5 Reasons Why the Rich Buy Art – Too Stay Rich!

5 Reasons why the Rich Buy Art? Too Stay Rich!

When rich bankers get together for dinner, they discuss art; when artists get together for dinner, they discuss money.” – Oscar Wilde.

For most of us, art has the universal ability to motivate, better our environment and life, and enable us to see reality differently from another’s point of view. Thus it is typical for those with money, and prestige, to spend millions on art since the Revolution, and even before that.

Furthermore, approximately 84% of the ~$67 Bn global art market is dominated by just 3 countries: US (44%), China (19%), UK (21%). And only 2 auction houses, Christie’s and Sotheby’s, account for over 44% of global art sales.

Moreover we find ourselves in shock and confusion by the astronomical amounts being paid by the rich at art auctions. Have your ever wondered why the rich continue to pay record breaking prices for fine art? Do the rich know something the rest of us don’t?

Here is a hint, if you are a billionaire spending a fortune on a piece of art. Most likely the reason has nothing to do with how it looks on the wall of your French Rivera villa.

We are here to help decode this mystery.

1. ROI ( Return On Investment) Investment

The rich are always looking for smart ways to increase their wealth. So Art is no different and continues to produce excellent returns on investment.

Buying modern art for €500 today might be worth €500,000 in 10 years. In about 10% of situations fine art has consistently fetched increasingly better returns over the last 50 years.

Still not a believer? Look at these 3 top selling paintings 2021:

Mark Rothko, No. 7 (1951) Sold For $82.5 million

Jean-Michel Basquiat, In This Case (1983) Sold For $93.1 million

Pablo Picasso, Femme assise près d’une fenêtre (Marie-Thérèse)(1932) $103.4 million

2. Capital Safe Haven

While art is considered a high-risk asset, it has several unique advantages.

Art market fluctuations are different from traditional market price swings, as a result, art is an excellent hedge against inflation, recession or economic crisis.

People who purchase art during times of risks and uncertainties profit, such as during WWII. Furthermore today nations with unstable economies and currencies, the wealthy frequently invest in art as a means of diversifying their risks.

3. Rich Diversify Investment

The main investment principle, regardless of the worth of your investments, is variety. If you have a few high-risk stocks and a large number of safe stocks or you’re extremely wealthy. Subsequently if you want to invest in something risky and thrilling? Investing in artwork is a logical strategy.

4. Hide Money

Because of price flexibility, purchase anonymity, the art market can provide an attractive environment for the rich to hide and protect their money through.

According to the latest available estimates , billions of dollars are used by the rich to hide their money through the global art market annually. We are not talking about money laundering, as there is many other reasons why the rich and wealthy need to hide money from prying eyes.

Due to a lack of authorized regulatory oversight regarding the process of art valuation, the pricing of art is a highly subjective practice that can allow huge sums of money to be protected, particularly through art auctions. Buyer anonymity is another advantage at this stage as it is not uncommon for art market operators to refuse to disclose their clients’ identities in order to protect the integrity of the transaction.

Reason why the rich need to hide money.

1.Frivolous litigation

2.Bankruptcy

3.Ex-spouse (Ugly Divorce)

4.Illegal Sanctions

5.Political Persecution

Here is 5 examples of whistleblowers that would need to hide their money.

What is the secret key the rich use to hide their money? Ultra-secure freeport warehouses.

The rich use Freeport warehouses to store artwork. In these secure locations, art is “in transit”, thus exempt from customs duty, making it a tax haven for rich legitimate buyers. Freeports are also used by oligarchs and drug kingpins with money laundering intentions.

Artwork in freeport warehouses can change ownership multiple times through selling and reselling. This helps further distance the latest transaction and the origin of the funds. The majority of art transaction take place behind closed doors.

5. Rich Avoid Taxes

In several countries, including the United States, tax regulations favor you if you purchase expensive art frequently.

For example, if you sell an artwork and deposit funds in a bank, you incur capital gains tax on it, however, if you invest in another artwork with the same funds, you’ll escape paying taxes.

How art is used to avoid taxes.

1.Donate art to Museum

2.Use for trade of goods (currency)

3.Sell and buy more expensive art

4.Freeport warehouse storage

5.Buy art for company expenses

Lets take another tax example for fun.

You are a billionaire and you don’t want to pay millions in taxes. So to avoid this, you will buy a painting for $10 million. Then, you send the painting directly to a freeport, to avoid paying both sales and use tax.

Next an art gallery hypes up the price of the painting. This can be done by sheer influence in the art circles.

The painting is now worth $50 million. You donate the painting to a museum and get a $50 million tax write-off for charity. You save $40 million by spending $10 million.

This is one way the value of a painting explodes so quickly with out much reason. So you are not alone if can’t understand the valuation of these paintings. Thus in most cases, it has nothing to do with the painting.

Why do rich people buy paintings?

Rich people buy paintings to diversify their portfolio, and design their homes or to avoid tax.

FAQ

What is the most expensive painting ever sold?

Salvator Mundi by Leonardo Da Vinci is the most expensive painting sold $450 million.

Is art used for money laundering?

Yes, many wealthy people who earned a fortune through illegitimate ways often launder money through art.

If you have any questions or interest in, buying, or selling art, to take advantages of these opportunities feel free to contact us.