When Do You Need A Professional Alternative Investment Valuation?
Alternative investment is a process that can be at once tricky and rewarding. That's especially the case when it comes to putting valuations on investments. When you're talking about what the value of a painting, venture capital investment, cryptocurrency, or derivatives contract is, you face a lot of headwinds. These assets often trade in illiquid or volatile markets where today's price might not inform you of what tomorrow's will be.
However, there will be times when you need a professional's opinion on an alternative investment valuation. When should you seek out that advice? Investors should ask for professional perspectives in these five situations.
One of the most likely parties to want a valuation is a financial institution that's considering a loan. The bank will likely ask a professional to assess your investment's value as collateral, and you should ask another one to do the same. This will help you to understand the bank's valuation of the investment so you can decide whether it's fair.
Alternative assets present some interesting challenges when it comes to financial reporting valuation. For example, a corporation might have a renowned painting hanging in its lobby. It's great art, but it also represents one of the company's assets. Consequently, the company may need to list the painting's value in its financial reports.
If you're doing estate planning, then you'd like to know what you're going to leave to beneficiaries. That's not always a simple thing to do with an illiquid asset, especially one with a high alternative investment valuation. Particularly if you mean to be equitable in your treatment of beneficiaries, you'll need a professional's opinion.
Donations and Taxes
Many people donate alternative investments to museums, non-profits, and other organizations. They may do this for reasons ranging from social contribution to writing the investments off on their taxes. Regardless of the reasoning, it's important to establish a financial reporting valuation for the assets. If you donate shares of a startup company to your alma mater, for example, both the school and the taxman will want to know what the shares are worth.
Updating Financial Figures
There are internal reasons for conducting an alternative investment valuation, too. You may just want to know what sitting on a less-liquid piece of real estate like a winery has been worth to you. Most likely, you won't realize a significant tax event as long as the winery remains in your possession. However, it's wise to take the measure of your investment from time to time so you know where you stand.