In my line of work, I’m constantly told two things by the general public: All cars are nothing but money pits, and My uncle has a ‘65 Mustang that’ll be worth 200 grand in three years, but I’ll sell it to you for $6500. Both statements are obviously bullshit, but not because cars in general are bad investments—far from it, in fact. Here’s why.
Recently, A colleague and Jalopnik writer Doug DeMuro—who definitely didn’t make me incredibly jealous of his car purchase, by the way—wrote that cars are horrible investments for the everyman. His argument, and I’m paraphrasing, boiled down to: In order for you to reap any sort of substantial reward for your financial automotive investment, you’d have to be rich enough to get weekly flaming bags of poop left on your porch by Bernie Sanders.
While that train of thought is a popular one and may work in general, it’s dismissive of the people who can and do profit from buying cars based on future values, and I’ll draw on my own experiences as reference. Anecdote, shmanecdote.
Investing, whether it’s in a stock that Martha Stewart told you was totally legit, or a Craigslist special ‘85 Maserati BiTurbo that ran when parked, comes with an inherent liability known as risk. What this means is that when you buy something, there’s a chance that your invested money will be gobbled up by the capitalist market, never to be seen again. The key to a healthy investment is to minimize this risk by removing as many unaccounted variables as possible, and with an automotive purchase, it boils down to a few common sense tenets.
Before I go off on a tangent about how automotive writers have converted complex issues into simplistic headlines that they can explain away in five-to-seven paragraphs, I’ll don the proverbial flamesuit and say that I’m probably guilty of the exact thing I’m lambasting, especially when it comes to the topic of automotive finance.
I stand by the idea that financing a new car is akin to taking waist-high pile of cash and letting Mother Earth reclaim it like an old Buick in a Florida swamp, but the arguments that I presented might not have been the most conducive to converting someone that had been told all their lives that financing a brand new car was simply the adult thing to do. This time, readers and car lessees alike, I’ll make an effort to understand your plight and I’ll try to be a little more compassionate. I said try.
Having said that, let’s begin.
Always Buy Used
In stocks, particularly penny stocks, there’s a term called pump-and-dump. This means that unscrupulous companies will issue a press release stating that they have a fancy new CEO that’s set to double everyone’s salary because the company tripled its earnings in the last quarter. What this does is gets the often fickle and consistently stupid market into buying as much stock in a seemingly growing company as it can, then the heads of the company sell off the major shares at an inflated cost and fuck everyone rightly over when the stock smashes into the ground like a weather balloon’s GoPro.
Imagine that these pennystocking companies are dealerships trying to sell you a new car, citing everything in the manufacturer’s brochure that’s meant to tug on your heartstrings and make you forget that you just signed on to pay three times the car’s depreciated cost plus interest. At the end of your term you’re left with nothing to show for your investment but a $30,000 hole in your account and a car that you have to get rid of because just look at this old hunk of shit. It’s FALLING APART!
Barring extreme examples like a delivered-by-God LaFerrari or Mclaren F1, every single car depreciates. Yes, even your ‘16 Chevy Trax with the 1 of 235 dealer-installed roof rack accessory. This means that in order to have any sort of potential return with a traditional buy-low, sell-high approach, your only option is to buy a car right at the point where the market has all but forgotten about it.
Buying cars when they’ve reached nearly the bottom of their depreciation curve also means that you won’t incur any of the insane costs associated with having the privilege of being first seat-farter, but you may incur the costs of dealing with the primordial pooter’s lack of automotive maintenance. While these costs can be substantial in some cases, the workaround for this issue is solved with simple research and a good plan, as I’ve detailed in a previous article.
Buy Low, Wait, Sell Regular
Discovery Channel’s hit show Fast N’ Loud and its countless spin-offs and clones portray the glamorous and fast-paced life of professional car flippers, taking rusted heaps and turning them into show stoppers, collecting more cash in a week than you would dare disclose to the IRS. While these shows are hyperbolic smoke-and-mirrors examples of the investment car scene, the basic tenets of how to buy a car for profit - the things they can’t fake - are laid out in front of you. In order to make any money on a car over any period of time, you’ll need to find a car in an emerging market, under market value and sell it for market value with all costs considered.
