Do you like cars?
Are cars a good investment?
What is the cost of having a car?
I will try to show some calculation of how much a car costs vs. how much a car is worth. Which kind of car is a good “buy” and which is not. Mixing both ways together is not a good idea, because just the use of a car makes it less valuable.
Investment or Tool
First you should realize whether a car is something you need for transportation (as a tool) or you want to buy with an expectation of growth in value (as an investment).
Tool
As a tool the decision is mostly a cost based one and how practical it is for your personal needs. I will not go into details of that but concentrate on the cost factor. The cost of having a car can variate in a matter of static (fixed) and continuous costs.
As static (fixed) cost the most common ones are:
- Buying a car for cash
- Buying a car on a loan
- Leasing a car
As continuous cost I would define in a matter of where and how far you go with the car such as:
- Fuel
- Electric Power
- Service & repair cost
I have prepared a simple excel sheet, which can calculate your dependencies on the 3 different static costs. It is for small, medium and big (more expensive) cars, so a good tool for everyone. Very important, it doesn’t matter if the car is used or new. You can just type in the different factors and see the solution. E.g. instead of the price for a new car, just type in the price for a used one on top.
Please download the general car calculator here
Investment
Binding of capital
If you decide to go the way of growth expectation, you might think twice. The cost of cars that usually have a growth in value is already quite high for the general person. That means if you are not sure which brand and model will grow in value, you must make a bet on many different ones. That means some will be more valuable and some will even depreciate in value. The initial invest is easily 100.000$ for only one car, that means the whole operation is a game of millions. Then you need a garage or a dry place where all these cars will stay and drive it from time to time to see if they are still operable. That takes intense care, might take a very long time (20 years+) and brings additional costs, which should be calculated in.
Selling valuable cars
If the luck is with you and there is a nice growth of a car that you bought, you can try and sell it on the market. But I guess that this is a market of luck. You need to know or find a car collector or enthusiast who is willing to pay for it, mostly a person with too much money. That is an additional cost factor, which will reduce your margin on this bet. Therefore, I consider collecting cars into the “art” investment sector.
Conclusion
For the general investor I cannot see much of an opportunity here. If you are not an expert, you might fall into the trap of “love” for the wrong cars, which might makes yourself happy, but not the bank account. Also, the time horizon is too far. There are better opportunities out there, even keeping the cash on a fixed interest basis.