Getting a loan, would you?
 

Let's say you are looking at a pristine highly collectable rare luger with a healthy price tag. You don't have the funds to buy it out right. But you think it may increase in value in coming years. Would you get a loan to buy it?

I would say no. I try to make it a point that I don’t spend money which I don’t have for things. (other than school). That said, if you believe this to instead be a safe investment that will pay off handsomely, then it would make more sense. I’d still lean towards no.

depends on if I really wanted it

borrowing money is never good if its for possible resale later, the market could get flooded (which happened for a bit with Shattucks inventory and collection, Joops collection, Sturgeus Collection, and many more, some we never even knew existed...

I nearly maxed out one of my credit cards when I purchased a Baby Luger and a Baby Nambu at the same time. Opened up a new credit card and paid off the purchase with a "no interest" loan on the new card. Just an option not a recommendation.

Why not? Folks go in debt all the time to buy a new automobile which begins to depreciate on day one.

It depends on the item. With some its nearly impossible to go wrong, even with a stressed market.

I've been financing the classic Mercedes hobby like that for many years. Didn't get rich but did not do bad either.

As long as it is an investment and not for 'consumption', and you keep an eye on your limits, you should do ok.

That being said, I now have a conflict with my bank because they decided to terminate my credit without a valid (to me) reason. I have banked with them for 40 years and the last year it's been nothing but problems, idiotic decisions and zero customer care. They used to be a cooperation of local banks that specialized in small businesses. But they merged into one large bank, so locals have nothing to say anymore.

Absolutely not. I live debt-free and if I don't have the money I don't buy. And yes, some opportunities are missed, but I just sleep better at night that way.
dju

Strictly as an investment decision, no. Lugers IMO appreciate at the rate of inflation plus a percent or two, and borrowing costs are above that.

The problem with this 'analysis' is that purchasing a Luger is or should be done for non-investment reasons. People buy stuff they don't really need but want, like say new cars, all the time using debt. So it really depends on how much you want it and your ability to repay.

And once the economy turns south (ala 2008), or you lose your job, or your health (or your wife's) takes a hit? That rare Luger might as well be an anchor around your neck as you struggle with high interest credit cards.

https://www.nytimes.com/2018/08/05/b...americans.html

dju

I follow Shakespeare’s advice, “Neither a borrower nor a lender be”.
Norm

I would never take out a loan to buy a Luger.

Might as well leverage your debt and start buying derivative investments or start working the stock market on a margain.

Nothing assures that demand in the future will increase the value and price of Lugers.

One of the most successful gun makers in the USA operates with zero corporate debt, preferring to make capital investment from retained earnings. Ruger. It's been a decent stock to own even while other companies have gotten in trouble with financing schemes and the resulting ownership changes.

They built their new Ruger factory in Mayoden, NC with about $8 million in retained earnings.

I would never buy anything in the belief that it would increase in value. I would only buy it if I liked and wanted it. I would not take out a loan if I had other loans, like a car loan or a mortgage.

Right now, I have only a car loan. I have enough savings to pay it off right now, but choose not to. I also have enough savings to buy anything I like outright, so a loan is not required.

Finding something I like is getting harder, not because of a shortage of cash, but because I have had everything I ever wanted. Sometimes more than one. :)

At this stage of the game I only buy things I want - Anything I need I already have! Picked the Baby Luger and Baby Nambu because I wanted them and they don't come up every day! Nave no loans outstanding and being able to pay them off interest free just added to the pleasure...

I would and I did. I wanted to buy a very expensive Navy which I would likely never have another chance to own. I had no mortgage, car loans or credit card debt. I didn't want to take an IRA distribution because it would have been taxable income and it was also appreciating where it was. Financially, a low interest rate loan was by far the most logical choice. Don't regret it for a second. Now that I'm over 70 my mandatory distributions just go to pay the loan faster.

Getting a loan to buy any collectible is a risky adventure. Seems like many times todays collectible is tomorrows junk. All collectibles are a "whim" market and can and will change rapidly.

My father is from a family of 11 children. He is the only one who never loaned or took a mortgage. It shows. The other 10 now have their own properties and most succeeded in upscaling their housing, enough to help their offspring finance their own homes.

I got the reward of a lifetime of property rental: nothing.

I remember many years ago when a guy went out on a financial limb and bought the only surviving Luger in 45ACP made for the Army trials when the Army was looking for a semi auto pistol. As I recall he paid about a half million for it. It was a sure bet. A few years later he put it up for auction and got about 345k. He lost big time. Don't borrow money for anything you don't absolutely have to have.

The opposite also happened.

No.
Collectibles are not the same as an investment; and borrowing money is a slippery slope. ;)

Another thing to keep in mind is that one normally buys "retail" and has to sell "wholesale"- which means any "profit" is a long time coming.

I'm Dutch. I never pay retail prices anyway :)

Investors have actually moved into the collectables market lately because it is relatively sound, stable and low risk.

Two sides on every coin.

They make money every day. I have no issue borrowing when something nice shows up, gun, or anything else.

