For most investors, traditional asset classes like equities, bonds and cash will make up the bulk of their portfolios. However, for the adventurous, there lies many other non-listed investment options that offer both potential yield as well as enjoyment. These other asset classes are collectively known as alternative investments or alternatives for short. Alternatives behave differently to traditional asset classes and act as a useful diversification tool, which could lower overall portfolio risk. There is a wide variety of alternative assets available to investors, however investing in classic cars is a personal favourite.
What is a classic car?
There are many different opinions around when a car becomes a classic. Some base it purely on the vehicles age while other motoring groups consider age with other factors like make, milage and engine size before classifying accordingly. The one thing all motoring groups agree on however, is that a classic car needs to be old. For most motoring enthusiasts, true classic cars must have stood the test of time. There are various motoring groups that differ on the age where a vehicle becomes classic, and these time periods range from 20 to 30 years, however I have always applied the 30 year rule to when an investment car becomes classic and when it has the possibility of really appreciating in value.
Why invest in classic cars?
For most investors, the two main reasons for investing in classis cars are 1) the potential for capital appreciation and 2) the enjoyment factor. When buying company shares, they are left to earn dividends and grow value in a share portfolio, where classic cars are physical assets which can be worked on in garages and taken for weekend drives. Investing in classic cars is about the journey in finding the right vehicle and then maintaining and enjoying that investment. Lockdown gave many a new perspective on investing and for me the one lesson was how important the enjoyment factor is around investing and that new types of assets must continuously be explored to further our knowledge as well as passion.
The investment Journey to finding that right vehicle:
While classic cars are an enjoyable investment, like any other investment, knowledge and understanding of the asset class is essential in being successful. Not all classic cars are a sound investment. The incorrect decision could leave you with a repair and maintenance bill exceeding the purchase price of the vehicle. These are some of the metrics to consider:
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Make and model: The make and model of the classic car on your radar will allow you to research how older models have performed in terms of appreciation as well as the investment sentiment across the world. Investment education is at the click of a button in terms of Google searches and identifying what other motoring groups are saying about your potential vehicle will further your understanding of your potential choice as well as assist you in get a feel for the current market demand and supply.
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The price: Like any investment, price plays a big role. When investing in a classic you must always keep in mind that work may well be needed, and items repaired increasing the cost of the investment. Tracking global sales prices, will allow you to have all your ducks in a row before making an offer. Overpaying for a classic, will mean reducing potential profits down the road.
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Capital appreciation: Another important aspect is whether that car increased in value since being built. I like to see an initial increase in capital value, as it means that there is already demand globally and that this demand should increase as the vehicle gets older.
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Condition: The condition of the car is crucial in making returns later when selling the vehicle. A major addition to value is original paint and leather work. Cars that have been repainted and reupholstered lose value, as the pure classic collector is looking for original condition.
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Service history: Having a full-service history as well as an audit trail on what has been done to the vehicle is part of the due diligence that must be done before purchasing that asset. Classic with full, franchised service histories will fetch greater potential returns in the future.
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Milage: In general the lower the milage the more valuable the car, however I also like to know that the car has not been sitting in a warehouse for 30 years, as that could mean parts malfunctioning in future due to the car just sitting. There needs to be balance between low milage as well as the car running from time to time.
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Understanding of the current market: Over the pandemic live auction houses were postponed, bringing some ambiguity to the classic car market and the real effect of the pandemic on it. Classic car collectors must be aware that fair value prices around the world might be difficult to obtain and researching price history as well as performing personal projection on potential returns, must be done before settling on a price.
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Maintenance and repairs: These classic cars are old. One thing I placed emphasis on was finding a mechanic that specialised in the vehicle make and model before making an offer. These cars are old and from time to time something will need to get fixed. Knowing a mechanic who specialises in the vehicle could save you huge amounts of time and money going forward.
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Trickle charger: Lastly invest in a trickle charger. As a classic car is not an everyday car, the battery will run down. A trickle charger allows the battery to be maintained, ensuring the life of the battery as well as the car turning over for the weekend cruise.
In closing:
Classic cars have remained one of the more popular alterative assets to invest in. Just like any investment, knowledge is required when looking to make an investment. Contacting an expert before buying your first classic car is always advised for an initial appraisal and review of the vehicle condition.
