Tuesday, 7 November 2017
Interest in vintage cars has spiked, with prices of rare, collectible cars hitting all-time highs.
Just recently, a 1957 Ferrari 335 S Spider Scaglietti — one of four ever made — sold for a jaw-dropping $35.2 million. Shows like Wheeler Dealers, which features a car enthusiast and his mechanic who repair and resell vintage cars for a profit, highlight the trend of buying and fixing vintage cars as a passion and an investment.
Shops specializing in restoring vintage cars have been popping up to cater to this market. These shops give car lovers who don't have the time or skill to tinker with the cars themselves the opportunity to own and drive a mint condition vintage car.
For instance, Singer Vehicle Design in Los Angeles restores classic Porsche 911s to their former glory. The restored 911s can sell from $380,000 to half a million and up. The shop spends an average of 4,000 hours of labor per car and spends around $50,000 alone on new parts with each rebuild. Specialty shops often focus on the very high end of the market, where prices have seen the most growth.
Auctions are another popular option for vintage car enthusiasts. The key to auctions is similar as when buying from a specialty shop, perhaps even more so: do your research first.
But buying vintage cars as an investment can be risky. The vintage market can be capricious and fluctuate in unpredictable ways. There's also the cost and time involved in restoring the car. And the price of restoration can often exceed the value of the car itself.
Whether you buy at a specialty shop or auction, here are some factors to weigh before making your investment.
Unlike a brand new car, vintage or classic cars don't lose their value the moment you drive them off the car lot. A new car typically loses 36 percent of its value in the first year and 60 percent of original price over five years, according to Kelly Blue Book. Vintage cars, on the other hand, will lose about 5 percent of its original value each year it's on the road, but then once it reaches a certain age, it can appreciate 2 to 5 percent a year.
Factors affecting the price of a vintage car include its rarity, condition, mechanical or historical significance, and provenance, or record of ownership. Car buyers should consider the amount of time it takes to fix and sell a car and keep a cushion in the budget for unexpected maintenance costs. Classic cars can be expensive to fix as well as maintain. Insurance for classic cars, on the other hand, can be lower than typical car insurance if the car is not driven frequently.
While prices of more common classic vehicles have been stagnant, price tags on high-end classic cars have continued to climb. Classic cars were the top-performing alternative asset class for the 12 months ending March 2016, outperforming other luxury goods such as art, wine or vintage watches, according to the Knight Frank Luxury Investment Index. Over the past 10 years, classic cars returned 467 percent while art has returned 206 percent, colored diamonds 129 percent, and wine 245 percent, the index found.
Moreover, data from the Historic Automobile Group International's HAGI Top Index, which tracks prices of the world's 50 most desirable vintage cars, shows that rare collectible cars have outperformed the Standard & Poor's 500 Index in the 10-year period between 2005 and 2015.
Despite these promising figures, not all cars appreciate in value. The value of collectible cars is usually not affected by factors such as interest rates, but they can be affected by macroeconomic conditions such as a downturn as well as changing consumer tastes. Even with a smart restoration, there's no guarantee a classic car will fetch a profit if you want to sell.
For those reasons, collectible cars are generally not pure investments. Do the math but also follow your heart. For collectors, owning and driving a vintage car is a joy, even without a profit.
The content provided is for informational purposes only. Neither BBVA Compass, nor any of its affiliates, is providing legal, tax, or financial advice. You should consult your legal, tax, or financial advisor about your personal situation. Opinions expressed are those of the author(s) and do not necessarily represent the opinions of BBVA Compass or any of its affiliates.
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