Beginner’s Guide to Passive Income (8): Collectables Terms, Returns, and Entry Points

Continuing from the last post, “Collectibles” is a broad category encompassing any asset with a secondary market—ranging from niche items like toys and cards to the categories I focus on: wines, classic cars, and artwork. Each offers unique opportunities depending on your interests, budget, and strategy.

• Wines
Entry Point

The lowest of all three categories. You can start with as little as a few thousand dollars.

Two Main Strategies
1. Wine Supply Chain Financing
• Provides working capital for wine businesses to manage inventory or operations.
• Returns typically range from 8% to 12%, with loan terms spanning several months to years.
• Often executed through funds
2. Aging Your Own Wine
• My personal favorite! I focus exclusively on tequila, a niche segment with a predictable value appreciation curve. As tequila ages to specific milestones, its wholesale price tends to jump.
• How it works: Purchase tequila through a team managing storage, insurance, and eventual resale.
• Projected returns: Annualized returns of 30%+, depending on timing. Some investors have even exited early at higher returns when distributors offered to buy before maturity.
• Exit strategies vary: resell to buyers, bottle and sell, or even keep for personal enjoyment.
• Classic Cars
Entry Point

Relatively low, you can get in for around 10k.

Traditional Approach
• Purchase a vintage car, maintain it, and eventually auction it.
• Natural appreciation averages 10% annually, but the final ROI depends heavily on market trends at the time of sale.
My Strategy: Arbitrage
• I focus on the pricing gap between European and North American markets for certain Ferrari models and vintages.
• Strategy: Buy in one market, hold for a few years, then sell in the other.
• Outsource all tasks (acquisition, repairs, maintenance, insurance, logistics, auction arrangements) to a specialized team.
• Returns: Anecdotal cases show annualized returns of 30%+, though this varies by deal.
• Artwork

Entry Point

High for blue-chip artists (Picasso, Monet, Van Gogh etc the ones that I will never likely to own in my lifetime lol), but lower-tier options exist for enthusiasts.

Blue-Chip Art Investing
• Debt Strategy
  • Wealthy collectors often finance their acquisitions. Lenders can provide loans secured against portfolios of renowned artworks.
  • Returns: Typically, 8-12% annually, depending on the deal structure.
• Equity Strategy
  • Buy and hold blue-chip pieces. Historical appreciation rates are 10-12% annually, but economic downturns or depressed sales can lead to losses.

My Approach

I focus on art purely as a personal passion. Each year, I purchase a few affordable pieces that I love—nothing from famous artists, just works that bring me joy. Interestingly, even entry-level gallery pieces tend to appreciate steadily over time. So, if you love art, consider it a consumption-first strategy that might offer modest returns.

Platforms and Funds

For those interested in getting some exposure to these categories, in addition to reading my content, you can check out some alternative asset platforms and funds that specialize in these asset classes. These platforms typically showcase:

• Projected returns: 15-20% annually, though management fees will reduce net earnings.
• Investment period: 3-5 years.
• Minimum investment: Around $25,000.

I’ve included a detailed list of such platforms at the end of “Complete Guide to Start Your Passive Income Journey” for those keen to explore further.

Conclusion

Collectibles like wines, classic cars, and art offer diverse entry points and risk-reward profiles. Whether you’re an enthusiast seeking personal enjoyment or an investor hunting for high returns, there’s something for everyone in this space.

In the next post, we’ll explore private equity and pre-IPO—two heavyweight categories in alternatives. Stay tuned!