Hot rods are hot investments right now, and that is true for all types of automobiles, from the true hot rod American muscle cars, to classics, antiques and rare sports models of American or European vintage. But the rule of thumb for car collecting is that a person should love cars first and think of them as investments second.

Classic and antique automobile collectors all seem to start their stories in the same way, which is some variation of: I've loved cars all my life, and now I have the resources available to indulge that love.

Notwithstanding the true affection collectors have for their cars, it is also true that classic, antique and rare automobiles have seldom been a better investment than they are today, if the collector has the proper knowledge.

There are a wide range of investment-grade automobiles in existence now, with a style to please all types of enthusiasts. A 1931 Rolls-Royce Phantom II recently brought $412,000 at auction, and a 1965 Chevrolet Corvette Cut-Away Autorama Display Car brought $704,000 at the same auction in Tarpon Springs, Fla. And those are just the midrange vehicles.

A purchase price of $270,000 for a new Ferrari 599 GTB Fiorano might seem like a lot of money to some, but it is nothing compared with $2 million or more that a classic Ferrari can bring, or the millions that the Alfa Romeo 8C 2900, part of fashion designer Ralph Lauren's extensive car collection, might fetch if he would consider selling it. And the beauty of classic and antique cars is that the value increases with time, rather than diminishing the minute the owner drives away with it.

Before investing in any classic automobile, the potential owner should do a little homework, warns Rob Myers, CEO of RM Auctions, one of the premier automobile restorers and auctioneers in the world, which holds several records for the highest prices ever paid for classic cars. For valued customers, Myers will travel the world to check out potential purchases and his clients express complete trust in his advice. An investor often needs that type of assistance, particularly when he or she is getting started in the world of classic car collecting.

Last spring, RM, based in Chatham, Ontario, was responsible for auctioning the second most valuable car ever sold when its 1962 Ferrari 330 TRI/LM Testa Rossa went for $9.3 million at a sale in Maranello, Italy. "The great, rare and beautifully styled classics and sports racers from the '30s through the '50s are continuing to provide great returns on investment," says Myers. In two years, he says, a 1937 Mercedes-Benz 540K Special Roadster jumped in value from $4 million to $6.5 million. A 1933 Alfa Romeo 8C 2300 Monza Spyder Corsa went from $3.5 million to $4 million, and a 1934 Duesenberg Model J Convertible Coupe DT went from $1.1 million to $1.4 million.

"It is a complex business, but long-term, it can be similar to investing in art. Do not do it unless you love it and understand it, but, if you love it, there are good buys in every sector of automobile collecting," says Myers, who, like many of his clients, started out as a teenager tinkering with cars, repairing older models and piecing together prize possessions.

"Car collecting is not for the typical investor. It is not for someone who just wants to park some money and have it grow. It is for the person who loves cars and wants to drive them and enjoy them," says Myers, who is a car collector himself and recently spent $250,000 on a car in an impulse buy at a London auction.

Myers relates the story of one typical new collector.

"I have a client who sold his company for a lot of money. He now has $800 million and wants to have fun with it. I told him to get a good in-house advisor-like me-and to buy the best. I spent half a day doing the criteria to determine the types of cars he wants. Then I sent him pictures [of some that are available].

"He is not in this purely to make money. He is buying cars he likes to drive, as well as collect. These collectors create their own private museums. It is no different than collecting paintings and putting them on exhibition. They loan them to public museums or put them on display to raise money for charity.

"Collectors have fun building their own museums. One collector I know built a diner and a drive-in theater inside his museum," Myers says.

That being said, collectors still look to the hobby as a way to increase their wealth. American muscle cars, with big horsepower engines, from the 1960s and 1970s are hot items right now. But the true American and foreign classics from the 1930s also are top sellers. Then there are the true antiques.

"There was a car show in Brighton, England, recently where all cars had to be 1905 or older," Myers relates. "There were 550 cars in the show and it drew 100,000 spectators. But there are good buys in every sector and there is always someone looking to sell."

