When you think about how to invest your money, I'm guessing luxury watches are not something that's on your list to consider. Honestly, it wasn't on my list either until now. We recently discovered a unique opportunity for accredited investors to dip their toes into this incredible market.
The company we discovered is LuxeStreet, Inc. I'll tell you more about them shortly. First, let's look at the luxury watch market.
Depending on the source, the luxury watch market estimates for 2019 range from $7.5 billion to as high as $9.7 billion! That's not chump change. That's a significant market. Below is a chart showing the current market and the estimated growth.
Source: Grandview Research.
So, how does one tap into this market? What kind of watches do they buy? How much do I need to invest? How much income will I receive? How long do I need to tie up my money?
All of these are great questions that we will attempt to answer. Keep in mind that the answers relate only to investing with LuxeStreet.
Let's dive into the details.
Who is LuxeStreet?
LuxeStreet, Inc. is a relatively new investment company that started in August 2018. But don't let that keep you away from them.
Sameer Bava, a Certified Gemologist with the Gemological Institute of America, is CEO and founder of the company. He has over twenty years of experience in the international jewelry and luxury watches business. His first company, Bava Exports, went from a $50 million company to $400 million.
Sameer knows the high-end jewelry world and is an expert in the luxury watches side of it.
Rounding out the management team are two financial service veterans.
First is David Rondeau, the Chief Operating Officer David has thirty years of experience at the senior management level of the financial services industry.
Next is Jeffry Fidelman, Senior Advisor. Jeffry has over fifteen years of experience in wealth management and management consulting in the financial services industry. In his consulting role to a family office, he helped raise over $80 million in early-stage investment capital.
Who Owns LuxeStreet?
LuxeStreet is 100% owned by Sameer Bava. What that means is the team does not owe allegiance or take directions from any outside investors (Venture Capital firms, Hedge Funds, etc.).
Not only is that an excellent thing, but it's also rare. Most young, start-up ventures have outside investment capital. With that outside money comes demands. Most venture capital and early-stage investors are looking for a liquidity event. In other words, they want the company to grow quickly and sell, either via an IPO or some sort of leveraged buyout, at a high multiple of their investment. In general, the more significant the outside investments, the more demands on the management team.
Early-stage investors are not known for being patient, long term investors. They want to get paid, and they want it as quickly as possible. Not all investors have that mindset. I think it's safe to say that more do than don't.
Sameer invested $5 million of his own money into LuxeStreet. Accordingly, he doesn't answer to anyone. As a Certified Gemologist, and someone who knows how to grow a business, that's a combination for success. Sameer and his team know the luxury watches industry, how to build it, and how to make money for their investors.
Luxury Watches – The Investment
With the background on the company, let's talk about the investment opportunity for luxury watches.
Luxury Watches Targeted
Sameer and his team target precise timepieces for investment. They focus on four of the top brands:
- Audemars Piguet
- Patek Philippe
- Richard Mille
The minimum price of the luxury watches they target is $50,000. That's not a typo. Those four brands are at the top of the food chain when it comes to luxury watches. These watches are not necessarily ones that people wear to go to the grocery store (let's face it; most of the buyers of these timepieces have someone else go to the grocery store). But I digress.
These are collector's items in most cases. Who are the buyers? One example is a well known NBA player who shall remain nameless. He has a $15 million collection of luxury watches. How much are people willing to pay? A lot! In one case, an in-demand top of the line watch sold for $1 million! Again, that's not a typo. A watch sold for $1 million.
These are not watches that most who read this post would ever buy personally. However, there are a lot of ultra-high net worth people who do.
A Challenge for Luxury Watches Dealers
Luxury watches are bought and sold through dealers. Most dealers specialize in one brand, like Rolex. The prices at which these luxury watch brands sell makes keeping inventory a costly endeavor for a dealer.
Luxury timepieces are not mass-produced. Instead, they are handcrafted by skilled watchmakers using the finest materials. When a brand creates a new model, it can take months or longer after ordering to get the watch delivered. There may be a hundred or more requests for the new watch. To get into the queue costs money. Solving that problem is where LuxeStreet comes into the picture.
LuxeStreet provides inventory financing for the dealers to purchase the product. But they do it quite differently than the traditional financing methods.
One way to reduce the risk of any funding is to collateralize the loan. The borrower provides something of higher value to the lender to offer security in case the borrower defaults on their loan. In this case, the borrower still owns the asset they put up for collateral.
LuxeStreet takes it a step further. They buy the asset from the borrower offering the borrower the opportunity to repurchase the watch up completion of the loan term. The advantage of this lending strategy should be apparent. If the borrower defaults and can't repurchase the watch, the team at LuxeStreet can then sell the asset without a drawn-out legal process to recoup the amount loaned.
Dealers have an inventory of watches on hand to offer to the team at LuxeStreet as security for their loans. And remember, these luxury watches have a minimum selling price of $50,000. The loans provide the needed cash flow for the dealer while waiting for the new watches order to arrive.
That's but one example of why dealers would borrow money for cash flow. Regardless of the reason, the process is the same.
The LuxeStreet Process
Before deciding to purchase a watch against which to lend money, the team at LuxeStreet goes through an extensive process to value the watch. As you may know, fraud is prevalent in the jewelry industry. Part of the due diligence process is to determine if the watch is legitimate.
The LuxeStreet team uses a four-step process to value and validate the timepieces.
- Watch Registry purchase history check
- Watchfacts authenticity check
- Certified independent appraisal
- Bids solicited from in-network online dealers.
