Obviously a seller wants to be able to maximize on the peak of a market. The problem is, we do not always know when that peak is. In the collector world, I believe that all markets are cyclical. Of course some cycles are longer than others, and the growth curves are not necessarily equal. But..... they are cycles nonetheless. My general advice is always sell when something is hot. Is there a buzz about your particular item? Are folks talking about it? Are people paying higher prices than you have seen recently? If you have considered selling, this is the time! Our society has a saying, "It will only go up in value." That just isn't true in 95% of cases. Everything is cyclical. If you don't have any emotional investment, and you were considering selling anyway, pull the trigger when the asset class is hot. Otherwise, you will miss an opportunity. (I'm looking at you Beanie Babies and telephone insulators...)
The second thing to note is that that sometimes an asset can become a liability. (or at the least a big loss.) This is particularly true with business assets. Unfortunately, I have seen this too many times. I really feel bad for sellers who end up in this situation. If a particular asset is costing you money or causing you duress, it's likely a liability. For business assets, age can contribute rapidly to something becoming a liability. Generally, the longer you sit on a business asset, the less value it will have. This phenomenon is NOT exclusive to that class, however. The same can be true of collectibles and personal items as well. I'll give you some examples:
- Restaurant equipment might be one of the clearest examples that I see on a regular basis. Equipment that has been sitting in a building, unused, for a long period of time loses value at a rapid pace. Refrigeration, in particular, ages very poorly when not used. If in place from a failed business, critters will invariably make their way into the kitchen. This is not good... I recently had to give some bad news to a restaurant owner who let a commercial kitchen sit unused for over a year. What could have been $50,000 worth of good useable equipment was now worth less than $10,000, because most of it was worth nothing more than scrap.....and it had to be moved....another expense. An asset had become a liability because of in-action.
- Assets that are occupying real estate can also become a liability, particularly if the real estate is highly desirable. Unless a building is sold with the contents, it must be cleaned out. A potential buyer will most times have no interest in the contents. In this situation, the real estate is the asset while the contents are a liability.
- Perhaps nothing ages worse, or loses value quicker, than an automobile. Of course, there are some exceptions in the collector car world. However, they must be maintained or at least protected. Do not expect your family's heirloom car to increase in value if it is stored under an oak tree. Neglected collector cars that require extensive repairs and can very quickly become a money pit rather than an asset. (as a car guy at heart, I'm begging you..... don't let them waste away!)
- Sports memorabilia is only as valuable as the last season of the player depicted. The time to sell is when the player is hot. There are certainly exceptions for Hall of Fame superstars of the past. Many of these items can actually increase in value. But again, those markets are cyclical. Do you have a particular baseball card and you just saw the same one sell for a record price? Now is the time to sell. Never confuse your hobby with your retirement plan.
None of these scenarios take into account sentimental value. If something is a family heirloom, or has particular value because of a memory, then the item could most certainly be considered an asset. But the value you put on it is based on emotion, not markets. Keep that item. Enjoy it for what it is rather than what it might be worth.
In summary, watch for cycles. Sell when the item is hot. If it is costing you money or causing you duress, it's time to sell. If you love the item and can afford it, keep it.
If you find yourself in any of these situations, ask for help! Get input from a reputable personal property appraiser, auctioneer, or trusted advisor. Having a fresh set of eyes with no emotional attachment will be good for a rational analysis.
More blogs to come this spring. Stay tuned!
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