Over the past decade or so television has introduced viewers to all sorts of new possibilities. From flipping old homes to ”flipping” vintage cars, the lure of quick and seemingly easy money appeals to the masses. But for the uninitiated, these activities are seldom easy and often fraught with risk. Sadly, what begins with high hopes can sometimes end in financial disaster.
One key to avoiding failure is to do your homework. This way you can understand the risks before you put your savings on the line. With that being stated, here are some tips and information about the potential perils of classic car investing for anyone interested in this activity.
What is your investment strategy?
To begin with, it is important to understand what you want to get out of this investment. Are you looking to buy an older car that you can drive now and sell for a profit in a few years? Are you looking to buy a new car hoping it will become a classic and fetch a small fortune someday? Do you want to invest in cars that appeal to the average American car collector? Or do you want to invest in rare exotics unique to the high-end collector market?
The answers to all of these questions will determine what type of car(s) you buy, where you can find them, and how much you will have to spend. The answers to these questions will also determine the potential return on your investment.
Know what makes a car collectible
Clearly aesthetics play a big part in a car’s collectability. A nicely appointed classic car with clean lines and an appealing color will likely attract attention at auction or a private sale. But is not the only factor that drives collectability.
Collector cars also tend to have:
Some historical significance
A racing pedigree
Ties to a well known designer or builder
Past celebrity ownership, especially if the past owner(s) were also car enthusiasts
The cars that tend to be most collectible are those with all of these characteristics. The cars that tend to be most collectible are also those that remind a buyer of his or youth. In other words, collectors will often be drawn to cars that they owned or dreamed of owning when they were younger.
Know what to look for and what to avoid
When it comes to buying a car that you eventually hope to sell – either privately or at auction – there are certain things to look for and certain things to avoid.
Experts advise novice investors to avoid any vehicle with obvious signs of serious rust. Although a rusty vehicle can be restored, it can also be a money pit. In other words, depending on the extent of the problem, you may have to put more money into the restoration than you could ever recoup in a sale.
Vehicles with low mileage
Unique/rare models (only a few of the same model built in any given model year)
Vehicles you would be thrilled to own or drive
Vehicles with “matching numbers” also tend to bring bucks. But what does this mean? These are vehicles with major components that share the same identifiers found in the Vehicle Identification Number, or VIN. The parts that should share these identifiers include the engine, the transmission, and the rear axle.
In most cases, the last six digits of the VIN are stamped on the engine, so that is easy to verify. You will not necessarily find these identifiers on the transmission or rear axle, but you should be able to find date codes there. You can use the date codes to see if the parts share any identifiers in the VIN.
Tastes and trends change
There will always be muscle car enthusiasts and buyers for high-end European sports cars. However, it is important that you do not put all of your proverbial eggs in one basket.
As a case in point, Japanese interest in Ferraris in the mid- to late 1980s created a huge price spike. When their interest waned, the bubble burst and the prices dropped accordingly.
Consider the Dodge Viper as another case in point. Originally built in the early 1990s, they boasted 400 horsepower. This coupled with its unique appearance likely made them appealing to a certain set of investors banking on significant appreciation. Unfortunately for them, that never happened. In recent years, you could get an original Viper for less than $40,000. That is $10,000 less than the sticker price when they were brand new.
Investing in classic cars is expensive
Collecting or investing in classic cars is expensive. Because these vehicles are legally classified as tangible personal property, you will have to pay capital gains tax if you make a profit on any of your cars.
Do you have one or more cars that are not in tip-top shape? In addition to the purchase price, you may have to pay some hefty restoration costs. For example, the cost of bringing an older car to mint condition using original or exact recreations of parts, paint, and bodywork — is easily $1 million or more.
You will also have to shell out money for:
Any fees associated with sales transactions
You can find a wealth of information online
As we noted earlier, doing your homework is important for any investor. If you want to dive into the classic car market, the Internet makes this easier than ever. As one expert puts it, all you have to do is put just about any make or model name into a search engine along with the words “sold for.” A slew of information will come up that you can then delve through to help you decide if a specific purchase is worthwhile.
At the end of the day, however, you are the one responsible for an accurate assessment of the vehicle’s condition. Many experts do this based on a scale that ranks vehicles from fair to perfect. As far as one expert is concerned, anything that could be classified as less than fair simply isn’t worthwhile.
While car experts can offer advice from their perspective, it is also important to get proper legal and financial advice. Contact us online or call us to learn more about how we can help you, today.