Strategies To Transform Cars Into Smart Investments

Cars are often considered to be one of the worst assets to invest in. Unlike other assets such as property, cars tend to depreciate in value as soon as they are bought. Most cars lose between 50-60% of their value in the first three years of ownership. However, there are some ways to make profitable investments in cars.

Firstly, it is recommended to avoid buying brand new cars. New cars are packed with the latest features and technology, leaving no room for improvement. As a result, it is almost impossible to make a profit from a new car. Instead, it is better to invest in older, used cars that can be improved.

When investing in cars, it is also important to consider the running costs. Research suggests that it costs around $5,624.58 per year to own a car in the US, including car payments, gas, insurance, and replacement parts. These costs should be factored in when selling a car, as they can eat into any profits made.

Another strategy is to invest in classic cars. These are iconic, old-school cars that are no longer being manufactured, such as the Mini Cooper from *The Italian Job* or the Aston Martins from the James Bond films. As these cars are rare, they can grow in value over time.

Finally, it is recommended that investors avoid driving their investment cars, as this can decrease their value. Overall, while car investments can be risky, there are some ways to make them work for you.

Buy cheap, sell high

When it comes to buying cheap and selling high, there are several strategies you can employ to make a profit in the car market. Here are some tips to help you get started:

Buying Cars Effectively:

• Search for cars sold by their owners through car auctions, classifieds, eBay, and Craigslist. You're unlikely to find a profitable deal from a dealer as they generally sell at the highest price.
• Don't be put off by "salvage titles". These can often be some of the best deals, but be sure to ask about the history of the car and why it earned the title.
• Use online appraisal sites like Edmunds and Kelly Blue Book to get a baseline price for the car. Take into account the make, model, year, and condition, and note the "dealer's price".
• Always start the car with a cold engine to hear or feel any issues with the motor. Be wary of cars that don't start smoothly, have loud noises or grinding sounds, or exhibit ticking, whining, or shaking.
• Check the oil levels and colour. Lighter oil is better, and it shouldn't be dark brown or sludge-like. If there's water or solid bits in the oil, walk away.
• Get the seller to rev the engine a few times and watch the exhaust. If it produces black or thick smoke, that's a red flag.
• Check under the car for leaks once it's been running for a while. A little water is expected, but oil or radiator fluid is a problem.
• Pop the hood and listen for loud ticking noises or gurgling. Ask the seller to rev the engine in neutral and watch for any issues.
• Test drive the car if possible. Pay attention to the steering, braking, transmission, and electronics.
• Use any defects you find to drive the price down, especially if they weren't mentioned in the ad.
• Get the title and registration for the car. If the seller doesn't have the title, be very wary.

Selling Cars at Their Highest Value:

• Determine your lowest and target prices before putting the car on the market. Use appraisal sites and local ads to find buyers.
• If you're not in a rush, start the price on the high end. If you want a quick sale, keep it on the lower end and note that you're firm on the price.
• Be prepared to negotiate. Use "OBO" ("or best offer") to indicate your willingness to negotiate.
• Consider selling at an auction if the car is high-value or rare. Auctions are a gamble, but you might get more than expected.
• Get the car checked by a mechanic and fix any issues, as long as they're cheap enough to still make a profit.
• Clean the car thoroughly, inside and out. Vacuum, wipe down surfaces, and wash the exterior. Consider a coat of wax for higher-priced cars.
• Disclose any obvious defects to the buyer and include them in your ad. Being honest upfront brings in more serious buyers.
• Provide plenty of pictures, especially of problem areas. This inspires confidence and reduces worries about potential defects.
• Change the oil, radiator fluid, and wiper fluid if necessary. Note these services in your ad, as buyers appreciate not having to worry about them.
• Be aware of state-specific requirements, such as smog tests, and get them done ahead of time. You can usually charge more than the test's cost.

Additional Tips:

• Keep an eye on the car market, including auctions, classifieds, and local ads, to spot trends and opportunities.
• Look for buyers and sellers who want a quick and hassle-free transaction. They'll be easier to negotiate with.
• Be a tough negotiator. Know your ideal and maximum prices, and don't be afraid to walk away if the seller doesn't meet your expectations.
• Bring a knowledgeable friend with you to inspect the car and test drive it.
• Don't be afraid to walk away from a deal if it doesn't feel right. Trust your instincts.

Only buy used cars

While cars are generally considered a poor investment, there are ways to make a profit in the automotive world. One strategy is to only buy used cars.

