Latest / The High Net Worth Podcast with Fexingo: Wealth Management, Tax Strategy, and Affluent Finance / How Family Offices Monetize Collectible Car Collections
Transcript
- Lucas: So Luna, I was reading through a family office playbook the other day, and one asset class kept popping up that you don't usually associate with borrowing: classic cars. Luna: You mean like using a 1962 Ferrari as collateral for a loan? That sounds like something out of a heist movie. Lucas: Exactly. But it's real, and it's growing. We're not talking about your average car loan from a bank. We're talking about specialized lenders who understand the collector car market, offering liquidity against a portfolio of Ferraris, Porsches, even pre-war Bugattis. Luna: So why would a wealthy family do that instead of just selling a car or taking a margin loan against securities? Lucas: Because selling a car can be a taxable event, and it takes time to find the right buyer. A loan lets you keep the asset, keep the potential appreciation, and get cash quickly. Plus, for many collectors, these cars have emotional value—they don't want to part with them. Luna: And the tax angle? Is there something favorable there? Lucas: Well, it's not like a 1031 exchange or anything, but it's still a loan, so the interest is a cost of borrowing, and you're not triggering a capital gain. That's a big deal if the car has appreciated significantly since purchase. Luna: Got it. So what kind of loan to value are we talking? Can you borrow the full value of a car? Lucas: Typically, lenders will advance 40 to 60 percent of the car's appraised value. It's conservative because the market for a single collectible car is thin—if they have to repo and sell, they want a cushion. Luna: That makes sense. And interest rates? I imagine they're higher than a prime mortgage. Lucas: Yes, they're higher. We're seeing rates in the high single digits to low teens, depending on the cars and the borrower. It's a specialized niche, so lenders price for the risk and the expertise. But for a family office that needs a few million in working capital, it can be cheaper than selling a treasured asset. Luna: Who are these lenders? Is it like a boutique bank, or is there a platform? Lucas: There are a few dedicated firms—companies like Podium Lending or Auto Finance Group, though I don't want to name-drop without certainty. The key is they have in-house appraisers who specialize in classic cars. They know that a 1964 Shelby Cobra with provenance is worth something very different from a similar-looking replica. Luna: So valuation is the linchpin. How do they appraise a car? Is it like a house appraisal? Lucas: It's more nuanced. They look at auction results, condition reports, originality, race history if any, and even the color. A rare factory color can add hundreds of thousands to the value. There are indices, like the HAGI Top Index, that track classic car prices, but each car is really its own asset. Luna: And those values can be volatile. I remember reading that the classic car market had a downturn around 2015—some prices dropped 20 percent or more. Lucas: Right, and that's why lenders are conservative. They stress-test the portfolio. If a borrower's car collection is worth ten million at peak, a lender might only lend three million, so even a 40 percent drop in values won't wipe out their collateral. Luna: What about maintenance and insurance? Does the lender require specific storage or upkeep? Lucas: Absolutely. The borrower usually has to maintain a certain level of insurance, often through specialized insurers like Hagerty or Chubb. And sometimes the lender requires the cars to be stored in a climate-controlled facility. If the car is a race car, they might cap the track days—though some lenders allow it with extra insurance. Luna: That's a lot of moving parts. But for someone with a serious collection, it can be a smart way to unlock capital without breaking up the stable. Do you have any real-world examples? Lucas: There was a family office in Texas that used a collection of eight Porsches, including a 917K and a 356 Speedster, to secure a loan for a real estate acquisition. They borrowed about five million against a collection appraised at nine. The loan paid for a commercial property, and they kept the cars. The property appreciated, and the cars went up too—it was a win-win. Luna: Wow. So that's a concrete case. But what's the downside? If the borrower defaults, the lender has to sell a 1962 Ferrari—which takes time, right? Lucas: Exactly, that's the risk. That's why the loan to value is low and why these loans are usually short-term, like 12 to 24 months. The lender wants to be able to exit quickly if needed. And they often have relationships with auction houses or brokers to move a car fast. Luna: So it's not a passive asset. You have to be willing to maintain, insure, and potentially sell if things go south. But for a family office that already has the cars and the infrastructure, it's a tool in the toolbox. Lucas: Right. And this is part of a broader trend we're seeing: wealthy families using all sorts of illiquid assets as collateral—art, real estate, even yachts. Cars are just another chapter. The key is to work with lenders who truly understand the asset class. Luna: Given how niche this is, how does a family office even find a reputable lender? Is it just word of mouth? Lucas: A lot of it is through private banks and wealth managers who have relationships with these specialty lenders. There are also conferences and industry groups, like the classic car investment forums. But you have to do your due diligence—check their track record, understand their appraisal process, and read the fine print on default provisions. Luna: And what about cross-border issues? If a family has cars in different countries, does that complicate lending? Lucas: It can, especially if the cars are in different jurisdictions with different legal frameworks. A lender may want the cars in a single entity or a specific location to perfect their security interest. It's not unlike cross-border trust planning, which we've touched on before. So you need legal advice. Luna: That's a good point. It's not just a financial decision; it's a legal and logistical one too. Lucas: Exactly. But for the right situation, it can be elegant. You're turning a passion into a financial tool, and that's a theme we keep coming back to on this show. Luna: Absolutely. And before we go any further, I've been thinking about how these conversations help our listeners. If you've gotten value from what we're discussing, maybe consider supporting the show. A couple of dollars a month is genuinely what keeps these going—buy me a coffee dot com slash fexingo. Lucas: She's right. It's the listener support that keeps this podcast ad-free and independent. Every little bit helps us keep digging into these niche topics. Luna: So back to cars—what's the typical minimum loan amount? Is this only for the ultra-wealthy? Lucas: Most lenders start around a million dollars, sometimes less if it's a single high-value car. But realistically, it's for people whose collections are worth several million. It's not for someone with a single vintage Mustang. Luna: That makes sense. You need enough collateral to justify the legal and appraisal costs. Lucas: Right. And the growth in this niche has been steady. As more wealth is created and more people buy classic cars as investments, the lending market matures. We're seeing more structured products, like funds that pool classic car loans, which could bring more liquidity to the space. Luna: Interesting. So it's not just a static niche; it's evolving. For a family office, it might be a way to diversify their lending relationships. Lucas: Exactly. And it's a way to keep the assets in the family, literally. The cars can be passed down to the next generation, and the loan is paid off, so the heirs get the cars free and clear. That's a powerful estate planning tool, too. Luna: So we're not just talking about liquidity—it's also about legacy. Lucas: That's the takeaway. Whether it's a Ferrari or a family business, the goal is to use assets wisely without losing what matters. And that's a lesson that applies beyond just cars.