Buying a car is an expensive business, compounded by the fact that the value of your asset has depreciated by 10% the second you drive it out of the showroom.
Typically, it will continue to depreciate at a further 15% per year until it is worth only half the money you paid for it in a few short years.
However, there is one way of fighting back. Similar to wine and whisky, interest in collectible and classic cars has been growing over the past decade, as investors look for new (and potentially more enjoyable) ways to get a good return on their investment.
But like the world of finance, the classic car market can be costly to the novice investor. With any investment, a degree of expertise, understanding and, above all, patience is required to ensure your car becomes a good investment.
Buy a real investment classic:
In the parlance of financial investments, this is safe-bet territory. The bona fide collector classics like a Ferrari Dino, an Aston Martin DB5, a Lamborghini Miura or modern supercar classics like a Ferrari Enzo will always be in demand and therefore always be considerably valuable.
With prices for some of these cars starting at over $1m, they won’t come cheap, and while they are likely to appreciate – according to Coutts, classic car values have increased almost 400% since 2005 – there is one school of thought that the pure Return on Investment (ROI) has started to wane a little.
Check the history:
When you buy any car, you should always check its history.
If you are a collector, this should be one of your first port of calls. Cars that have an illustrious past tend to appreciate consistently over the years. If the car was owned by a famous person, was associated with a famous film (for example the DeLorean DMC that is globally recognised due to the Back to the Future films) or had a notable achievement, it goes a long way to ensuring a sound return on your investment.
The most extreme recent example was a 1954 Mercedes-Benz W196R Formula One racing car, which won the Swiss Grand Prix and was sold for £19,601,500 in an auction in 2013.
Buy a future classic:
The best investments will always be the ones you make the best returns on. Parallel to the world of conventional trading, this is usually related to having the expertise to understand where the market is likely heading.
The practice is no different when it comes to investing in cars, where the real skill lies in predicting which cars will hit the hockey stick curve when it comes to price appreciation.
The general rule of thumb is to look at the fundamentals of the market. Supply and demand is the key. Your classic Ferraris and Aston Martins are always going to command a king’s ransom on the collectors market, and their scarcity helps to keep the price high.
So what about the lesser known Ferraris? Like the 365 GT 2+2 which has often been overlooked because of its unconventional styling, but has all the fundamentals of a classic Ferrari (V12, front engine, made in limited numbers, manual gearbox). In 2015 they were selling for around S$100,000, which is a bargain for any 30 year old Ferrari.
Likewise, the BMW 3.0 CSL is often pegged as a future high value classic. An icon of the 1970s that was produced in small numbers (there were only 500 right hand drive versions made), it is still possible to pick one up for as little as S$120,000.
Buy at the right time:
Buying a future classic (predicting the direction of the market) and buying at the right time (similar to spotting undervalued stocks) are two totally different approaches. Just as a smart broker will find you that undervalued stock, a smart investor will look for cars that may have bottomed out in value too early.
This is the trickiest and most dangerous way of investing in cars, but if you get it right, you will make significant returns. One example of this is the 2007 model Aston Martin Vanquish, which was selling for around S$80,000 a few years back, and has started to appreciate in value again as Aston Martin’s reputation is on the uptrend.
Do It Yourself:
The hardest and most loving option is, of course, to buy a car in less than mint condition and restore it to its former glory, allowing you to enjoy the automobile and the restoration process, and still make a sizeable sum of money upon selling the car.
The pitfalls are numerous, the maintenance tough and the hours put into the endeavour could be endless, but for so many people, this is the perfect option to be able to feel the emotive side of investing.
With any investment however, there are charges which need to be taken into account. Restoration costs, insurance, maintenance, garaging (if a collector item) will all cost money and eat into your investment. Always ensure you are prepared to write these things off as part of the investment, and always remember: the simple beauty of investing in cars is because they are simply beautiful.