In today’s ever-changing world of investment, people are constantly searching for different ways to not only grow their money, but also enjoy the process. For many, one such opportunity lies in collecting cars. This isn’t just about storing old, precious vehicles in the garage anymore. In fact, the car collection market has transformed into an attractive platform that merges the pleasure of owning these timeless beauties with the chance to make some real money.
Many Americans have found a passion in acquiring these vintage gems. But did you know there’s a bustling market for these classic vehicles too, one that stretches well beyond your average neighborhood garage? The market for high-end collectible cars, some fetching mind-boggling prices in the millions, is a unique chance for those with significant funds to spread their investments, earn returns, and occasionally enjoy a leisurely drive in a classic ride.
In this article, we delve into the world of car investment, exploring the strategies and considerations that can guide individuals toward successful ventures in this captivating field.
Table of Contents
What Makes A Car Collectible?
If you’ve ever wondered what makes a car special enough to be collected, there are a few key elements that help boost its worth and allure. Understanding these details can help explain why some cars are so appealing to collectors.
1. Rarity: The Jewel of Collectibility
First up is rarity. If a car is hard to find, especially if it’s from a well-known brand like McLaren, Aston Martin, Lamborghini, or Ferrari, collectors are likely to sit up and take notice.
A great example of this is the 1955 Mercedes-Benz 300 SLR Uhlenhaut Coupé – only two were ever made, and one recently sold for a staggering $142.9 million at a German auction. The less common the car, the more enthusiasts want it.
2. Distinctive Design: The Allure of Aesthetics
The look and design of a car, inside and out, is another big draw. Cars that stand out from the crowd with a unique or streamlined design are often in demand. If the interior is as captivating as the exterior, even better!
Cars that have pushed the envelope with new technologies or innovative design features are particularly appealing. They embody the spirit of progress and mark important milestones in car history.
3. Historical Significance: A Window to the Past
A car’s background story can also make it more collectible. If a car has a noteworthy racing history or was designed by a famous person, this makes it even more desirable. Take cars designed by big names like Raymond Loewy or Carroll Shelby, for instance.
They have made lasting impacts on the car industry and their vehicles are a hit with collectors. The story behind a car can add to its value and make it a prize addition to a collection.
4. Celebrity Connection: The Charm of Stardom
Lastly, if a car has been linked to a celebrity, its collectible status can skyrocket. If a famous person has owned it or if it’s been featured in a movie, it can become even more appealing.
Cars that were once owned by stars like Jay Leno, Steve McQueen, or Paul Newman are particularly popular. They have that extra sprinkle of star power that collectors love.
How to Find the Best Investment Cars?
The world of classic car investing is exciting and complex. From broader economic factors to the nuances of individual vehicles, various factors shape this unique investment landscape.
Your investment car isn’t immune to broader economic trends like interest rates, supply chains, and consumer demand. During recessions, demand for classic vehicles can wane, as collectors may be forced to sell their prized assets. Meanwhile, wealthier collectors often weather these financial storms, influencing pricing trends in auto sales.
In the classic car market, age isn’t the only determinant of value. Still, we’ll break down some basic asset classes: classic, antique, and vintage cars.
Defined technically, classic cars were built up to the year 2000 and earlier and remain in their original condition or restored to original specifications. This category includes vehicles like the 1976 Volkswagen Golf GTI, 1986 Buick Grand National, 1991 Acura NSX, 1994 Toyota Supra A80, and 1998 Dodge Viper GT2.
Classic cars are a great entry-level category for enthusiasts. Their modern electronic components make for easier repairs, and many parts are still readily available. This generation includes “modern classics” popular among Gen-Xers and older Millennials in the 80s and 90s.
Antique cars, built prior to 1975, include iconic models like the 1964 Aston Martin DB5, 1963 Chevrolet Corvette Stingray C2, 1945 Jeep CJ-2A, 1966 Ford GT-40, and 1948 Ferrari 166MM Barchetta.
These models, which encompass vehicles from World War II to the Arab Oil Embargo era, are known for high price tags and unique charm. To maintain these vehicles, you’ll need specialized knowledge, such as working on a carburetor. Many baby boomers have a soft spot for these cars, and they’re willing to pay a premium for them.
Vintage cars were manufactured before 1930 and cover a fascinating era of automotive history. Models like the 1934 Packard Twelve Dietrich, 1935 Duesenberg SSJ, 1929 Ford Model A Roadster, 1920 Rolls Royce Phantom, and 1926 Bugatti Type 41 Royale fall under this category.
