Classic cars may be a joy to ride, but as investment vehicles, they involve unique costs (including heated garages in some cases) and risks (your muscle car could lose muscle after a financial meltdown).
Before dreaming up reasons to cruise in a new investment vehicle, consider the road hazards. For every story of someone who made $20,000 selling a 1930s hot rod, another story puts a dent into get-rich-quick dreams.
Take that 1958 Cadillac Eldorado Biarritz convertible that accountant James Jenkins bought at auction for $27,500 in the late 1990s. He put an additional $11,000 into that car to refurbish it.
“I always loved those old ‘50s cars. That’s what the super-rich guys are driving,” said Jenkins, the president of an accounting firm.
“The car was just Rodney Dangerfield over the top,” said Jenkins, who drove the convertible about 10 times or so a year. (And yes, comedian Dangerfield drove a flashy, red convertible in the 1980 movie “Caddyshack.”)
But unhappy with the high cost for maintaining the car, Jenkins sold his red-and-white, two-door head turner around 2002 at auction for $29,500.
Sure, it’s bad enough to sell a car at about $9,000 or so below costs. But now consider that the car could have been worth about $138,000 today, according to the Hagerty Price Guide.
Just like stock or real estate, investors of collectible cars face the risk of knowing the right time to buy and the right time to sell.
The 1960s muscle car ran strong during 2005 through around 2007, as boomers were looking for the high horsepower they couldn’t afford in their 20s.
But if you needed to sell a muscle car during the recession, you were going to get 25 percent to 30 percent less than you would have a couple of years earlier, said McKeel Hagerty, president and CEO of Hagerty, which specializes in classic car insurance and values.
“It was a definite pullback,” Hagerty said. But muscle cars have made a strong recovery, he said. Yet some see collectible cars as a “hedge plus an indulgence,” said Tony Richards, 69, who grew up in London but later worked for both Ford and Chrysler. He once ran Lamborghini in Italy when Chrysler owned it and worked on the board of Maserati as the Chrysler representative.
“People like tangible investments, rather than boring paper in a bank somewhere,” said Richards, who retired from Chrysler in 200.
Richards once had two classic Jaguars, a 1956 XK 140 SE Jaguar with a drophead convertible and a 1966 E-Type Jaguar convertible.
He sold both last September. The scarlet red E-Type sold for around $75,000; he paid $61,000 for it about seven years ago.
He sold the maroon 1956 XK 140 for $145,000; after paying $115,000 for it in 2003.
“I thought the market was pretty high, so I decided to cash out,” Richards said.
But Richards said he thinks he might have sold the cars a little too early and probably a little too cheap.
How much money you might make buying and selling a classic car, of course, depends on the kind of car you buy and how long you keep it. As an investor, you’d want to try to hold onto a collectible car for at least five years in many cases, Hagerty said.
Oddly enough, I recently found a 10-year-old clipping from the Wall Street Journal that listed 50 collectible cars and prices.
Hagerty researched the 2014 prices for me; all those cars would have made some money in 10 years.
A 1971 Mercedes-Benz 280 SE 3.5 — rated a “sell” in 2004 — would be up about 10 percent in value, according to Hagerty. It sells now for around $54,600 vs. about $49,500 in 2004.
The “buys” on the Wall Street Journal’s list in 2004 included a 1970 Ford Boss 302 Mustang priced at about $31,300 and up. That car would have gained 172 percent and be worth $85,000 today, according to Hagerty.com.
But remember, when you see six-figure selling prices on some cars, many investors could easily have spent six figures properly refurbishing some cars.
For most on Dream Cruise weekend, though, going down this road is far more about revved-up feelings than high finance.
“They’re not going to make anymore 1966 E-Types,” Richards said. “In fact, I wish I hadn’t sold it.”
Under the hood
What to know about turning a collectible car into cash:
The net capital gains tax rate is a maximum 28 percent on profits made from collectibles, such as classic cars and art. If joint adjusted gross income is more than $250,000, a 3.8 percent excise tax also would apply.
Some say buy the best possible car you can in the best condition. Rust can be hard to overcome in a classic car. Restoration can be far more expensive than you’d realize.
Be prepared to spend money on your vehicle. “Be mindful that every single car has issues,” said McKeel Hagerty, president and CEO of Hagerty, which specializes in classic car insurance and values.
Some experts recommend buying a car that you’d love to own and skip the notion of making money overnight.
- The Buzz: Rolling assets 9/2/14
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