While it’s true that the riskier investments tends to return faster cash, playing the safe, long game nets you a far greater return if your goal is simply to own an appreciating automobile. What this means is that things will almost always work out for you if you do your homework and you’re willing to let the market come to you.
Let’s take for example, my Mazda FD RX-7, a car I bought and sold in the span of a few months in 2013. I bought the car for $5,000, performed some much needed mechanical and aesthetic CPR for cheap, and sold it for no less than double my purchase price. I didn’t pick this car randomly. It was a market that was due to increase because the main motivator driving collector car markets—childhood nostalgia—was poised to kick in with millennials with extra spendin’ cash.
The car was far from a concours example and had a few loose ends and rough patches, but was an overall solid runner so I priced it accordingly. I didn’t bamboozle anyone and I wasn’t bent into a pretzel to make the numbers work for me. It wasn’t an outlier of a sale, I didn’t have a sugar daddy to fund the purchase, and my last name as you can see is not Murdoch, Koch, or Googlesworth.
However, had I waited for the market to come around to its current inflated state, I likely would’ve earned double the profit by simply waiting a year and owning one of Japan’s best looking turbocharged sports coupes. Don’t believe me? Try and find a running, non-salvage-titled example of a manual Mazda RX-7 for under 10 grand. I double dog dare you.
What this signifies is that not only did the financial risk erode the longer I waited, but the return on investment would’ve beat out any industry average on stocks for the year. Even if the car I bought had an engine that never started and all I did was sign the title and nothing else, waiting in a metaphorically exploding market meant that I’d always see a positive return, no matter the car’s condition. That’s the formula I used on nearly every car I bought and sold for profit, and other than a craigslist Cadillac or two, all generated positive return on my investment.
Money Is Only Made When You Buy
While billionaire and economic divining rod Warren Buffett would probably attest to the notion that in order to be financially successful, it would behoove you to sock away money in a conservative investment, generating a healthy return is never due to simply waiting on a particular investment to sprout wings and take off.
On the contrary, money is always and only made when you buy, so picking winners is the most important part of the whole shebang.
This does mean that if you pick a losing investment, your money might as well be funding Carlos Mencia’s return to fame, because you’re never seeing that shit again, but it doesn’t mean investing in cars is anywhere near as risky as picking stocks in a company that you don’t have a personal stake in. It sure as hell isn’t gambling, and not in the Draft Kings “not gambling” way either, because you account for nearly all risk with market research before you ever think about touching your bank account.
Currently, the gold standard of predicting whether a car model will go up in value is based on three things: whether it was a desirable platform when new, whether it is iconic or notable in any substantial way, and if it has depreciated to the point where it’s all but forgotten about by the majority of the market. While there may be other factors that play a part like the popularity of movie franchises featuring a certain type of car, the aspects of a predictable automotive economic model always use these basic criteria.
Since platitudes are useless without examples, I’ll throw a few freebies out there so no one accuses me of tellin’ tales out of school.
As we speak, there are a few market segments to which a budding investor should pay particular attention. The first would be any semi-exotic sports or GT car that’s driver-focused and equipped with a manual transmission. High-end manufacturers are the first adopters of standards, and most exotic cars have parted ways with the third pedal, creating a small but vocal market vacuum in its wake comprised of needy and increasingly wealthy buyers.
A good example of this would be manual versions of the Ferrari F430, Aston Martin DBS, and Lamborghini Gallardo. Cars in this segment have seen sale prices increase steadily, and $100-150k now will net you a decent example that you can both drive and sell for more than your purchase price two to three years in the future.
Sure, not everyone has six figures to risk in something that can get sideswiped by a Ford Taurus with no insurance, but if you set your sights at a five figure budget, there are plenty of M-badged BMWs, RS-badged Audis, and non-911 Porsches that fit this criteria, although traction in the market may take a bit longer.