These cars, from the early years of the automotive golden age, are for true automotive connoisseurs. They feature historic design elements, such as ash and mahogany wood slats, and often run on 12 or 16-cylinder engines. Preserving these vehicles requires meticulous attention to detail, and finding replacement parts can be challenging. The most coveted models can cost millions, making them accessible only to top-tier investors.
How to Invest in Cars
Investing in cars requires diligent research, financial considerations, and managing expectations. Here’s how you can get started:
1. Research the Best Investment Cars
If you’re considering investing in cars, it’s essential to start by conducting thorough research on the potential investment options. This involves studying the history, specifications, model types, and appreciation potential of the cars you’re interested in.
While professional car buyer services are available, dedicating time to educate yourself can be a valuable step toward making informed decisions.
2. Factoring in the Costs
When evaluating investment cars, it’s crucial to look beyond the upfront purchase cost. You must also consider the carrying costs associated with owning the car, such as annual repairs, maintenance, and preservation expenses.
Moreover, don’t forget to factor in expenses like insurance, vehicle storage, and capital gains tax on potential profits. Understanding the financial implications helps you make more accurate assessments of the investment’s true value.
3. Setting Realistic Expectations
Keep in mind that not all investment cars guarantee significant returns. The appreciation potential of a vehicle depends on its rarity and desirability. Common vehicles are less likely to appreciate significantly in the near future.
While you might find a serviceable classic car for a reasonable price, it doesn’t necessarily mean you’ll earn substantial returns over the next few years, especially when considering taxes and upkeep costs.
4. Purchasing Options
For those willing to accept the risks and costs associated with auction purchases, reputable auction houses offer a wide range of investment cars. These auction houses operate nationwide, both online and offline, and specialize in the sale of collectible cars.
Prominent names in the industry include Barrett-Jackson, Bonhams, and RM Sotheby’s, while online platforms like bringatrailer.com also offer auction services.
If you’re up for some legwork, exploring local periodicals and Craigslist listings can yield hidden gems in the local market for investment cars.
You might even find dealerships specializing in used cars in your area. However, it’s essential to manage your expectations regarding pricing, as local market dynamics can significantly influence car prices.
Investing in Shares
If you’re hesitant about the expenses associated with car ownership, an alternative approach is investing in shares of collectible cars.
Companies like Rally Rd. offer investment platforms that securitize cars, splitting them into shares sold to investors. This allows you to gain exposure to highly sought-after investment cars without bearing the full ownership and maintenance costs.
5. The Enthusiast’s Approach
While investing in cars can potentially bring financial rewards, it’s also about the thrill of owning a classic automobile. The best approach to car investment might be as an enthusiast rather than a pure investor.
Owning a classic car can bring pride and enjoyment, even if the investment returns are not as high as expected. Remember, having a fun car to ride in and experiencing the joy of owning a true automotive classic can be valuable in itself.
Pros of Investing in Cars
1. High Profit Potential with Rare Vehicles
If you’re a lucky owner of an exceptionally rare car, there’s a good chance of making a decent profit when you decide to sell. Just like a vintage wine, the older it gets, the more valuable it becomes, provided that it is kept in optimal condition. Polishing up a unique classic and maintaining it diligently could just be your ticket to a worthwhile return on investment.
2. Outperformance of Other Collectible Markets
The past decade has shown the potential of the classic car market, proving it as a profitable field of investment. Interestingly, it has surpassed other collectible markets such as stamps and coins. In 2019, the collectible car market had an impressive rise of 33.78%. This indicates the thriving nature of the market, proving it to be a suitable arena for investors looking for diversification.
3. Currency Hedge through Car Investment
Another benefit of investing in classic cars is the provision of a currency hedge. In case your local currency faces a downfall, you can always export your collectible car to another country where exchange rates are more favorable. This adds an extra layer of financial security and boosts the potential for a higher return on investment.
4. Aesthetic Pleasure and Unique Investment
Much like the fine art market, the classic car market offers an aesthetically pleasing and unique form of investment. Each car has a story to tell and a character to present. Owning a vintage car is not only about potential profit; it’s also about enjoying the beauty and history it represents. The allure of these cars lies in their uniqueness and the thrill of owning a piece of history.
5. The Freedom of Creative Design
Many collectible cars come from eras where there were fewer government rules and restrictions. This allowed car designers and engineers to explore their creativity to the fullest, leading to some of the most original and imaginative car designs in history. Investing in these cars means investing in a piece of design freedom, a testament to the unbridled creative spirit of the past.
