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Are Classic Cars A Good Investment?

Ferrari

Ferrari. Image Credit: Nils Rohwer, Creative Commons license

People that are looking for an investment opportunity, classic cars are providing an attractive option, with only the value of gold having risen more as an asset in the last decade. The numbers, according to the Financial Times, are quite staggering, with the value of classic cars having risen by 395% and gold by 434% in the ten-year period leading up to the end of 2012.

Presented with this statistic, the answer to the question posed in the title is an unequivocal yes. And while these numbers are hard to ignore, unlike gold which is an asset that has very little variance, classic cars are complex and come in many different models, making the process of deciding how to invest money within them much more difficult.

Make and Model

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Image Credit: Nils Rohwer, Creative Commons license

The massive percentage increase in the value of classic cars is substantially contributed to by rare versions of top-end cars such as Ferraris, Aston Martins, Mercedes and Bentleys.

It is with these types of cars that the most substantial of profits can be made. However, to be able to invest in this type of car you will need to have a lot of money in the first place. Take the radio and TV presenter Chris Evans, for example. In 2010 he sold a Ferrari 250 GTO in a burgeoning market for classic Ferraris for $11.5million, however, the car cost him a reported $5 million in the first place.

Whilst demand for the more illustrious makes of car will always remain consistent. Outside of those models with a prestigious legacy, investments are a lot less stable, as demand for certain models, like in most markets, fluctuates in line with changing tastes and trends.

A non-income producing asset

Unlike many assets you can invest in, classic cars do not produce income and the only way to make any money on them is through capital appreciation over time, where they can then be sold on for a profit. In the meantime, there are other costs that need to be incurred – all of which can seriously eat into your potential profits. These include storage, insurance and maintenance.

Frankfurt IAA (motor show) Jaguar

Frankfurt IAA (motor show) Jaguar Image Credit: Nils Rohwer, Creative Commons license

Classic cars are a finite resource

Although there is fierce debate around exactly what makes a classic car, for many it comes down to whether the car is still in production or not. By this definition, when you are investing in a classic car, you are investing in something that exists within limited numbers and is unlikely depreciate in value because of that. This means that provided you have the means to look after the car properly, you aren’t going to lose any money, even if you don’t make as much as you’d hope.

You don’t have to be a millionaire

Yes, as already discussed, the best returns are going to be made on those cars that are among the most expensive already. Despite this, there are still ample returns to be made on more affordable classic cars, such as the one manufactured between the 1950s and 1980s like Lancia’s, Alfa Romeos and even Jaguar E-types, provided you invest wisely.

Even if these cars still reside above your budget, there is the possibility to make money on older versions of cars like VW Golf GTIs and Peugeot 205 GTis. Okay, this may be stretching the boundaries of what one might consider as a classic car, but with newer versions of each being released in 2013, the price of mint condition used versions of each are set to soar. Meaning, if you do your research and your timing is good, there’s money to be made for the savvy investor.

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Classic car show 2013. Image Credit: Juriën Minke Creative Commons license

Tax benefits

There are tax benefits to owning a classic car too. Because they are classified as an investment, classic cars are exempt from capital gains tax (CGT). Yet there are caveats to this as you must be careful not to buy and sell to the extent that you would become classified as a dealer, where the profits you make would then become subject to tax. Also, all classic cars built before January 1st 1974 are entitled to a free tax disc.

Final thoughts

If you have money to invest in classic cars then there is the potential to make astronomical returns, provided the market continues along the same trajectory it is currently enjoying. However, classic cars are a highly complex market with only the most prestigious cars making the most celebrated returns. And, as classic cars are non-income producing asset, there is the real risk that if you can’t look after the car properly while you wait for its worth to rise, its value could actually drop.

Yet, provided you have the means to look after your investment, its value is very unlikely to depreciate. Similarly, even those that only have a more modest sum to invest can, with a little knowledge or the inclination for research, find a suitable classic car that provides a worthy investment.

If you have had any joy investing in classic cars and wish to pass on any tips on why you were successful, please do in the comments section below.

Gavin Harvey

Gavin Harvey

Gavin Harvey is a personal trainer and blogger who loves writing about travel and cars. He is a regular contributor to GKBC as well as a number of other sites such as Need To Sell My Car.

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