Custom classic cars present inherent cost conundrum
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Restorods, Restomods, Clones, Tribute Cars, Pro-Street, Pro-Touring, Custom Car, Modified, and probably a few that I can’t think of. These are all different kinds of collector cars that, by definition, are customized to one degree or another. I appraise a lot of these cars, and usually the owner is shocked when they receive the appraisal.
And by shocked I don’t mean “Wow, I can’t believe my car is worth three times what I’ve invested in it!” More often than not the response is “Wow, I can’t believe my car is worth one third of what I’ve invested in it!”
Keep in mind that if you build a custom car, when it comes time to sell the car you are going to have to find a buyer who has the same taste as you. And if you couldn’t find what you wanted in the first place, that likely means that there are not a lot of people who want exactly what you want.
Of course, some things are more generally accepted, and therefore easier to sell. So a Black 1932 Ford Street Rod with a “Small Block Chevy” or a “Small Block Ford” backed up by either an automatic or manual transmission, Mustang II front end with rack & pinion steering & disc brakes and air-conditioning will appeal to a good segment of the market in search of one of these cars.
On the other hand, a 1957 Edsel Ranger with Fuchsia flames, a roll cage, and twenty two inch wheels might have a bit more of a limited market.
In either case, the Fair Market Value of the car is going to be a fraction of the cost to buy and build the car. This is important for several reasons. The first reason is simple. When it’s time to sell the car, you are going to lose money. Forget what you see when you watch the Barrett-Jackson auctions on television. These are usually the finest cars, constructed by recognized builders, and that the owners have spent thousands of dollars to transport across the country. And even then they are lucky to break even. We mortals are much more likely to market our cars in on-line auctions, newspapers, and enthusiast publications, where “real-world” prices prevail.
The second reason that it is important to be aware of “build cost” vs. Fair Market Value is the insurance implication. It is often difficult to get an insurance company to cover your car for the total amount invested. They will look at what comparable cars have sold for (Fair Market Value), and if you are attempting to insure your car for significantly more, they will reject you.
Finally, in today’s economy, many owners will use their collector cars as collateral for loans. Sometimes they even use these loans to buy more collector cars. You’ll feel awfully foolish if you invest $100,000 in a custom car only to have the bank, or an appraiser value it at $50,000.
There is a conundrum inherent in building a custom car. The more you customize it, the more it costs. By the same token, the more you customize it, the more you narrow your market, potentially making it worth less. If you’re a regular reader of this column, you’ll know that I often say that it rarely makes sense to restore a car. In almost every case, you can buy a restored car for less than the cost of acquisition and restoration. And by buying a restored car, there is no waiting period.
This advice is even truer for custom cars. It is not uncommon to be able to buy a custom car for thirty cents on the dollar. Maybe a little more for a very high quality car. As an example, I regularly appraise 1955 - 1957 Chevrolet Bel Air Coupes that have been heavily customized from mild to wild. These are the quintessential American classic car with an almost universal appeal.
Most have receipts totaling well over $100,000. The owners are aghast when, for sale purposes, I value them at about $40,000. Most times they are convinced I’m wrong, so I offer to refund my fee for the appraisal if the car sells for more than 10% above my appraised value. I have yet to be asked for a refund.
There are good reasons to build a custom car that transcend the financial considerations. The most common reason is because the builder simply can’t find, or buy, exactly what they want. Next would be for sentimental reasons. Usually I hear something like, “My father had this exact same car.”
Lastly, you can’t afford to plunk down $40,000 or more for a custom car, but you can afford to spend $2000 per month to build one. In this case, it may take a few years, but you’ll have exactly what you want.
These reasons all make sense. But keep in mind that if you’re even a little flexible about what you want in a custom car, shopping for a completed car is like being a kid in a candy store.