Feb. 17, 2016, at 9:35 a.m.
For many Americans, owning an automobile is a necessity, but depreciation and other costs nearly ensure that it's also a poor investment.
But not always.
During the last decade, more investors have been jumping on the classic-car bandwagon, buying antiques and otherwise prized automobiles as an alternative to traditional investing. The demand has helped push the value of classic cars up nearly 500 percent in the decade ending in 2014, according to the Knight Franklin Luxury Investment index.
What's driving values? The Internet, for one. The amount of information available on the Web, as well as the ease with which data can be found, has removed a lot of the footwork necessary to ensure a particular car is worth purchasing, says Alain Squindo, chief operating officer at RM Sotheby's, an auction company that specializes in rare and collectible automobiles.
"It's a much faster and effective way to research cars" that has allowed many more people to become savvy investors, Squindo says. As with other types of alternative investments, such as works of art or wine, classic car investing for many is a passion. And much like those investments, buying a collectible car needn't require an extraordinary amount of money. Paying under $20,000 is "perfectly reasonable," he says.
Whatever your price range, be sure to pick the best example you can find. Here are some other tips to consider:
Not just any old car will do. Rarity is the big driver of classic car values. Knowing how many examples of a particular make, model and year is key to understanding whether it's worth its asking price. It's one reason some experts suggest focusing a search on German and Italian vehicles, such as Porsche and Ferrari, which simply didn't make many cars. One example: A 1955 Porsche 356 Pre-A Speedster by Reutter fetched 341,600 euros ($381,120) at RM Sotheby's Paris auction this month – well above its estimated value of 250,000 to 300,000 euros. The car's relative scarcity – only 1,233 examples were built – was likely a significant contributor to its final auction price.
Keep passion in mind. If you're looking to invest in a classic car to make a quick buck, better keep moving. Although the market continues to expand, expert sentiment in February saw its biggest month-over-month drop since 2009, suggesting the classic car market may be slowing, according to a report by Hagerty Insurance, a vintage-car insurer. Keep this in mind: Buy what you love. If you never make a penny from your investment, you'll at least own something you truly want.
Do your research. Sure, the Internet can help you research a make and model's history, but it can also connect you with other collectors, enthusiasts, even previous owners – many of whom are eager to share what they know.
Consider age and condition. Generally, an older version of the same make and model is worth more. But other factors influencing value include the number of miles on the odometer and the amount of original equipment, as can documents showing the vehicle's previous owners, maintenance and travels, which can also provide insight into how original the car is.
Don't forget the intangibles. A vehicle's value isn't limited to nut and bolts, and sometimes the purchase price is determined by intangibles. Some collectors, for example, prize original condition over restoration. In other words, beauty is in the eye of the beholder, so the perceived value of a car often depends on the collector's preferences.
One isn't enough. Just as you wouldn't buy and hold just one stock, it pays to diversify your portfolio of classic cars, too – if you can afford it – should you be serious about making money from buying a classic automobile. It can be tough to know if and when a particular car's value will accelerate and by how much. Spreading your investment over several models can help hedge your bets. Squindo, from RM Sotheby's, says collections of 100, 200 or even 300 cars aren't unusual.
There are extra costs. The cost of owning a classic car isn't limited to its purchase price. Other expenses such as insurance, maintenance, restoration and storage must be considered before you plunk down your hard-earned cash. Keep in mind that owning a vintage vehicle – just like holding stocks – means you'll likely need someone to help you manage your investment, otherwise known as a mechanic.