Investing in classic cars: Flipping vs Buy-and-Hold

Should you buy and hold a classic car or flip it for a quick profit? The question of whether flipping or buying and holding a classic is the best strategy for investing in property doesn’t have one correct answer. Instead, choosing one method over the other should be part of a clear strategic plan that considers your overall goals and the car potential. You should also take into consideration the opportunities presented by the existing market. Here is a look at what is involved in pursuing each strategy and how to decide which one might be right for you.

Why Invest in a classic car?

  • A classic car can provide more predictable returns than stocks and bonds.
  • Classic cars provide an inflation hedge as prices usually rise by at least as much as the inflation rate.
  • Older cars provide are an excellent place for to invest in times when you’re unsure of the prospects for stocks and bonds.
  • You can easily borrow against a car to finance other investment opportunities.
  • Classic cars have historically proven themselves to be a high performing longterm investment.
  • In addition to providing profits for owners, classic cars can also be used and enjoyed.

Passive vs active income

One key distinction between buying and holding and flipping properties is that the former can provide you with an often tax free and largely passive income, while the latter offers more active and hopefully near instant profit. Passive income comes from the appreciation you will see over time from your investments. It could be from stocks and bonds or from buying rental property and receiving rental income each month, provided you hire a good management company to handle all the tasks, such as finding tenants, maintenance, and taking care of collecting rent.

Active income is money that you earn. That includes your salary, as well as profits you make flipping cars. Flipping is considered an active income, regardless of whether you are doing the physical labor of valeting or mechanical repairs or not. It is still a business or hobby that you meed to manage on a daily basis. Flipping isn’t just an investment strategy like buying and holding stocks or real estate. If you have a day job, keep in mind that your spare time will likely be taken up with all of the demands that flipping a car involves.

Two ways to flip cars

The first is to find a modern or or classic car that can be purchased below current market value. The second is to find a car needing work, a car with body damage, rust, or mechanical issues that can be improved or fixed to add value.

Investors who focus on the latter do often have the skills to repair a car themselves or have the necessary contacts to get the work done. The buyer of a fixer-upper using this tactic relies on investing labor to increase values instead of just buying a car at a low cost to create high investment returns. Of course, it is possible to combine these two strategies when flipping cars, and many people do just that. However, consistently finding these opportunities can be challenging in the long run. For most people, flipping older classic cars this should be considered more of a tactical strategy than a long-term investment plan.

The pros and cons of flipping

Pro: Faster return on your money is one big advantage of flipping cars. Realising a profit quickly releases capital for other purchases, with the average time to flip a being about two weeks, though first-timers should expect the process to take a bit longer.

Pro: A potentially safer investment opposed to the stock market, which can turn in the middle of a day, the car markets are generally more predictable. In a sense, flipping classic cars could be considered a much safer investment strategy because it is intended to keep capital at risk for a minimal amount of time.

Con: Finding stock. If you are constantly flipping cars you will also need to be constantly finding now cars to flip. This can be fun, but it’s also time-consuming, and finding great cars isn’t easy anymore. 

Con: Taxes. In most parts of the world you will have to pay tax on your car flipping profits. The buy-and-hold strategy lets you take advantage of long-term capital gains tax rules. Allowing you to see even greater returns on your investments. 

The pros and pons of buy-and-hold

Pro: Joy of ownership. Owning a classic car is often a huge part of investing in a classic car. Unlike investing in rental property or the stock or bond markets. Cars can actually be used and enjoyed. Whether you are just going for a drive on a summers evening or visiting a car show on the weekend, cars can be used and enjoyed as well as being a great longterm investment.

Pro: Increasing values. The longer you hold your investment classic, the more likely you are to benefit from inflation and appreciation. If you’ve bought wisely, there’s real potential for a significant return on your investment.

Pro: Taxes. Owning a classic car has tax advantages not available to flippers. In most situations you can write off expenses, including repairs, maintenance or servicing. Furthermore, you’ll either not be liable for tax or pay taxes at the long-term capital gains rate meaning more of the profits are yours.

Con: Maintenance. Cars do require maintaining, which can be expensive especially if you’ve invested in a rare or exotic car.. 

Con: Market trends. You need to pick your longterm investment car carefully. The future values for classic Ferraris and Porsches looks like it will continue to be strong. But will a V12 Jaguar E-type have the same appeal to someone born in the 1990’s as it does to a person born in the 1970’s? Will the value of standard car with no race history stand up to the test of time? A lightweight racing E-type will always be desirable, but that may not be the case for a primrose yellow V12 coupe. Do lots of research before investing.

Choosing a strategy

You need to answer a few critical questions to decide whether flipping car or holding them long-term is the best strategy. You must decide whether you have the capital to allocate to a long-term investment. Tying up ten’s, hundreds of thousands or even millions in a car can be daunting. You must have the risk tolerance for the longer-term investment strategy and skills and knowledge to take on the responsibilities that go along with either type of investment. If you’re considering a buy-and-sell strategy, you must not only determine whether you have the skill to take on repairs and servicing, but you will need to find a reliable source of cars. In this transactional strategy, it’s essential to figure out whether capital can be turned enough times within a given investment period to outperform the long-term strategy.

Conclusion

The choice between the two strategies in question depends on your particular financial situation and goals. Nonetheless, the long-term holding strategy is generally more appropriate for those looking to diversify a portion of their overall investment portfolios.

On the other hand, flipping classic cars is usually better when it is used to generate small quick returns. But flipping modern cars in the same way is often easier and just as profitable. Investors wishing to amass wealth and to diversify their income from real estate investments or the stock and bond markets should consider holding a classic car for the long term. They can use the equity built into the car to finance other investment opportunities, with the potential of eventually selling the car in an upmarket.

Key takeaway

  • Flipping  and buying and holding a car represent two very different investment strategies.
  • Owning a classic car offers investors the opportunity to accumulate wealth over time and enjoy the car and ownership experience while avoiding the stock market’s ups and downs.
  • Flipping can provide a quick turnaround on your investment and avoids the ongoing hassles of servicing and maintaining a older car, but profits can be lower.
  • Buy-and-holding classic cars can provide big profits and tax advantages, but not everyone is prepared for the long haul investment.
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