Classic cars have been one of the best performing alternative assets in the past year and going back further than that.
Investors and enthusiasts have seen returns of up to 487 per cent on classic motors such as Ferraris and Jaguars over the past decade.
The returns can be miles ahead of shares and property, but what are the best ways to invest and how can you make sure your investment doesn’t breakdown?
Classic car collecting has become more than just a hobby and some investors are sitting on top of bumper returns.
Classic cars were the strongest performer in the recent Knight Frank Luxury Index, beating other alternative assets such as wine and stamps.
Values have soared since 2006. The best brands returned 16 per cent last year and 487 per cent over the past decade, based on data from the Historic Automobile Group International looking at the top 50 collectible cars in the world.
In comparison, the FTSE All Share is down 2 per cent over the past year and has returned just 21 per cent over a decade.
What is a classic car?
There is no set definition of what makes a car a classic, but often it will be a vehicle that is rare or that has become iconic, or is admired for its design or engineering. Obviously this can be pretty subjective.
Vehicles built before January 1973 are deemed ‘historic vehicles’ and are exempt from vehicle excise duty.
Those made before 1960 also no longer have to pass an MOT but must be roadworthy.
Cars from the 1950s and 1960s, such as a Porsche or Ferrari, tend to be the top performers, while the British E-Type Jaguar is always in demand.
The most recent hot property in the classic car market, however, has been iconic 1980s vehicles.
The BMW M3 (E30) has soared in value and specialist magazine Classic Car Weekly puts the prize of an excellent condition one at £30,000 plus. A few years ago, these could be bought for £10,000.
Meanwhile, a timewarp Ford Escort RS Turbo recently sold for £60,000 and a Ford Sierra Cosworth RS500 for £90,000 at the same Silverstone Auctions sale.
More accessible 1980s options are hot hatches, which are increasingly catching collectors’ eyes and are a cheaper and easier to maintain route into modern classic motoring. A good condition VW Golf GTI Mark 1 or Mark 2, or a Peugeot 205 GTI can be bought for £5,000 to £10,000, although prices are rising quickly.
Hot hatch: The Peugeot 205 GTI is a cheaper way into classic motoring but prices have been rising fast
How to invest in a classic car
Classic car magazines, clubs and shows will always have information on top models for sale.
Publications such as Classic Car Weekly list cars for sale, Practical Classics is aimed at those looking to get their fingers dirty and glossier magazines such as Classic Cars and Classic and Sportscar tend to focus on higher end models.
There are several dealerships across the UK that specialise in classics such as Landmark Cars in London, or those that concentrate on certain brands.
For example, Hexagon in London is currently selling a Porsche 911 Classic for £149,999.
Sussex Classics, on the other hand, has a 1981 MGB GT for £4,995.
One very good place to look for both information and cars for sale are the forums set up for specific makes or even models. These often feature buying guides, details of common problems and a community of people happy top help with questions. They can be found with a simple Google search and registering should allow you to talk to other members.
The best bargains can be picked up at auction, but then again the highest prices are also often paid there.
You can search for your nearest one here.
The big auction houses including Bonhams and Christie’s regularly hold classic car auctions. Cars can go for anything from less than £10,000 to more than £100,000.
There are lots of other auction houses around the country that regularly hold sales. A big one coming up with some more reasonably priced classics is theAnglia Car Auctions sale in late January.
Often the cheapest cars will need the most restoration. So it is important to do your research to find out how long and how much it will cost to restore and maintain a classic car and the type of value you are likely to get when selling.
From an investment perspective, you don’t want to pay too much if you are not going to make a decent profit out of it.
It is very easy to spend more restoring a car than the restored version will end up worth.
‘I WANTED TO BUY A JAGUAR E-TYPE BUT MY WIFE PUT IN A BID FOR A MINI!’
Mini enthusiasts: Rochelle and Richard Cohen purchased a Wood & Pickett Mini at auction
Richard Cohen, 58, has traditionally shunned shares and funds to save for his retirement, favouring property and classic cars. He has previously owned top models such as a Jensen, Jaguar and Triumph.
His attention has now shifted to classic Minis after attending a car auction in the summer to bid on a Jaguar E-Type but unexpectedly purchasing a 1987 Wood-&-Pickett-built Austin Mini when his wife Rochelle put her hand up to place the winning bid.
Wood & Pickett Minis, which were popular with 1960s and 1970s stars and media personalities such as Elton John, Cilla Black and Jeff Banks, have been known to go for more than £40,000 at auction when fully restored.
The car sports Wood &Pickett leather seats, walnut dashboard, walnut door cappings, Wilton carpets and colour-coded seat belts (front and rear).
It had been purchased from a dealership in 2007 in Surrey where it had been left untouched in a garage since 2000. It was put up for auction after the owner decided they couldn’t restore it themself.
Richard estimates it will cost £8,000 to restore with the work being carried out by Mike Thomas at classic car restoration firm Mistyle in Weymouth.
He paid £3,920 at auction so even after the costs of restoration, he has a good chance of making a decent profit.
Bought and being restored: Richard Cohen’s ��8,000 restoration of the Wood & Pickett built mini is underway
Investing in cars through a fund
As with any investment, diversifying your risk is important. It can cost tens of thousands to hundreds of thousands of pounds to buy a classic car, before you even consider restoration and maintenance costs.
