14 Oct Can Buying an Exotic Car be a Good Investment?
I bought a 1999 Lamborghini Diablo Alpine Edition in May of 2014. I paid $126,000 for the car at the time and I thought it was a pretty good deal. Little did I know the car would skyrocket in value the next year I owned it. I bought my exotic car, because I love cars, especially Lamborghini’s. I have wanted a Lamborghini since I was about 4 and when I bought it I had no plans to sell it. I was not buying the car as an investment, but I did try to get the best deal I could (I am in the real estate business and getting good deals on houses is in my blood).
After owning the car almost a year and a half the car is worth close to $200,000. That is an increase in value of 63 percent! Although owning a Lamborghini has been a great investment for me up to this point, not all exotic cars are good investments. However, there are definite trends that history shows hold over time for making a good investment in exotic cars.
Why can exotic cars be a good investment when most cars are not?
Buying a 10-year-old Honda Civic is not going to be a good investment. There are some cars that just do not go up in value, no matter how old or nice they are. The reason some cars go up in value is supply and demand. Many exotic cars were built in very limited numbers, because there was a small buyer pool and they were very expensive. About 200 Lamborghini Diablo’s were made in 1999 when my car was built and about 2,000 Diablo’s were made over 10 years. There have been over 16 million Honda Civics built. To put that into perspective there are 8,000 Honda Civics for every Diablo.
The rarer a car is, the better chance it will be a collectible and will go up in value. However, there are some very rare cars like the Lotus Esprit that can be bought for under $30,000. The Lotus is rare, fast, looks pretty cool, but does not command the incredible price a Lamborghini does. The Lotus is not as well know, is not as exotic looking, does not have the Lamborghini name and there aren’t as many people who want one. For a car to be a good investment it has to be more than rare, it must also be desirable.
On a side note I think the Esprit will increase in value soon when the market realizes how rare they are and how cheap they are compared to other exotics.
Does the exotic car market move in cycles?
After observing car values for many years there are definitely trends that happen in the market. When the economy does well, the exotic car market seems to do well too. Many very rich people have extra cash to spend and they invest in exotic cars or purchase them for enjoyment. When the economy is doing poor you will see the opposite happen as well. Prices can decrease as people want to get access to more cash.
There is another market trend that is specific to the exotic car market. One of the biggest buyers of exotic cars are people who fell in love with cars when they were younger, grow up and make a lot of money. The cars that seem to make the biggest impression on us are the cars we saw when we were kids or adolescents. When I grew up in the 1980’s and 1990’s I loved the Lamborghini Countach and Diablo. In fact, the Countach was my first love, but I could not afford one when I bought my Diablo.
The values of the Countach skyrocketed the last few years from sub $100,000 prices for some models to over $350,000 for almost any Countach. The Persicopa Countach from the 1970’s could be bought for under $100,000 in the 1990’s and is now worth well over one million dollars. Diablo’s have started to increase in price as well and I believe part of that is because the children of that generation are grown up and some of them can afford those cars now. There are only so many of those cars for sale at any one time and when more than a few people start buying them, the prices jump. The same thing has happened with Ferrari’s from the same time periods, Aston Martins, Porsches and more.
Another thing to look at is the depreciation schedule of exotic cars. There are a few very special cars that never go down in value, even when they are first sold. But most exotic cars decrease in value just like any other car. Many exotic cars see huge decreases in value after only a couple of years after they were built. Some exotics are very expensive to maintain and the owners try to get rid of them before those costs kick in. If you can predict when an exotic will stop depreciating it can be a great time to buy. Just remember, not all exotic cars will go back up in value!
Can exotic cars that have already increased in value be good investments?
Besides the exotic cars that depreciate and lose their value over time, there are the cars that have already jumped in value. Lamborghini Countach’s and Muira’s have seen huge increases in value the last few years. Ferrari’s and older rarer cars have seen huge increases as well. Once a car has jumped up in value is it a good investment? To be honest, I don’t know. Possibly car prices could keep increasing over time, but they could also decrease if the economy drops off again.
I think the value is in finding cars that are rare, special, and new enough that they have a significant potential to increase in value when the kids who loved them make enough money to buy them. Investing in already high prices is more speculation than investing in my mind.
What do you have to look out for when investing in exotic cars?
A common saying when buying any exotic car is buy the best one you can find at a reasonable price. What that means is do not buy cars that need a ton of work or have no maintenance history because they are a little cheaper. Exotic cars are very expensive to repair and many times a full restoration will cost more than the car is worth. You can buy a 1950’s Rolls Royce for $40,000 that is in awesome condition. You can also buy a piece of crap Rolls Royce from the same era for $10,000. The problem with the cheaper Rolls is it will cost $50,000 to restore and still be worth $40,000. Buy the nicer cars that have low miles and need the least amount of work. They will be the cheapest to maintain and hold their value the best.
I mentioned many exotic cars have very expensive maintenance earlier. Ferrari’s and Lamborghini’s have expensive parts and they cost a lot to repair or maintain. I had to have the shocks replaced on my Diablo this summer and is was about $5,000. That was having a local shop do it and not the dealer who wanted to charge $9,000. While it may look like you can get a smoking deal on an exotic car, make sure you know the maintenance history and have it checked out.
The major service on some exotics can be close to $10,000 and if they find problems much more than that. I knew the cost of my car to maintain it and I also planned to drive my car. If I drove it I knew it would hurt the value and I would have more repairs, but I didn’t buy the car for an investment. If you buy an exotic car for an investment remember that the more you drive it, the more maintenance it will need and the more money it will cost you while you own it.
On the flip side, one of the worst things you can do to an exotic car is never drive it. Cars have many moving parts, rubber seals, bushings and more that last longer if they are used. If you let a car sit for ten years without driving it, it might have more problems than a car with 50,000 miles put on the motor in that same ten years. For the collector you should try to drive your cars at least once in a while, but just don’t drive too far!
Buying exotic cars can be an awesome experience and a lot of fun. However, when you buy them as an investment there are many costs associated with them and values have to increase a lot to make it worth while. If you have the same attitude as I do; drive your car, have fun and be happy whether it goes up or down, I think you will be in good shape. Although mine has gone up in value a lot, I won’t ever see that increase in my pocket unless I sell. I have no plans to sell my car for a long time.