Classic cars can be valuable investments for entrepreneurs, but make sure you do your homework before parting with your hard-earned money.

If you have grown your business, you may be at a stage where you are seeking new investment opportunities, including luxury goods. The classic car market in particular, is proving attractive to successful entrepreneurs and we are increasingly being asked for advice in this area.

Interest in classic cars has grown rapidly in recent years. The Historic Automobile Group International (HAGI) Top Index for rare classic cars rose almost 2.5 per cent in 2018. Highlights included the sale of two 1960s Ferrari 250 GTOs for an auction record price of US$48 million and a private sale price of US$70 million.

With investments in some classic cars generating better returns than most traditional financial products, it is easy to see the appeal. However, anyone seeking to take advantage of this exciting market, needs to tread carefully. Letting your heart rule your head can be costly, so here is our guide to minimise the risks:

Check who is selling the car

Do not assume that the person you are dealing with is the owner of the car. Check if this is the case or if they are selling it on someone's behalf. This is important should there be a problem with the car following the sale. Equally, if they are an imposter you may not even become the legal owner of the car.

Be clear on exactly what you are buying

As potential investment values rise so does the risk of fraud, leading to fakes entering the market. You need to be sure that the vehicle you are buying is genuine and not a replica.

If the car is authentic, it should have a well-documented history. You can also hire experts to carry out forensic checks and inspections to establish its history and determine whether it is genuine or not. These services are not cheap but provide peace of mind and the risk of much higher costs further down the line.

Should there be an issue after the sale and it transpires the expert was wrong, it may also be possible to make a legal claim against them, adding an extra layer of protection. When selecting your expert, make sure they have appropriate and adequate insurance cover.

Draw up a contract

Nobody would buy or sell a house without legal support or documentation and the same should apply to high-value cars. If large sums of money are involved in the purchase, professional legal advice and a contract should be considered. This can help you should it transpire the vehicle you bought wasn't what it was set out to be.

A contract does not have to be lengthy or detailed, but should set out some guiding terms and a framework for the purchase. It should, for example, include information about the seller and purchase price, what exactly is included in the sale, if the car is subject to an inspection and what will happen should there be a negative outcome.

If the seller does not wish to enter into a contract, then use your personal judgement whether to continue. There could be genuine reasons for this or it may signal a risk that you should avoid.

If you are purchasing a car in partnership with someone else, you should also draw up a contract with that person. Even if you are the best of friends, should that change in years to come, there could be costly arguments and legal claims regarding the ownership of the vehicle. A contract could help avoid this by setting out who would be entitled to what should the relationship break down.

Take your time

Buying and selling a classic car should be an enjoyable adventure leading to a valuable investment and an asset you will cherish for many years to come.

Taking the time to do your research and get professional advice, including legal support, may not be front of mind, but will help steer you in the right direction and avoid potentially expensive mistakes.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.