If it’s exposure to the asset you want rather than the joy of owning the car, it is possible to invest through a fund. It could give you access to more cars in the market for a lower entry cost as well as taking away the hassle and costs of maintenance.
For example, Italian fund manager Filippo Pignatti Morano di Custoza runs the Classic Car Fund, buying and selling top models and investing in car manufacturer shares.
It currently holds six Ferraris, one Lancia, one Fiat and one Jaguar.
Investors will need deep pockets though. The fund has a minimum investment of €200,000 (£145,000) and an annual management fee of 1.5 per cent, plus a one-off 5 per cent subscription fee.
The fund has returned 7.33 per cent in the past year and 17.86 per cent since launch in September 2013.
This fund is domiciled in St. Vincent and the Grenadines and does not come under the Financial Conduct Authority’s regulatory regime, which makes it a potentially a risky option for UK investors who would already be investing in a risky asset.
The fund is regulated by the International Financial Services Authority in St. Vincent, in the West Indies.
It is important to research any companies you choose to invest with or in and ensure you are aware of the strategy and risks involved with investing in a fund based offshore.
What are the benefits of a classic car?
Unlike shares or even other alternative assets such as wine or whisky, you have an asset you can actually enjoy.
You can’t drink wine you are investing in but there is no reason why you can’t drive your classic car through the countryside.
The returns are also pretty decent at 15.52 per cent over the past year. In comparison, if you had invested in property, house prices have risen 3.7 per cent in the past year.
Investors don’t have to pay any capital gains tax on classic cars either, as they are seen as ‘depreciating assets’, even if their value increases.
Lee Goggin, co-founder of findaWEALTHMANAGER.com, a platform that connects high-net-worth investors with wealth managers, said: ‘The Bond effect means that the prestige end of the classic car market has seen impressive returns.
‘Pretty much any Aston Martin that has featured in a James Bond film will have appreciated enormously in recent years and will probably continue as there will always be a market among high-net-worth individuals.
‘That said, not everyone has £500,000 to spend on a museum piece. For a mid-market classic, you might pay between £100,000 and £500,000, with anything under £100,000 generally described as an affordable classic.’
Watch out for the risks
You will need to maintain your classic, which may mean sourcing rare and expensive spare parts, plus you need somewhere to store it. The older the car, the bigger the likely cost of the upkeep.
You will only make money once you sell so your money is tied up and you need to time the market so there is still demand when you want to sell.
You also need to make sure the amount you get is more than the cost of restoration and initial purchase.
Classic car investment is a demand-driven market and there is always a risk that your model could go out of fashion.
Ultimately, this is not a regulated investment so there is no investor protection as you would get with an investment fund.
Crucially, you need to know that this is a very risky market. Values can swing about a lot and with prices having risen dramatically in recent years, some in the classic car industry are questioning whether a big fall is due.
There is the risk of the bubble bursting on the classic car boom. Many investors were caught out in the late eighties and early nineties when the market was in its infancy.
Enthusiasts noticing the investment opportunities piled in using credit to fund purchases and values soared to more than £1million before the market dropped by 40 per cent after interest rates began to increase.
Investment vehicle: The Historic Automobile Group International Top index is based on the 50 most collectible brands, and has seen values soar in the past decade
Goggin said there are similarities today to the eighties boom, adding: ‘Back then we were entering rather than emerging from a recession so we may be looking at deceleration rather than a crash if the market does turn.’
He said: ‘The people who have benefited the most from the increased interest in classic cars are those connoisseurs who bought early in the last decade. These are the people for whom classic cars are a labour of love, rather than an investment vehicle, so to speak.
‘The best example is probably the Jaguar E-Type. At the turn of the millennium, if you knew what you were doing, you could pick up a decent one for less than £20,000. At auction today, the best E-Types can fetch six-figure sums. That gets people thinking about what the car gathering dust in their garage might be worth and could bring more to market.’
But Dietrich Hatlapa, of HAGI, says this time the market is more mature. He explains: ‘In the eighties when there was a financial crisis the central banks put the brakes on and hiked up interest rates, which withdrew liquidity.
‘This time around the market should have collapsed during the financial crisis in 2008 but it didn’t because the central banks increased liquidity, doing exactly the opposite as they did in the eighties.’
INVESTORS OF ALL AGES CAN FIND A CAR FOR THEM
Pension freedom rules mean anyone over age 55 can withdraw their retirement savings, and many have suggested classic cars as a possible destination.
But classic car restorer Mike Thomas, who set up Mistyle four years ago in Weymouth, says he sees clients of all ages.
He said: ‘The ages of customers through my door have ranged from 18 to 80.
‘There is a car to suit everybody. The term classics seems to be restricted to pre-1973 but I feel that is wrong. There are plenty of 1970s and 1980s cars that are fast becoming collectible and desired.’
He says younger clients tend to prefer classic shape Minis, while anyone reaching their 40s is buying what they had in their youth, for example an mk1 or an mk2 Ford Escort.
Thomas added: ‘Clients in the 50-plus up to retirement age bracket have owned their cars for many years. They maybe used to restore the vehicles themselves but now find with grandchildren or health issues they have come to me.’