Appreciating Assets?

Appreciating Assets?

Is your supercar or modern classic really an appreciating asset, or are you just kidding yourself?

Bandwagon
Noun – an activity or cause that has suddenly become fashionable or popular.

Ask yourself an honest question – have you ever made money on a car? There was a time when it was generally accepted that when you bought a car – even something rare and exotic – that you would lose money on it, but in recent years this perception has changed. Rather than a depreciation, these days many people look for an appreciation curve.

“I’m buying it as an investment”

This attitude has been shaped by a number of factors. First and foremost has been the rise in the values of classic & collectable cars since the credit crunch as investors put their money into tangible assets and enthusiasts thought “why not?” The second important factor has been the explosion of social media which brought with it the proliferation of so-called “content” & fake news. Google returns 157,000,000 results for the search term “investment cars” in just 0.5 seconds (many more than “car depreciation or even “pensions”) which tells us that an awful lot has been written on the subject and everyone on the bandwagon, it seems, is an expert.

As prices rose – egged on by the sheer volume of articles & blogs telling how to make money by buying and selling cars – so did the numbers of cars for sale and by late 2015 the prices of many classics were beginning to plateau as supply increased and the number of really good cars dwindled. Very soon modern classics were de rigueur and limited run production cars such as the Porsche 911R became the subject of fervent speculation, but paying a premium is no guarantee of future profits.

Poker face

You could argue that this scenario has made contemporary supercars even more popular. Buying supercars has, for many, become a hybrid of poker and Top Trumps, the key Trumping factors being number produced, marque and position on the waiting list and the most important poker skill? Understanding what the car is really worth.

For those that have a winning hand the rewards can be impressive, but for those that don’t, unanticipated depreciation is often the outcome. This can be of particular concern for those who have financed the car in question.

We speak more regularly than we would like with supercar owners who have taken out a finance agreement on a car with a small deposit and a large balloon payment on advice that it is a sure-fire investment from the seller or the finance company. Invariably these buyers believed they would be able to sell the car quickly and easily whilst making a profit or losing very little money, and also face significant fees for terminating the agreement early. These low-deposit, high-balance unregulated agreements have become increasingly popular in recent years, but they are rarely the right mechanism for short-term supercar ownership and arguably long-term ownership as well.

Getting it right

There are a lot of factors that can affect your potential return on investment when you purchase a supercar. Getting one of the first of any new car is important, but picking the right car is key too – and you’ll invariably need to make a significant investment in cars with a manufacturer before you are high up enough on the right waiting lists to make this a reality.

Timing is also crucial. This can be tricky to anticipate in the short term and in the long-term you will need a bit of luck or at the very least patience as so many factors can influence the long term popularity and desirability of cars. Ultimately, Luck will be one of the most important factors if you are looking to turn a profit, but taking the right advice goes a long way to making you lucky. There is a lot of really poor advice readily available on what cars are likely to appreciate – make sure get that bit right.

It’s not only advice on the car you should seek. Getting the right finance is also key to ensure the product suits your needs. Speaking to our specialists at Magnitude Finance gives you access to a wide range of products from a panel of over 20 lenders, and using our economies of scale we can pass on the benefit of low rates too. This is much more advantageous than speaking to an independent lender with a limited product range who may be forced to shoehorn you into a deal that suits them rather than you.

Our last words of advice – buy because you appreciate the car, not for appreciation…

Appreciate
Verb – to be grateful for (something) or to rise in value or price.

This article first appeared in Supercar Driver magazine.