A second market that comes to mind would be utilitarian pre-SUV-era trucks. While an early ‘90s Land Cruiser is a perfect example, any no-frills Land Rover or Jeep would qualify, and with prices dipping down to four figures for good runners, there’s not much to complain about here.
The platform’s promising future is driven almost entirely by their scarcity and utility. As fuel prices increase and supply of well-looked after models decrease, they’ll be priced out of the realm of the usual Craigslist punter and finally be recognized as the kind of special vehicle that doesn’t need no stinkin’ warranty—it’ll just live forever, thank you very much.
The last rising segment that I’ll mention is anything made in the late ‘80s and ‘90s in Japan and fitted with a turbocharger from the factory. It started with the Toyota Supra’s Fast and Furious-fueled rise to automotive culture stardom, but every single Japanese turbo car, from the Toyota MR2 to the original 300ZX Turbo, has seen prices nearly double in the last five to seven years.
While there haven’t been any stand-out examples that have made into six figure territory, it’s only a matter of time before some NSX owner puts some size 10s on and asks for a cool hundo. For the budget buyer, you can get a turbocharged masterpiece in need of a little work for well below $10,000 and get paid to wait. It’s the reason I initially bought my Mitsubishi 3000GT VR4 and also the reason why I decided to keep it for myself. No you can’t have it, stop asking.
It’s Not A Bubble. Well, Not Really.
In order to illustrate this point a bit better, let’s travel through time to take a look at the state of the housing market a decade ago. Banks were making money hand over greasy fist by issuing questionable deals to people who couldn’t afford them, and people getting the deals loved them because they never envisioned a world in which their deal with the devil would come back to haunt them.
When banks eventually went bust by having companies pull out of their bogus backroom shenanigans, shit rolled downhill so fast for so long that open mic nights across the country still have amateur comedians making jokes about it. This is what’s called a bubble burst. An inflated market has nowhere to go, so it just implodes, often taking with it several industries and peoples’ savings.
While I can attest to the fact that buying new cars on credit with sub-prime loans is certainly a bubble that will pop as soon as enough people default on their low, low monthly payments, making money on a car as an investment—following the tenets above, of course—has none of that bubbly sting, mainly because the cars we’re talking about are enjoyed across the world and have the ability to move anywhere, unlike your house or your Master’s degree in 17th century toymaking.
Sure, your rough Jaguar E-Type may not be worth much to your group of collector friends and key party aficionados, but rest assured that there’s probably an enthusiast in the Burkina Faso that wants an unmolested ‘73 V12 left hand drive example finished in British Racing Green, and they’ll pay through the nose to have it. The more iconic the car, the bigger worldwide draw it’ll have, keeping in mind that the occasional insane owner with a crazy, nostalgia-and-Jameson-fueled valuation selling for big bucks can skew the market a bit temporarily, but the market always normalizes over time and that owner will eventually learn to stop calling their car Eleanor.
Clearly some high-end collector and classic car markets are a tad bit over-saturated and in desperate need of adjustment, but with unprecedented means of communication via this series of tubes called the Internet, you’ll almost never have an automotive economic collapse buying a car for a non-Monopoly-guy amount of money.
Simply put, regular cars are all but bubble-proof, and your money’s probably safe buying a modern classic.
I preach these automotive commandments and passionately live by them because they’ve worked for me, though I’d caution anyone else to only pursue an automotive investment if they’re OK with occasionally getting in over their head with repairs or costs. It certainly ain’t perfect, but neither is anything else where you expect your bank account to grow steadily - there is a slight learning curve.
Automotive problems, while sometimes costly, can be solved simply relative to those of Wall Street, and the fact that it’s completely up to you to make or break a deal makes it all the more juicy when you buy some forgotten relic, fix it up, and have the time of your life while making a buck.
Take it with a grain of salt or as gospel, but coming from a person that bought a Mitsubishi 3000GT VR4, Porsche 944 Turbo, BMW M3, and BMW M5 way under market value and has never lost a dime betting on nostalgia, it’s not only possible to make money, but it’s a hell of a lot more rewarding than any stock portfolio. After all, you can’t do donuts in the snow with a 401k.