Once this process is complete, the team determines a medium and average price. The average offer for luxury watches purchased is 65% of the appraised value. The borrower's repurchase guarantee is for the price LuxeStreet paid for it.
If a borrower would, for some reason, default, the 65% purchase discount provides ample security for the LuxeStreet team to sell the watch at a profit. To date, with over $5 million in loans, they have a zero default rate.
How LuxeStreet Makes Money
As you can see, the LuxeStreet team does not rely on selling their watches to make money. Like with any lending agreement, they charge an interest (called a carrying fee) for the loans. All the loans are short term in nature with a minimum loan period of one month and a maximum of twelve months.
The carrying charge for the loans is 1.5% per month (18% per year). The borrower pays 1.5% every month until they repurchase the watch. Let's say they buy a luxury watch for $100,000. At a 65% discount, that means the determined value of the watch is $153,846.
The borrower pays LuxeStreet $1,500 a month (1.5% of $100,000) until they repurchase the watch. If it's three months, they pay $4,500. For six months, it's $9,000, and so on. The average length of the loans in the program to date is six months. Here is a snapshot of the investments made to date:
How Investors Make Money
If I've piqued your interest so far, I'm sure you're ready to learn how investors make money. That, of course, along with risk, is what's essential to anyone considering any investment. You may also be interested in what kind of return to expect. I think you'll be pleased with the answer to both questions.
When you invest with LuxeStreet, they will pay you an income of 12% per year. I know that sounds like it's too good to be true. But in this case, it's true. Here's how they do it.
Remember, the borrowers pay 1.5% per month as long as the loan exists. Of that 1.5%, LuxeStree pays investors 1% per month or 12% per year and keeps 0.5%. That's a 12% annual return for investors and a 6% for LuxeStreet. The minimum investment is $10,000 with a term of three years. Below are the details of the offering:
Your investment has the security of being backed by a luxury asset that LuxeStreet owns and can sell if the borrower defaults. In the luxury watches market, default is rare. After all, they're dealing with people who can afford to buy most anything they want and can pay cash for those items.
Other Layers of Security
In addition to owning the asset against which the loan is made, there are additional security measures LuxeStreet takes.
Here are some of those measures.
- Watches are stored in a secure vault provided by Malca Amit, a company leader in secure storage for the luxury goods industry.
- They have insurance against fraud and misuse of funds from Assurly TigerMark Insurance.
- Watch Authentication from Watchfacts.
- They provide supplementary appraisal services from Chrono24 and JamesEdition.
- Asset insurance by XL Specialty Insurance, also backed by AXA Insurance.
- They use Capital2Markets, LLC, a third-party administrator to handle the transactions.
As you can see, the team at LuxeStreet goes out of their way to make the investment as secure as possible for their investors.
Pros of Investing in Luxury Watches
There are several advantages to investing in luxury watches.
- Luxury Watches fall into the alternative investment category. They have little to no correlation with stocks.
- They bring a distinctly unique asset to your portfolio.
- Loans are short term, which is less risky than their longer-term counterparts.
- Little to no default risk. Remember, of the $5.02 million loans to date, there have been zero defaults. In this high-end market, it's rare.
- Luxury watches hold their value during market downturns. In the 2008 financial crisis, there was no drop in value on these assets.
- Luxury watches have lower risk due to the quality of the asset and the other measures taken to secure the investments.
- The investment is an excellent source of passive income.
Cons of Investing in Luxury Watches
With any investment we make, we must look at both the pros and cons of each one. Here are some of the risks of an investment in luxury watches.
- It's a three-year commitment. There is currently no liquidity for the investment during the three-year term. Though the assets themselves are liquid, the investment in the promissory notes is not.
- There is a risk that LuxeStreet will not be able to sell the watches if the borrower is unable to complete the repurchase agreement. Though there are no defaults to date, there is no guarantee there won't be in the future.
- There is a risk that they would have to sell the asset at less money than they paid for it. However, the team takes great care to purchase luxury watches at a large enough discount to reduce that risk substantially. To date, the average discount to the appraised value of the watches purchased is 65%.
- LuxeStreet is a relatively new company. Newer companies carry a higher risk than more mature companies. That risk is lower than it might typically be due to the experience of the CEO and the other senior advisor jewelry expert. Combined, they have over forty years in the business.
In our analysis of the LuxeStreet, Inc. investment offer, there are far more risky alternative investments. Compare the luxury watch investment to the traditional hedge funds, and you'll see a big difference. Hedge funds charge high fees. Often, the terms are much longer than three years. Minimum investments are much higher, as well.
The typical real estate investment in the alternative investment category has an average five-year term. Though there may be some, I don't know of any that offer an income of 12%. Most are considerably less than that. Many real estate investments are designed for growth, not income. That's another thing that makes an investment in luxury watches unique.
As with any investment, it's essential to do your due diligence. The investments you make must be in line with your goals and values. Alternative investments offer a diversification opportunity that doesn't correlate with the traditional stock and bond markets. Luxury watches fit that description well.
If you're looking for a unique alternative investment that generates consistent passive income, I will encourage you to take a good look at an investment in luxury watches via LuxeStreet, Inc.
As a financial advisor for almost 30 years, Fred shares his expertise on personal finance, investing, and other relevant topics on Your Money Geek and many other financial media. He has been quoted or featured in Money Magazine, MarketWatch, The Good Men Project, Thrive Global, and many other publications.