Cons of Investing in Cars
1. High Repair and Maintenance Costs
When investing in an older, classic car, it’s essential to note that repairs and maintenance can often be costly. Given their vintage status, the specific parts required for these cars can be hard to find and may not be in production anymore.
This rarity and uniqueness make the parts quite expensive. Moreover, you’ll need to find a specialist mechanic who understands these classic gems and has the right skills to fix them. These mechanics often come with higher service charges due to their specialized knowledge and experience.
2. Considerable Storage and Insurance Costs
Keeping your investment car safe and in optimal condition also comes with a price. If your garage isn’t fit for storing a collectible vehicle, you’ll need to rent a professional storage facility, which can be costly. These facilities are designed to provide the right conditions and security to keep your vintage car in its best shape.
Furthermore, classic car insurance policies can be significantly more expensive than standard ones. These policies usually stipulate that the car be kept in a secure and proper facility, adding to the overall costs. Moreover, if you ever need to move or sell your investment car, bear in mind the high shipping and transportation costs, which are usually managed by specialized companies due to the delicate nature of these vehicles.
3. Challenges in Achieving High Return on Investment
Though classic cars can be a good investment, they don’t always guarantee a high return on investment. Just like any other investment, the market for classic cars fluctuates, and its profitability varies over time.
Identifying the right classic cars that could yield a high ROI can be challenging, requiring a deep understanding of the market and an eye for identifying potential value. Therefore, investing in classic cars is not just about passion but also involves smart decision-making and careful planning.
The Bottom Line
Venturing into the world of high-end car collection requires considerable investment and carries noteworthy ongoing costs. Just like a grand orchestral symphony, investing in cars is both an art and a science. The melody and harmony reflect the artistic aspect – the allure and beauty of the cars, while the rhythm and tempo echo the science – the market trends and factors that drive the investment’s profitability.
It’s essential to bear in mind that the taste and economic viability of a particular car can change with time. Today’s king’s ransom could depreciate to tomorrow’s princely sum. However, history and trends do give us some clues. Cars that are red and Italian have often proven to be reliable investments, but it’s crucial to keep an eye on market fluctuations to avoid overpaying in frothy markets.
A prime example of this is the Ferrari frenzy in the late 1980s. Affluent Japanese buyers had an insatiable appetite for Ferraris, leading to an incredible spike in prices, creating a bubble. But when the demand waned, the prices dropped significantly.
Therefore, when investing in cars, it’s important to focus on quality – a prime example will always be marketable and command a premium price. Understanding your demographic and market factors can help you make sound investments and avoid buying in bubble territory.
1. What’s the best way to take care of my investment car?
Taking care of your investment car is crucial to preserving its value. Regular servicing by an accredited vehicle technician is a must, and it’s important to keep your service history document up to date.
Always park your car in a secure location and minimize driving it to keep the mileage low. Remember, low mileage often means higher resale value!
And don’t forget about insurance. Keep your precious investment well-protected and ensure your premiums are always paid on time.
2. Are there other ways to invest in cars without actually buying one?
Absolutely! If buying a collectible car isn’t your thing, investing in car stocks or equity shares in the automotive industry might be right up your alley.
Currently, electric car companies are seeing a boost in investment trends. Some top car stocks in 2023 include Tesla Inc, General Motors Company, and Ferrari Nv.
And if you want to spread your investment out a little, consider automobile ETFs like First Trust NASDAQ Global Auto Index Fund, The Global X Autonomous & Electric Car ETF, The KraneShares Electric Vehicles & Future Mobility ETF, or The Dow Jones United States Automobiles Index.
3. Will I have to pay taxes if I sell my investment car at a profit?
Yes, indeed. Just like any other investment, profits made from selling your investment car are subject to capital gains tax.
4. How much should I be prepared to spend on an investment car?
There’s no hard and fast rule for this, but typical investment cars in good condition generally range between $10,000 and $50,000. Of course, you can also splurge on a more expensive investment like the Ford GT40 Mk1, which is worth over $5 million.
Remember, how much you should spend is largely dependent on your financial capacity.
Investing in cars isn’t just about buying old ones. A car that’s at least 20 years old is typically considered a “classic car” and its value tends to increase over time. Alternatively, you can also invest in limited edition new cars – you just might need to hang onto them for a few years before they yield a profit.