Collecting Cars and Financial Planning

If you’ve lived in (or anywhere) near the city of Detroit for long enough, chances are you’ve developed a fascination with cars. From basic transportation, to barely-legal exotic racers, this part of the country is widely known as the automotive capital of the U.S.

I’ve had a passion for cars long before moving to the area over 10 years ago. My first car was a 1968 Ford Mustang that bought just before my 16th birthday and paid a little over $2,000 for. As you can probably imagine, when you are 16 and earning $5.00/hour (this was 1987), it is very difficult to come up with the money to repair any vehicle, let alone one that needed as much work as that Mustang.

The windows would roll down by themselves, the transmission would not go into drive during the winter unless the car had been running for 30 minutes, the floor was rusted out, and the body panels did not match up correctly. All of that said, it is still the best car I have ever owned.

Unfortunately, a lack of income in my teens caught up with me and I had to let my car go. Over the subsequent years, I’ve owned all types of vehicles from American-made, to others from Asia and Europe. And while all of them were really fun to drive and own, none gave me the same feeling that my 68 Mustang gave me — despite technically being “better cars”.

Over time my passion for cars and auto racing has grown. I try to go to as many car shows as I can every year, try to attend a few Cars and Coffee get-togethers, and am always excited for the Woodward Dream Cruise that dominates the landscape in the Detroit Metro Area every summer.

During the most recent Woodward Dream Cruise, I met a gentleman that made me think more about how the car collecting hobby and my profession are very much symbiotically linked. His name is Steven (I have changed his name for this piece and the forthcoming vehicles in his collection to protect his identity). Steven was sitting in a lawn chair next to me watching the cars go by. There were several amazing cars parked behind us as there are during the Dream Cruise. It turned out that all 4 of them were Steven’s cars. A 2015 Dodge Challenger Hellcat, a 1969 Camaro, a 1995 Toyota Supra, and a really nice Porsche 911 GT3 in which the year escapes me.

I learned a valuable lesson that day talking with Steven. Car collecting is really about the passion for cars, but car collecting can be profitable as well. But in order for it to be profitable you must know your stuff and understand what goes into the total cost of the car.

“These things are only a great investment if cars are something you really truly enjoy,’’ Steven said. “Cars will have to be insured, have to be cleaned and maintained, tires need to be changed and stored, and you have to have some place to put the cars.”

“All of this,” Steven indicated, “is why most people do not follow their passion for automobile collecting.” Or if you are like me, you are married and your spouse does not share this passion with you.

Car collectors know that the financial outlay could add up very quickly. This is due to some people not realizing the costs beyond the car itself.

Other costs besides the car include the following:

  • Insurance – Collector Car insurance is recommended, as these types of insurers understand the value of the cars better than a regular insurance company would. Hagerty, Heacock, and Grundy all offer classic car insurance. If you are going to “race” your vehicle at a track day event, you will need other special insurance. HPDE policies will cover this contingency. Companies like RLI or Lockton Motorsports will offer gap protection that will cover you over and above your primary policy.
  • Maintenance – Even if you are not driving the car regularly or at all, there is always maintenance to be done and that can get expensive.
  • Cleaning and Detailing – This may be the most time consuming of all car collectors time. “I am always trying to shine my cars up to make them look their best”, said Steven. For those without the time, a complete detail for a show could run close to $300 or more.
  • Storage / Real Estate – For a lot of people this means extra space in the garage. For others, it is much more than that. Some people rent warehouses, or own one. Some people rent space at a storage facility. Or, some people like to invest in a new form of Real Estate, the Car Condo, such as the ones you will find at M1 Concourse in Pontiac, MI or the Autobahn Country Club in Joliet, IL. These are places to not only store your vehicles, but to enjoy them as well.
  • Transportation – Driving your collectible from place to place is not the best way to retain the value of your investment. A reliable transportation company that specializes in collectible automobiles is the best way to move your vehicle without putting on unnecessary mileage. A company like Reliable Carriers, Inc. offers a great service and are experienced with collectible cars.
  • Taxes – Sales Tax, Personal Property Tax, and Capital Gains Taxes need to be considered. “I talk to three people before buying a new car,” Steve said. “My financial planner, my accountant, and my wife – in that order!!”, he said.
  • Investments – If the collection makes up a sizeable piece of someone’s net worth then factoring in the design of the rest of an investment portfolio should be considered. It is not recommended that you consider the vehicles “just a hobby” at this point.
  • Estate Planning – Proper titling and beneficiary designations are helpful in passing these collectables to their rightful beneficiaries without going to probate. Other issues to consider is the effect of the vehicle(s) value to the entire estate. For larger collections it may be wise to consult a Financial Planner and Attorney as the vehicles may be better placed in a trust or an LLC.
  • Miscellaneous Fees – Fees such as auction fees can run a collector car buyer 10% or the sale price. This can really add a lot to the price of the car.
  • Car Market Knowledge – Having an understanding of the market for the vehicle(s) that are of interest is very important. Even though you buy the car because you love the car does not mean you should just pay whatever price for it. Knowing the market can save you thousands and will help you make the best decision about when to sell.

With all of these things to consider I understand why Steven uses a team of financial professionals before he makes purchases. He realizes the importance of being in a financial position that not only allows you to buy your dream car, but also maintain it, and have money left to afford your lifestyle expenses. That’s the key!

Remember, the preparation required to purchase your dream car is all the more worthwhile once that car is sitting in your driveway and you know beyond a shadow of doubt, you can afford it.

By | 2017-12-19T22:17:44+00:00 August 21st, 2016|Blogs|Comments Off on Collecting Cars and Financial Planning