Are Collectible Cars a Good Investment?
In this week’s Live Q&A, George was asked a lot about cars. Without getting into 1990 F-250s, it sounds like the perfect opportunity to see if the collectible car market could be a good alternative place to invest your capital!
Car collecting has been an enthusiast hobby for about as long as we have been driving them. Whether it's classics, American muscle, exotic or foreign, the car collecting market seems endless.
The question is whether car collecting is just a hobby for people to throw money at or if collectible cars offer a return and hold a place in a diversified portfolio?
What Makes a Car Collectible?
If you were to buy a car at your local dealership today, the odds are low that it will be worth more in a year than the price you paid because it is probably not collectible.
To be considered collectible, a car must have some other perceived value other than its function. This can be historical significance, racing heritage, rarity, name recognition, or even cult following.
However, it is a unique market because these characteristics alone sometimes do not guarantee collector’s prices.
Take for example the Ford Model T. It is one of the most historically significant cars in American history and can be considered collectible. But since its historical significance came from it being the first widely available and affordable car on the market, there are still thousands of Model Ts in existence and you can find running models for less than $20,000 online.
Given this, you will have to consider multiple variables when considering collectible cars as an investment. As with this example, just because a car is deemed collectible, does not mean that it will be a good investment.
Buy High, Sell Higher
It seems that one way to ensure the price of a collectible car will go up is if the price is high to begin with.
To stick with the Ford brand, in 2017 the Ford GT sold at sticker for $450,000. This was an expensive price, to begin with, and only less than 1,500 units were made over the production lifetime. Three years later, the same model year routinely sees prices over $1 million at auction.
But if shelling out hundreds of millions of dollars for a collectible car investment is not in your budget, there are now ways to get into the market while avoiding the high-priced barrier to entry.
One potential way to dip your toe in the water of collectible car investing is to use services like Rally that are designed to buy and sell equity shares of collectible assets, like cars.
Risks of Investing in Collectible Cars
As with any investment, there are risks to consider when thinking about adding collectible cars to your portfolio.
For one, collectible cars need a place to be safely stored. Any damage to the vehicle can deeply diminish the price so you will want to be sure you have a place to store the vehicle where it will not be disturbed.
If you want to drive your collectible car, you will need to have insurance which can be very expensive for these cars. Most people who invest in cars choose not to drive the vehicles due to this fear and to avoid adding miles to the odometer which can also negatively impact the price.
When the time comes to sell your collectible car (and you have hopefully made a nice return), you will, unfortunately, have to pay a capital gains tax on the profit you made. Collectible cars are an asset and just like with any other sale of an asset, the government will get its share.
For those who prefer to only invest in assets that pay you to own them, like rental properties or dividend-paying stocks, collectible cars may not be for you. The only return you will see from this asset class is price appreciation.
Should You Invest in Collectible Cars?
Well, that’s up to you. If you have the money and are interested in cars, collectible cars could be a fun alternative investment to balance out a diversified portfolio. As with any investment, there are risks as well as benefits and you would want to take the time to understand the collector car market before diving in.
If you really make it big one day, here is a list of the cars you will want to be on the lookout for.