Buying a classic car is an attractive opportunity. You can’t help but feel like Bond himself when driving in a classic car. And cars have been a staple in collectibles alongside stamps and coins as long as they’ve been invented. It’s easy to see where the appeal comes from with so many beautiful models discarded in the past. But despite their age, classic cars come with their own financial issues. There is the maintenance, the care, the storage, and the insurance.
But is it worth it? The idea is that it will take a lot of money, but if you do it right it will make you a lot of money, but is that the reality of the situation? If you are thinking about investing in a collectible car you might want to look into these elements before you make that commitment. Read on for all the details.
Is your car a collectible?
A lot of cars may be considered beautiful, but not collectible. Don’t get it wrong, it certainly helps, and people are likely to want to see them, but the difference between a classic car and a truly collectible car is a story. This can come in the form of historical importance. This means it perhaps raised the bar for consumer or industry expectations or they pioneered new technology, etc.
A history in racing can also make a car a collectible, considering a substantial amount of it survived. So, will an association with respected industry VIPs like a designer, racer, or builder. Like art, the best of these car collectibles give you something to look at, but a story too.
And then there’s pop culture. A car can be considered a collectible if it was featured in a movie, like Back to the Future’s iconic DeLorean, or, as mentioned, starred in a Bond film or a Fast and Furious movie. Cars that were once owned by a celebrity can also be considered a collectible, particularly if they were associated with cars, like Steve McQueen or Paul Newman.
What about the insurance?
Classic car insurance is actually usually cheaper than regular auto insurance, as insurers assume it won’t see as much action since it won’t be driving you to and from work or the supermarket. They also are likely to have lower speed limits and therefore will be considered safer.
However, there are a few differences between the two. Classic cars will often have to agree to a low annual mileage limit so as to not take advantage of the lower premium rates. Plus, insurance policies for classic cars tend to have stricter terms and conditions, so shop around to make sure your policy fits your needs.
If you are someone investing in a classic car only to take them out on the best days, either to car shows or a drive down the beach with the top down, you might want to look into short term car insurance. Short term car insurance will allow you to cover your car for a limited amount of time for a lower rate. You will gain basic liability cover to get you to an event, but you will need to add extra policies like Personal Injury Protection. It can be a more affordable alternative to consistently covering a car that doesn’t often get out to play.
What are the risks?
Owning a classic or collectible car is an investment, and like most investments, it will come with fuss. For one thing, your car is tangible personal property, so if you decide to sell it and gain a profit, you will owe a capital gains tax.
If your car is in bad shape, it will cost to restore it. The problem there, beyond the general high costs that maintaining a car takes, is that depending on the age of your car, some parts might be difficult to source or rare, causing the price to go up. With this in mind, it can mean that restoring a seven-figure car can cost an additional seven-figures.
In addition, you will have ongoing maintenance costs, expenses to store it, and insurance to consider. The reason this is considered an investment is because you expect to gain a profit from selling the car, but they can just as easily be eaten up by commissions, consignment fees, transaction fees, and transportation costs.
So, are the risks worth it? Not really. It will take a lot of money and resources to restore an old car, and if you are looking to sell, it’s likely that you will just break even, or at least not gain the profits you were expecting. Between insurance, storage, parts, maintenance and fees, your potential profits will quickly be eaten up by other realities of keeping a classic car.
However, if you are simply looking for something pretty to break out when you want a long drive along the coast, and you have the funds, go for it.
FAQs
Buying a classic car can be a good investment, but it’s important to carefully consider various factors before making a decision. While some classic cars have appreciated significantly in value over the years, not all cars appreciate at the same rate, and some may even lose value. It’s crucial to research the specific make, model, and condition of the classic car you’re interested in to understand its market history and potential for appreciation.
Several factors should be taken into account when considering a classic car as an investment:
Rarity: The rarity of the car can significantly impact its value. Limited production numbers or special editions tend to appreciate more.
Condition: The overall condition of the classic car, including its mechanical condition, originality, and cosmetic appearance, can affect its value. Well-maintained and restored vehicles often command higher prices.
Historical significance: Classic cars with historical importance or those associated with famous individuals or events can have higher value and potential for appreciation.
Popularity and demand: The popularity and demand for a particular make or model influence its value. Cars that have a strong enthusiast following generally hold their value better.
Market trends: Research current market trends to understand how prices have fluctuated in the past and whether the market for classic cars is currently strong or experiencing a decline.
Several resources can help you determine the value of a classic car. Consulting price guides such as the Kelly Blue Book’s Classic Car Guide or the Hagerty Price Guide can give you a general idea of a car’s value based on its make, model, condition, and other factors. However, it’s essential to remember that these guides provide estimates and the actual market value can vary. Additionally, you can consult with appraisers, join classic car forums or clubs to seek advice from experienced collectors, and monitor recent sales of similar vehicles to understand the market value.
Classic cars are generally considered illiquid investments, meaning they are not easily converted into cash. Unlike stocks or bonds, selling a classic car can take time and effort to find the right buyer at the desired price. The market for classic cars can also be subject to fluctuations and changing trends, which can impact the ease of selling and the price you can command.
Yes, investing in classic cars comes with certain risks. Some potential risks include:
– Market fluctuations: The value of classic cars can be subject to market trends, and prices may rise or fall depending on factors like supply, demand, and economic conditions.
-Maintenance and restoration costs: Owning a classic car often requires ongoing maintenance, repairs, and potentially costly restoration work. These expenses can eat into potential returns on your investment.
– Storage and insurance: Classic cars need proper storage facilities and insurance coverage to protect their value. These additional costs can impact the overall profitability of your investment.
-Limited diversification: Investing heavily in a single classic car or a narrow range of models can lack diversification, which may increase risk. Spreading your investment across different asset classes can help mitigate this risk.
It’s generally not advisable to buy a classic car solely as an investment without considering your personal interest and enjoyment of the vehicle. While it’s possible to make a profit on a classic car investment, the market can be unpredictable, and returns are not guaranteed.
