Investing in Cars
Automobiles have fascinated mankind since the day they were invented, some 250 years ago. Astonishingly, the invention itself dates back to 1769, when the first steam-powered automobile was created and it took 100 years for the gasoline engine to arrive. This sounds like an eternity since we are no longer accustomed to such long cycles of evolution as technology has wildly accelerated our progress.
As soon as automobiles were released as a product to the general public, naturally the collector emerged alongside the consumer to own vehicles and enjoy them. Whether you could be a collector has always depended on the means of a person or a family but the idea of collecting was much more cherished in the past as all things were built with the intention to last and people wouldn’t carelessly dispose of them like we do today.
The automotive industry has gone through numerous cycles and faced countless challenges over the past century but it is evident that we all want and need the car for several different reasons and therefore, the industry is here to stay, even if it must keep changing and reinventing itself as it has been doing.
An Asset Class for the Lucky few?
But let’s now move on to the real subject, the idea of investing in cars. Previously this has been an asset class that was reserved for the elite because the cars that appreciate are the ones that also tend to have a high sticker price to begin with (naturally there are some exceptions but this is the general rule).
So, what determines the value of a car? Above all the collectors look at the brand and the way that it evolves over time. The top contenders are of course those automakers who could create a mythos and a strong following such as Ferrari, Porsche, McLaren, Mercedes Benz and the like. Make sure that you buy the right advice when you venture in these types of investments as the right advice can be very valuable just like the wrong advice can cost you dearly so you must fact check the track record of any advisor very closely before retaining their services.
Other factors that come into consideration are the age of the car, the number of units that were built, the general appeal (then, now and in the future) and another very important factor, which is the relevance to the market over time. For example, if a carmaker decides to stop manufacturing a certain engine because the world is changing and is forced to switch from a naturally aspirated V12 to a turbocharged V8, the last of its kind will be significant to the market because it marks the end of an era. The same principle will also apply to the world’s first cars or engines of a certain type.
Supply & Demand!
For a car to have value over time and to appreciate it must have rarity and meaning. The appreciation is directly linked to the size of the circle of collectors. For example, if only 100 units were built of a certain car and there are 1000 collectors around the world who want to have it in their collection, then naturally the price will go up over time.
Some cars have simply become iconic as they represent an era and were most likely owned by beloved celebrities. A great example for this is the Porsche 356.
However, there are many pitfalls for (novice) investor that one must avoid in order to make money when investing in car. Once you have determined that a car is in fact sought after and has the potential to appreciate, you must imperatively gain access to the following information: Does it have complete documentation and a clean history?
Did it have any accidents, if yes, was it restored properly with the original parts of the manufacturer? For example, a car that was crashed 30 years ago, has been sitting in a barn and was only recently restored with modern day parts, will have less value than the same model that is well preserved, was properly stored and is in pristine condition.
How To Make Money?
We must also differentiate between two classic approaches to making money with this asset:
The first one is to simply “buy & hold” cars but this limits the investors even more because of the requirements for storage and maintenance. It remains worthwhile and valid but when you want to pursue this strategy you should make sure that you account for all the expenses (present and future) when determining if the car itself will appreciate enough to cover the cost over time and make you money in the process.
The second and slightly more savvy approach is to “buy & flip” the car(s). This is a speculative approach but generates quick returns when done right.
In recent times, the opportunity to invest in cars has been democratized as we’ve seen the emergence of alternative asset funds like the “Classic Car Fund” and the latest trend is the democratic investment in cars via the Blockchain. There are Initial Coin Offerings of projects like “Hyperide.io” and others where any type of investor can participate and own a share in this asset class.
With all the compliance requirements that we and our clients are facing today, it appears easier at times to store value in a car rather than keeping money in the bank.
What Really Matters
In the end, there is also another big factor that cannot be neglected and that is passion itself. If you are passionate about cars, it is much easier to justify the money you spend on them. Maybe you don’t make a profit on every car you invest in or that you own, but even if it doesn’t perform as planned, it is still better to drive your asset into the sunset than to stare at the numbers of your portfolio on a flickering computer screen.
Let us know if you are looking for a special car and we will gladly assist you in finding it, no matter the make, model or rarity.