“Cars are the sculptures of our every day lives” Chris Bangle
From a rational prospective investing is the act of buying an asset that appreciates in value and ultimately selling for a profit. Nowadays, more than ever people like to see their funds not only producing financial gains but also helping the community, the environment and often to be aligned that with their own passion. This could be real estate, art, wine, watches, commodities, bonds, equities, etc. Classic cars are passion for many as they represent a certain life style, a status and symbolize wealth, freedom, success… Not only that, but in the last decade they have produced significant financial returns according to Knight Frank, the FT and many others.
The age of the vehicle comes as a first thing to look at when considering to invest in a classic car. There are two distinguished categories. Classic cars that are already considered classic, usually at least 35 years of age. Also there is a category that the market defines as “modern classic” . It is roughly the cars in the 25 years age bracket. Like with investment in watches for a car to be considered as a form of investment it needs to be in excellent working condition, corresponding to the original design and capable of being driven on roads.
Older cars are usually more expensive, the older the car gets the more expensive it becomes. Andrew Shirley, partner in Knight Frank and classic cars expert, explains in this report that classic car pricing follows 25 year depreciation pricing pattern, after that period prices usually flatten and start to go up again. Once we have looked at the age of the car, the next thing to really focus on is
Key price driver, like with most physical assets investments the condition of the asset is something that is paramount. Careful inspection is needed for each and every single part of the car including: the body, the engine, the suspension, the transmission, recorded mileage, specifics of the car has etc.etc.
For cars already considered investment classics, price appreciation is driven by desirability and extreme scarcity, like with most assets. Not all cars are collectible or constitute a form of investment for just these reasons though. There are additional factors, such as if there is an existing irrevocable proof that the car you are thinking of buying has belonged to a celebrity that would make the demand for that piece way higher than usual.
Like for any investment the entry point is where you lock your profit. Think about the price that you are paying, what is the value you are getting, forget (if you can) about emotions. Is there any way to look up at sold prices for the model you are considering to buy? Good idea can be to have a look at Hagerty in order to have at least where the market might be.
This is a big one. The older the car you buy, the harder it is to find competent people who know how it can be restored to its original state. It is also difficult to find spare parts as naturally they disappear from the market place. Both restoration and maintenance can be really costly, with an average car taking up to 1000 man hours to be restored, at a minimum price of £ 40-50 an hour according to HolsAuto. You can also imagine maintenance is not a given (look at the link). Remember, the variables driving restoration and maintenance costs are many including car brand, model, mechanical complexity, etc. etc. Prior to deciding to that you want to follow your passion and invest in a classic car it is wise to think about maintenance and restoration.
Like with watches there are basically two ways you can chose to employ in order to invest in that market – direct and via intermediaries. To invest directly in a classic car you need to contact a dealer, participate to an auction or potentially get in touch with private seller. Auctioneers usually source the most desired collectible cars and their fees are relatively high up to 25%. Dealers charge perhaps lower commissions however their hidden fees tends to be higher. When purchasing directly a careful inspection by a certified specialist needs to be carried so you can independently verify the advertised condition. Directly, purchasing a classic car carries bigger perils, however it allows you actually physically own the asset and eventually have the pleasure to go for a ride every now and then. Indirect way of investing includes purchasing shares in a collective investment scheme. This could be a regulated fund or a non regulated from of collective investment. From the research I did, it seems that there are more unregulated ones. Fuch & Asoccies, a former client of mine and a multi family office has produced a good report on what are the common collective investment forms in that space. For more technology savvy investors, there is an app called Rally RD which allows you to invest as little as 50$ in the classic car that you like. It is regulated by the SEC .
The natural next question that comes out is what are the characteristics of that form of investment. First of all in many countries, including the UK and The Netherlands, there is no capital gain tax on the sale price if the car is older than 40 years. Remember investing in classic cars is not a liquid form of investment and can be riskier than more conventional investments. Transaction costs, as mentioned already are very high. In some cases they can be up to 25% of the transaction value. Buybacks come at deep, even steep discounts for dealers. Classic cars are increasingly scarce as the pieces you can invest in are not produced anymore. It the investment performance of the asset class is not correlated with stock and bond markets and therefore it offers a form of diversification.
Few form of investment allow us to follow our passion. Classic cars is one of them. It is rare to find an opportunity to both make money and enjoy what you do. Will be glad to hear what are the passions you follow while investing. Drop me a line. As always like, share, comment.
Boris Grozev is a seasoned fintech executive. Entrepreneur by heart Boris has helped number of businesses to create and implement business development and product strategies. His advisory work in Emerging and Frontier markets has promoted culture and technology change, fostered innovation and lead to tangible results. He invests in variety of asset classes. Boris is a fast learner, whose leadership abilities, ambition, stamina, passion to succeed and attitude naturally spread to others helping to achieve common goals.