I think Mike's experience is instructive. His story is IMO another way of saying "it depends" to answer the question of is debt OK or not for a purchase. His story is an example of where debt might make sense - as a way to keep the total cost of ownership down.

The key question is, do the benefits (appreciation and the satisfaction of ownership) exceed the borrowing costs? In the example quoted, it appears they did and borrowing was a rational choice.

"The key question is, do the benefits (appreciation and the satisfaction of ownership) exceed the borrowing costs?"

I respectfully disagree. I would re-phrase it to read: "Does the mere joy of ownership justify extending your debt level into dangerous territory."

Where do you get the idea that dangerous territory plays a part?

I'm retired. I was debt free, having no loans of any kind nor any carryover credit card debt from month to month. To me it was a pretty simple math question. A cash withdrawal from an IRA would have been additional income taxed at the highest rate I pay both the feds and the state. In addition, since a withdrawal is treated as ordinary income, it would have put both me and my wife into a higher rate for our monthly Medicare payments. Having a low interest rate loan is far cheaper.

I could pay off the loan tomorrow, but it's cheaper to keep it.

As for investment value, I didn't buy it as an investment. i bought it because I wanted it and can afford it.

While I agree that it is foolish to get into "dangerous" debt, on anything, it's hard to imagine that on even a really nice Luger. If debt for a Luger is "dangerous" for a given collector, that person should not buy at that level via either cash or debt.

I just refinanced my house and used a small portion of the proceeds to fund a 1940 Mauser P 08 collectible. I have no debt other than the mortgage. Debt is cheap right now and as my overall debt is low even with the mortgage, the risk is low in using debt to fund investments. If I had liquidated an investment to buy the Luger, I would have to pay taxes and lost investment earnings on the money. I.e., a similar analysis to Mike's. Each must look at their own situation to decide if debt makes sense. In Mike's case and mine it makes perfect sense.

"Where do you get the idea that dangerous territory plays a part?"

I get that idea from previous posts that mention credit cards, taking out loans, and "sure thing".

I've said my piece on the issue, but it is interesting to see such a wide tolerance of risk in the "Luger funds" department.

dju

I think the most "dangerous" part is "thinking" one may be buying an "invest-able" luger and it turns out it is not! The buyer may not know of his mistake for years.

One must surely be an expert before borrowing $$ to buy anything, house, car, luger, etc. :)
JMHO.

Knowlegde is power. Always has been.

I think this is spot on. From what I've seen, Lugers appreciate faster than inflation but only by a little bit. And if they behave like other specialty collectibles (art, antiques etc.) the price can drop a lot during recessions. So buying a Luger mainly for price appreciation doesn't make sense to me.

I also hear from time to time "buy the best you can afford" because those go up in value faster. I do not see why this would be true so absent data I would have to say I'm skeptical if buying the best is good investment advice. Rather, I think the best advice is to not over pay.

When I last lived in North Carolina I ran into a collector in Hickory who wanted to sell his entire collection of about thirty Lugers. The collection included a near mint K-date, a couple of complete rig artilleries and Navies, and on and on. He would only sell the whole works; no cherry pickin'. He wanted sixty thousand dollars. I could have sold some equities and bought, but I went to my bank and got a seventy-five thousand unsecured line of credit. I bought the collection and more than doubled my money.

no

I would be most uncomfortable in taking out a loan to purchase a Luger....in fact, I would not do it!! Perhaps, I just don't want it bad enough. That said, I have never purchased a car on time, but have never owned a new car either. We all have to do what is comfortable with our way of thinking. If a real necessity comes up, and I need money.....then, no question about taking out a loan if there is no other way around it.

An older man told me something I will never forget. He had been in the gun collecting business since the 1920s. He said guns go in cycles, one day a gun is hot and a few years later something else is. Now forty years have gone by and I have seen it play out exactly the same way. Remember when pre 64 model 70s were the hot item. Just a few years ago when black powder cartridge shooting was going strong the demand was so great that an entire industry was created just to supply the rifles. Most of those rifle companies have folded. As men grew older, died or moved on to another shooting sport the single shot rifles they bought became difficult to sell and you sure wont get you original in vestment back. I have seen it many times on the ASSRA web site.

I generally respect experience but I have to wonder if Lugers are a world to themselves. They were prized by the soldiers of Germany's adversaries as trophies in two world wars. This is well documented. The history, appearance, operation is unique and iconic. The precision of the mechanism is impressive compared to even modern pistols, and astounding when you consider the date of manufacture. The likelihood that a pistol that functions/appears similar will be produced in such numbers in the future is low. As a relatively new Luger owner who uses a public range, I am always impressed that this is the single firearm that makes young and old shooters alike step back and say "whoa! Is that what I think it is?" IMO I have never heard of a firearm with such a fan club. Also the data that I have seen re: price over time (almost entirely from comments by other collectors on the forums) indicate steady appreciation in excess of inflation since introduction around 1900. Given this data I personally believe they will remain collectible for the foreseeable future.

Collectible - yes.
Will the price go up and down- for sure.
There is no guarantee in any given period that luger values will be up from when you bought one; over 100 years yes, they will be "up".