Art Flipping: How does it work, and is it a good alternative investment?
Art flipping refers to the quick and financially advantageous reselling of under-priced artwork.
Hardly an exclusive tactic reserved for the art world, flipping is a commonly found tactic widely practised in many other markets.
What is flipping?
‘Flipping’ is the practice of buying an asset and quickly selling it on the market to make a quick profit.
Some investors buy stocks or bonds, reselling them later at an actual or perceived profit.
Some traders buy up properties in anticipation of reselling them for a higher price; others buy and sell cars in the same fashion. Many individuals are even purchasing vintage clothing, hoping to make money by selling it on eBay — with some success.
The practice of art flipping applies to art.
But what does this mean?
That those who buy and sell artwork are simply ‘flipping’ it — which is just another word for trading. Or that we’re all long-term investors in paintings which we’ll invest in for decades to come?
Why is flipping art so attractive to investors
Art dealers claim that the number of people flipping artworks has grown immensely in recent years.
This makes sense — the art market is an ideal setting for flipping an item. It’s much easier to purchase art and turn a quick profit from a drastically higher selling price than to do with a car.
Examples of art reselling are found at every market level: artwork sold on eBay or major auction houses.
Art flipping can undoubtedly reap a profit. Jean-Michel Basquiat’s Warrior increased by 450% from 2005 to 2012. By the time of its third selling, it was worth almost $9 million.
In 1993, Francis Bacon’s Two Studies for Self-Portrait (1977) sold at Sotheby’s for £353,500. In 2015, the painting’s value increased 4,000-percent, selling at auction for $22.4 million.
Jenny Saville’s Propped (1992) is a nude self-portrait painted around Saville’s graduation from Glasgow School of Art. Soon after, art dealer Charles Saatchi purchased the flesh study painting for $5,248. In the most recent Sotheby’s London auction, Propped sold for $12.4 million.
Although, as with property and real estate, art flipping doesn’t always result in a profit. Art dealer and collector Niels Kantor paid $100,000 in 2014 for a Hugh Scott-Douglas abstract canvas with the intent to flip. Two years later, he sold it for $20,000, an 80% loss.
Still, it would appear that profit-making headlines seem to outweigh the potential loss that entices investors.
Why is the art community in an uproar over flipping art?
As we mentioned, investors can ‘flip’ anything from houses, cars and even stocks and cryptocurrencies, making profits by buying them at a lower price and holding on to sell when higher in value.
Within the art world, however, flipping is a dirty word.
Unlike stocks and houses, most artworks made by working artists rely on sales to support their creative practices.
Artists often work with gallerists, who sell their artworks to institutions and collectors and give them a large portion of the proceeds.
Such private exchanges are considered primary market sales.
Once a collector decides to put artwork up for auction, it enters the secondary market.
Artists don’t benefit from any of these sales, except in the few jurisdictions with resale royalty laws; most of the money goes to the consignors and auction houses.
Buyers (or investors) rarely do anything to help increase the value of the work. They profit from artists’ continued hard work without paying anything to the artists.
Of course, if the artist is already established or dead, then flipping art has no consequence.
It is newer artists that are not gaining the funds needed to support their careers.
But do investors care?
But art flipping isn’t the only motivator for investors. They’re also motivated by passion, aesthetic appreciation, and a desire for personal fulfilment when it comes to collecting art.
Even younger investors are particularly attracted to contemporary art — more than 90% of young collectors, defined as those under age 40, are interested in modern pieces.
High-net-worth millennials are becoming far more active in all parts of the art market. They’re far more willing to buy art online, for example, viewing pieces on platforms including Instagram.
Can art flipping be considered a solid alternative investment?
Investing in art is by no means a new idea.
Increasingly, younger investors are now the fastest-growing group investing in art. Not necessarily tens of millions each, but six figures’ art investments are not uncommon in many cases.
As part of a diverse wealth-building strategy, investing in art can be a great way to accumulate more wealth through alternative investments. It rarely depreciates, and when the time comes to sell, it is often for a profit.
In 2019, the global art market was valued at over $67 billion. That is a huge market, and many high-net-worth millennials are getting their share.
Masterworks, an art flipping platform, states that returns from art ranging over a 3–10 year period can be as high as 32%. Their platform also states that:
- Contemporary art annual appreciation is 13.6%
- S&P Annualised return (with dividends) is 8.9%
As with most investor platforms, investors today do not need to purchase one piece of artwork alone. They can invest in multimillion-dollar paintings as fractional shares, meaning they can also sell their ownership in the artwork in stakes via secondary markets or wait until the whole painting is sold.
Art flipping, combined with newer technologies like social media and online platforms, means it has become a broader market to sell and buy. You don’t have to visit local galleries. It is easy to get online and buy art that you like but will have a good resale value.
When you are ready to sell, you can go online and find a buyer using one of the many auction sites or sell through secondary markets. Alternatively, you can find a buyer on social media these days.
When investing in art, you still need to exercise caution. Like all investments, there is a chance of a loss.
Although many art pieces retain value, it is possible the price could drop. Always be mindful of investing only what you can afford.
Sometimes you may also need to be prepared for the artwork to take a while to sell. Art flipping can be an investment for the long-term; only be prepared for the ethical questions on whether it is right to do for emerging artists.
Originally published at https://monestro.com.