logo



Real estate, precious metals, antiques and art: The ins and outs of some non-traditional investments

Rick Wagner • Nov 2, 2018 at 12:00 AM

Non-traditional investments can range from the roof over your head or some hunting land to precious metals or coins made from precious metals, not to mention wine, art or antiques.

However, Certified Fund Specialist Jonathan Mullins, a private wealth advisor with GAAM Wealth Advisors in Kingsport, said he cautions clients to consider tax consequences and the liquidity of such assets before taking the plunge into non-traditional investments. Still, he said investing in savings, stocks, bonds or other traditional investments isn’t the only way to grow wealth.

Non-traditional investments include precious metals, coins, real estate, art and antiques, according to the website moneyinstructor.com, and another website for howstuffworks.com includes art, wine and real estate as non-traditional investments.

“You should not go into an investment without examining what your tax consequences are,” Mullins said of a complex webs of deferred income and depreciation and other methods best left to professionals.

PRECIOUS METALS

According to the moneyinstructor site, the primary precious metals could be called the grandfathers of investing.

“It was the hoarding of gold, silver and to a lesser extent other metals that gave rise to the concept of ‘brokers’ and ‘markets.’ Eventually the demand for these metals gave rise to the concept of currency, which was based on metals, which were held in storage,” the website says. “This is a long way of saying that precious metals are considered by many to be the one investment (along with land) that will maintain value despite market changes in the short term.”

However, the site said the emphasis is on value and not stability since precious metals have a tendency toward price fluctuation. “Many investors feel safe knowing that some of their portfolio is in precious metals and as such they are not dependent on the financial markets or currency. Therefore, there are many benefits to investing in precious metals and having some percentage of a portfolio invested in them can certainly make sense.”

Mullins said a client once invested in gold in his individual retirement account and had to pay brokerage fees to buy and sell it as well as fees for storage at a Maryland depository. He said the client eventually went in another direction when he found that the fees were assessed as a percentage of the value per ounce, meaning as gold went up in value it cost more to store it.

Gold is by far the most popular investment choice. Much of this has to do with its history and the fact that it is the basis (or has been) for certain currencies. Gold is also used as the standard in the International Monetary Fund, which speaks to its value as a commodity,” the website said. 

Other popular precious metals include silver, which the site says is “second in popularity to goal and for various reasons (it) actually has more practical uses from an engineering standpoint.” Platinum, the website says, is a “newcomer in some ways since it was not discovered by Europeans until the discovery of the new world. However, before that time it was valued by many of the indigenous peoples of the Americas. Though platinum is more precious than gold it is still not as popular.” 

COINS/MONEY

Coins have been increasingly promoted as an alternative investment. “This is a valid concept for the gold, silver and platinum coins that have value based on their metal content alone. However, the fact is that most coins do have intrinsic value. Those that are not one of the primary precious metals are extremely susceptible to inflation,” the website says.

As for collectible money, bills and coins can be worth quite a bit more and appreciate over time. The problem with both, Mullins said, is that you generally have pay to have it safely stored in a bank or other facility resistant to and/or unlikely to have a catastrophic fire. He said in the aftermath of the Gatlinburg fires in the fall of 2016, cars in garages were found with their engines melted, which requires much more heat than melting most coins or burning paper money. He said home fire resistant safes will last four or five hours at best. 

Foreign currencies are a subset of this class of investments that offers unique protection against domestic financial trends,” the website says. “It is likely that foreign currencies will grow to play a much larger role in the investment industry.”

REAL ESTATE

Real estate is one of the better-known non-traditional investments.

“The first large purpose of most adults is usually a home. Real estate is also a well-known income-producing asset due to the ever-increasing need for housing. Another aspect of real estate which is often neglected, are the underlying mineral rights which in some cases can be worth more than the property itself — especially if large amounts of oil reserves are involved,” the website says. “Real estate is satisfying to some people because of the fact it is a tangible physical asset unlike most financial investment products. Real estate continues to produce returns close to the average over the long term of the stock market. As long as that continues it will continue to be a primary alternative investment.”

Mulllins said that folks who like to fix up houses can avoid capital gains taxes “if it’s your personal residence and you live in it two of five years.” The exemption is up to $500,000 for a married couple or $250,000 for a single person. “You can’t use your savings bond like that,” he said. In addition, owners of rental properties can take depreciation and deducts upkeep expenses and property taxes to offset federal income taxes on rent they receive.

However, if you flip real estate too quickly, don’t live their long enough or make too much of a profit, he said 28 percent federal income taxes can eat into the profits at a higher rate than most other investments. 

On the other hand, another investment could be in land used for hunting, farming or timber harvesting, which gives the investor a tangible use for the land and then the possibility of selling it or subdividing it later at a profit. Property tax laws in Tennessee’s “greenbelt” program charge rollback taxes retroactively on property coverted from farming or forestry to uses such as residential subdivisions.

ART, ANTIQUES AND WINE

Art and antiques have a longer history as an investment than most traditional investments, and the moneyinstructor website said the emergence of eBay has had a positive impact on them.

“It’s terrible to have a liquid investment that you can’t really use,” Mullin quipped of wine investing. However, said that some folks mix business and pleasure, buying a case of wine and drinking some but keeping the rest to see if it increases in value. However, like with real estate, he said there may be high taxes on the profit, although Mullins said that profit also could be higher than the last generation because of sites like eBay.

“Long before the stock market existed, prized art pieces were garnering values many times in excess of their material components. Many antiques also maintain value easily and grow in value over time,” the website says. “Corporate giant eBbay has done much to increase the value of these types of assets as an investment. Before eBay become a standard form of doing business for collectibles, finding a buyer for one often required inordinate amounts of time and research. However, most owners are easily able to find a buyer and receive a respectable price simply by listing their item on eBay and handling the transport of goods themselves. This is one reason collectibles such as art and antiques will continue to play a larger role in the investment world.”

 

Recommended for You

    Kingsport Times News Videos