When a car is driven out of a dealership, its value immediately decreases. In the first year, most cars lose at least $1,500, with an average decrease of $2,500. Over the first five years of ownership, a new car will depreciate between $6,000 and $10,000. Therefore, buying a used car is a better option as it has already taken the biggest depreciation hits in the first three years of ownership.

What to Look for in a Used Car

When buying a used car, look for vehicles that are no longer being manufactured, as these are rarer and more likely to increase in value. For example, the old-school Mini Cooper from *The Italian Job* film or the Aston Martins from the James Bond films. These cars are etched in history and have achieved iconic status.

Additionally, look for cars that can be improved. These are typically popular cars that have become cult favourites but have not been well-maintained by their previous owners. By purchasing these cars at a low price, you can then invest in repairs and improvements to increase their value. If you are able to do any of the repairs or improvements yourself, you can save money on manual labour costs and increase your profit margins.

Other Tips for Investing in Used Cars

• Avoid some of the most famous "supercars" like Ferraris.
• Certain Mercedes models, such as 1970s saloons and the SL, are good buys, though less desirable than their vehicles from the 1950s and 1960s.
• Lamborghinis are still appreciating in value. Lotuses are cheap and may be set for a renaissance.
• Cars from the 1950s and 1960s are already inflated in price because the people who wanted them in their youth can now afford them. Instead, target cars that were popular with younger generations, as these will be in demand in the coming years.
• If you are interested in classic muscle cars, like the Ford Mustang, be aware that these cars are fuel-thirsty, so factor in the cost of fuel if you plan to drive them.
• If you buy a classic or rare car that is more than 40 years old, it will be exempt from road tax.
• Be cautious of investing in a new car because you think it will be collectible someday. Chances are it won't be worth millions in a short period, and you will incur costs such as inflation, upkeep, insurance, storage, and opportunity costs.

Know what you're doing

Knowing what you're doing is essential when it comes to investing in cars. Here are some key considerations and strategies to help you make informed decisions:

Market Dynamics and Trends:

• Depreciation: Unlike other assets like properties, cars typically depreciate in value as soon as they are driven out of the dealership. Most cars lose a significant percentage of their value within the first three years of ownership. This means you'll likely sell your car for less than you bought it unless you make careful choices.
• Running Costs: The cost of owning a car goes beyond the initial purchase price. Running a car incurs expenses such as fuel, insurance, maintenance, and repairs, which can add up over the years. These costs should be factored in when calculating the total lifetime value of the car.
• Classic and Vintage Cars: Classic cars, especially those with historical significance, rarity, and aesthetic appeal, tend to gain value over time. Cars with racing histories or associations with notable designers, racers, or celebrities are also often sought-after by collectors.
• Limited Editions and Rare Models: Cars produced in very limited numbers by high-end manufacturers like McLaren, Ferrari, or Porsche tend to hold or increase their value over time. These cars cater to a niche market of wealthy and passionate collectors.
• Emerging Markets: Keep an eye on emerging market trends. For example, manual transmission sports cars or GT cars might gain value as they become rarer due to the shift towards automatic transmissions.
• Nostalgia and Cultural Significance: Cars that evoke strong feelings of nostalgia, especially among younger generations with growing purchasing power, can be good investments. For instance, targeting cars that were popular in the 1980s and 1990s could pay off as those who cherished them in their youth may now have the means to buy them.
• Improvement Potential: Look for cars that can be improved and sold for a profit. These are often popular models that have fallen into disrepair. By investing in repairs and restoration, you can increase their value and sell them for more than the sum of the purchase and restoration costs.

Due Diligence and Research:

• Research and Comparisons: Before investing, conduct thorough research on the car's value, provenance, condition, and potential for appreciation. Compare prices across different models and consider the number produced, the current market availability, mileage, and condition.
• Expert Advice: Consider seeking advice from car experts or enthusiasts who have experience in the field. They can provide insights into the market and help you identify cars with the potential for value appreciation.
• Online Resources: Utilize online resources and tools provided by entities like the Historic Automobile Group International (HAGI) and insurance company Hagerty to track car prices and determine the value of your desired vehicle.
• Due Diligence: When considering a specific car, don't rush into a purchase. Take a step back and conduct thorough due diligence on the vehicle's history, ownership, and any modifications made. Ensure that any improvements or repairs are done properly and maintain the car's originality as much as possible.

