What to Know Before You Invest in That Classic Car

Most cars' values depreciate sharply with time, starting the minute you drive out of the dealership. If your car is rare, beautiful, or historic enough, though, it just might be worth more after a few years.
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This past Friday at the RM Sotheby's auction, a 1936 Mercedes-Benz 540 K Special Roadster shattered Arizona records when it sold for just under ten million dollars. Many of those following the action were disappointed - the car had been previously evaluated at ten to thirteen million.

It's figures like these that tempt investors to sink their cash into classic cars. Most cars' values depreciate sharply with time, starting the minute you drive out of the dealership. If your car is rare, beautiful, or historic enough, though, it just might be worth more after a few years. Some investors have welcomed collector cars into the world of legitimate investments, along with fine wines and vintage stamps. It sounds easy: buy a car, keep it in your garage for twenty years, and sell it at auction for triple what you paid. In reality, all investments carry risk, and collector cars are no different. Making a move without careful research and planning is asking for financial disaster.

Here's what you need to know about investing in classic cars:

What to buy

When choosing the car to put your money on, don't pick anything that wasn't a great car when it rolled off the assembly line. "Anything that's discontinued that did," says auto expert Oren Abadi of Abadi Motors, "that's the car you want to keep in your garage." Don't touch anything that wasn't an initial success. After a few decades, a poor quality car will just be an old poor quality car. An old favorite, however, will age gracefully.

Take the air-cooled Porsche 911. Despite the recent surge of interest in the line and the corresponding explosion in pricing, these discontinued masterpieces can still be had for five figures. Abadi currently owns one: a white 1993 Porsche Carrera 2. To thousands of classic car enthusiasts, this was never just a classic car. Since its inception, the Carrera has been part of a legacy of beautiful, drivable performance. In short, of Porsche-ness. And decades later, the Carrera's value is on the rise. Abadi's is listed at 45,000 dollars. He predicts that in five years, it'll go for eighty to ninety thousand. In ten, 90,000 to 120,000 - or more. A lucky owner could triple his investment.

Another rule to keep in mind: older isn't always better. While vehicles from the twenties and thirties have traditionally occupied a key spot in the classic car market, many of today's top sellers were manufactured in the eighties and nineties. This makes sense, when you consider that those were the formative years for Gen-Xers, who have just come into the cash needed to buy their old dream cars. "For a kid in the '80s, (the 1989 Lamborghini Countach) was like a unicorn," said Rick Drewry, American Modern Insurance's senior claims specialist of collectible cars, in an article for InvestmentNews.com Today, that kid from the eighties is in his prime earning years. He may just have the money - and the motivation - to own that unicorn.

What to beware

Financially speaking, there's a lot more to buying a classic car than the sticker price. Be prepared to pay a premium to restore, maintain, store, transport, and insure your vehicle. Don't forget the consignment, transaction and commission fees that are usually taken from the final sale. Before committing, calculate an estimate of how much you'll spend on your classic car while you wait for it to make your fortune. Go ahead with the purchase only if it looks like you have a fair shot at turning a tidy profit.

Who to consult

"Unless you know what you're doing, there's no such thing as an investment in a car," says Abadi. With hundreds of thousands of dollars (or more) at stake, you want to know what you're doing. If you don't have a very good understanding of the classic car market, consult with someone who does. Treat your car purchase like the significant investment it is. Don't jump into a purchase until you've spoken with an expert in the field.

Investments always mean risks. The classic car market is no different - there's a lot to lose, but also a lot to earn. Do your research, find your expert, and who knows? The car you put in your garage now might just see you through retirement.

*Dina Green contributed to this article.

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