Flipping Classic Cars: What You Need to Know Before You Invest

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Is investing in the classic car market the next big thing? If so, is it right for you?

With TV shows about finding, fixing and flipping classic vehicles all the rage right now, it's no surprise that investors burned by the real estate crash who are looking for a new get-rich-quick scheme are finding this one: A classic car offers the lure of a hefty potential profit, with a far smaller outlay of capital than a house requires. But is it a good investment -- something you should consider to help diversify your portfolio?

If you're thinking about investing in a classic car, you don't want to lose your shirt in the process. Here are some things to consider before you take possession of a pink slip:

Don't Invest in a Classic Car on Impulse

"Never buy a classic car on a whim," says Ryan Guina, a classic car owner and publisher of the website Cash Money Life. "It's important to familiarize yourself with the market before buying so you know you're getting a reasonable deal."

%VIRTUAL-pullquote- The old adage is true: Your profit is made when you buy the item for a great price.%The old adage is true: Your profit is made when you buy the item for a great price -- whether it's a car, house or any other investment. Counting on your ability to negotiate an exceptional price when you sell later is a poor way to make money.

Do You Want to Drive Your Classic?

How long do you plan to drive the classic car that you bought for an investment? Will it be your everyday vehicle? Would you be happy if your classic car was your primary mode of transport for a while?

You need to remember that it might take you some time to fix and flip your car. So, consider buying a car that you not only know about but also are willing to drive for a while if you need to. You don't want to get stuck with a car you only bought because you thought it was a good investment.

Don't Forget the Extra Maintenance Costs

Classic vehicles can be expensive to fix and maintain, and you can't let those costs sneak up on you. It's just like factoring in maintenance and vacancy costs into the rent you charge as a landlord: If your margins don't include a cushion for "unexpected" maintenance costs, you're much less likely make a profit on your restoration.

Get Car Insurance Designed for Classics

Guina says it's a good idea to purchase specialized car insurance. "I was surprise at how inexpensive my insurance policy was on my 1973 Corvette," he says. "The best way to find a good deal is to shop around for an insurance company that specializes in classic cars."

%VIRTUAL-article-sponsoredlinks%Those types of insurance companies might very well be the best route for you and your investment to ensure that it's properly covered.

Much as prices do for fine wines and baseball cards, the values of classic cars can fluctuate over time -- they don't simply depreciate like new cars start to do the moment you drive them off the lot. You'll want to make sure that your insurer considers recent sale prices from reputable auctions and other venues when it values your classic car.

Do You Need a Dealer License?

Every state has laws on the books that address car dealer licensing requirements. For example, Florida considers anyone who sells three or more cars in a 12-month period a car dealer. The practice of buying and selling a lot of cars without a dealer license is known as "curbstoning." Not only is it illegal, it can also be a red flag for buyers -- which can make reselling your restored classic more difficult.

So if you're buying and selling a lot of classic cars in a single year, you should consider getting a dealer's license. That often will entail shelling out for an annual fee, insurance, bonding, and other costs.

Whether you're trying to make a quick buck flipping or simply looking for a sweet ride to refurbish and drive yourself, a classic car can be a lot of fun and a great investment. But as with any investment, there's a lot to consider before you buy.

Have you bought and sold a classic car? Did you start out just looking to flip it for a profit? Or were you after an everyday driver to enjoy before selling?

Hank Coleman is a financial planner and the publisher of the popular personal finance blog Money Q&A, where he answers readers' tough money questions. Follow him on Twitter @HankColeman.

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Originally published