Practical Considerations:

• Storage and Maintenance: Properly storing and maintaining your investment vehicle is crucial. Keep the car in a dry and controlled environment to prevent damage from damp conditions. Regular maintenance, including oil changes, cleaning, waxing, and brake checks, is essential to preserve its condition and value.
• Insurance: Ensure you have the right insurance for your car. Inform your insurer about any changes or modifications made to the vehicle, as this may impact your coverage.
• Driving and Usage: Ideally, refrain from using your investment car as your daily driver. The more you drive and use the car, the more wear and tear it will experience, potentially impacting its value. A test drive after making improvements or repairs is fine, but consider keeping the mileage low.
• Costs and Budgeting: Investing in cars can be costly, especially when factoring in maintenance and storage expenses. Carefully consider your financial situation and budget accordingly. Be prepared for unexpected costs and have a plan to cover them without straining your finances.

Know how to use a wrench

Knowing how to use a wrench is an essential skill when it comes to maintaining and repairing cars. Wrenches are used for tightening or loosening nuts, bolts, and screws, and a good tool setup should include a wide range of wrenches.

Choosing the Right Wrench

The first step in using a wrench is selecting the right type and size for the job. The most common types of wrenches are the pipe wrench and the crescent wrench, which are both adjustable. There are also fixed-type wrenches, commonly known as spanners, which come in box, open, or combination types. To choose the right size, ensure the wrench jaw corresponds to the size of the fastener you are working with.

Holding and Turning the Wrench

Always hold the wrench by its handle. Ensure the wrench jaw is in complete contact with the fastener before applying any pressure to prevent slipping and causing damage or injury. When tightening or closing a nut, place the hook jaw (movable jaw) to the left of the nut and rotate it clockwise. Pull the handle towards you. For loosening or opening a nut, place the hook jaw to the right of the nut and rotate it anticlockwise, pushing the handle away from you.

Using a Pipe Wrench

A pipe wrench has serrated teeth on its jaws, which bite into and clamp onto the pipe when pulled in the right direction. However, it will slip if you pull in the wrong direction, and it can leave marks on the pipe. Therefore, it is best to reserve pipe wrenches for work under the sink rather than on nice plumbing fixtures. Do not use a pipe wrench on nuts and bolts, as it will usually damage the fastener.

Using an Adjustable Wrench

When you have multiple fasteners to work with, an adjustable wrench is not the best option. Instead, opt for a socket wrench, which has a ratcheting mechanism on the head and attaches to various size heads. The ratcheting device allows for quick tightening without having to remove and refit the wrench after each turn. Ensure you use the right size of socket for the fastener to avoid rounding off the edges of the nut or bolt.

Safety Tips

• Never add leverage with another item when using a wrench, as it can damage the wrench, round the fastener head, or cause injury if it slips.
• Avoid hitting a wrench with a hammer, as it may damage the tool (unless you are using a slogging wrench).
• If you must push the wrench, use the heel of your hand, as it is the strongest part in case the wrench slips.

Invest in classic cars

Classic cars are one of the few types of cars that can be considered an investment. Most cars depreciate in value over time, but classic cars gain value due to their rarity, performance, or special attributes.

The market for classic cars has outperformed other types of collectibles, such as coins and stamps, over the past decade, and certain classic cars can be valued at several million dollars.

When looking to invest in a classic car, consider the following:

• Historical importance: Cars that pioneered new technology or raised the bar for consumer expectations can become collectibles, especially if they are rare and aesthetically pleasing.
• Racing history: A car's value can be enhanced if it has a racing history or is associated with a respected designer, racer, or builder.
• Celebrity ownership: Cars previously owned by celebrities, particularly those associated with cars, such as Steve McQueen, Paul Newman, or James Garner, can be more desirable to collectors.
• Nostalgia: Cars that evoke feelings of nostalgia can be more sought-after by buyers. For example, targeting buyers who are currently between 35 and 40 years old and investing in cars that were popular during their youth.
• Rarity: As with any investment, rarity is a key factor in successful investments. Look for cars that are no longer being manufactured and are, therefore, incredibly rare.

It is important to note that investing in classic cars requires substantial knowledge and careful consideration. The value of a car depends on various factors, including the number made, the current market availability, mileage, and condition. Additionally, classic cars come with carrying costs, such as maintenance, storage, and insurance.

When investing in classic cars, it is advisable to avoid driving them as much as possible to maintain their purity and value.

Frequently asked questions