that's doing the thinking.