New investors should be wary of the urge to restore old cars. Often, the unrestored vehicle is worth more than a restored version, or the restoration can cost so much it negates the investment. Older cars, even if the body is in poor condition, are highly valued if all the parts are original, note collectors.

"You have to determine if it is what we call a 'real car,'" says Tim Durham, a collector from Indianapolis who is a client of RM Auctions. "You should always look at collecting not as an investment but at the cars you like. Then, do your homework. Make sure the chassis matches the body and that both are original. If you stick to rare cars, where not a whole lot were made, it is not difficult to track them down and learn their history.

"I had a Mercedes 54v0K chassis with a body created in 1993 that sold for $1 million," he continues. "I sold it for what I put into it, but an original like it just sold for nearly $8 million. I have been seriously collecting for seven or eight years, and most of my collection has doubled or tripled in value."

Research into collecting in general and specific cars in particular is essential before making a purchase, notes Myers. Financial advisors should make sure their clients have the expertise to make a substantial investment or that the collector has a trusted expert on board to help make those decisions.

Although collectors usually have particular types of cars or production eras they like, Myers adds that they should also keep an eye on the market to know what are good investments and know what cars may have just gone through a cyclical rise in price that might reach a plateau for a few years.

Collectors should stick with significant makes, such as Aston Martin, Ferrari, Duesenberg or other well-known names, because they hold their value and there is a large support network of clubs and international shows available for assistance. Being able to exhibit cars at shows and drive them in rallies is part of the pleasure of owning a classic car, and also adds to the value of the individual vehicle.

A car that has been driven or owned by a famous person or that has won a significant race in the past is more valuable than one exactly like it but without the history. But the prestige does not have to come from a past event. A car that wins the top honors in its class at a show such as the Pebble Beach Concours d'Elegance or best in show there increases dramatically in value.

"We invite people who are an important part of the carcollecting hobby to show their cars at Pebble Beach, and the benchmark for car value is often set here," says Sandra Kasky Button, Pebble Beach Concours d'Elegance chairwoman. "There is no better time or place to sell a car than at Pebble Beach, but car collecting is not just for profit. It is for fun. People do not invest in cars just to make money."

But cars will hold their value if the owner learns the meaning of "provenance," says Myers. The history of each individual car is important.

One-of-a-kind masterpieces are solid investments. If less than 100 were produced, the value is going to be good. If less than 50 ever existed, it is even better. Building the right collection and then gaining a reputation as a collector can provide the opportunity to sell a full collection at a private auction. Certain celebrities, like Ralph Lauren, are as well known for their almost priceless car collections as they are for their professional success.

But a collector does not have to have the unlimited funds of a Ralph Lauren to have a significant and fun collection. Joseph C. Cassini III, an Essex County, N.J., Superior Court judge, says he is on a limited car-buying budget but has managed to collect 17 classic cars of substantial value. Cassini's father was in the construction business and left his son with a trust fund that has enabled him to indulge his love of the automobile.

"I fell in love with a 1956 yellow Thunderbird. That was my first collector car in 1976 when I was straight out of law school. That got the juices flowing. Then I bought a 1953 Corvette and some less expensive Jaguars, but I was a novice. I did not know about 'matching numbers,' meaning the engine and transmission match," says Cassini, who has since learned these lessons. "Also, you don't want to get 'upside down' in a car-where you buy a $500,000 car and put an equal amount into restoration and then find out the car will never be worth more than $600,000."

Tax considerations also have to be taken into account and sometimes financing part of the cost of an expensive automobile is more advantageous than paying the sales tax, Cassini advises. Some people who trade often form dealerships to eliminate sales taxes.

If a restoration is in order, there are companies that restore classic cars, making tires, engine parts and bodies to match the originals. Speciality companies, such as Hagerty Insurance Agency in Traverse City, Mich., also have grown up around the world of car collecting.

"There has been almost a perfect storm for car collecting,"says CEO McKeel Hagerty, who is a car collector himself. "Baby boomers are the wealthiest generation to ever live, and they are hitting the right age and they love cars. So there is a large population and a lot of money available in car collecting right now.

"Some things seem obvious," he says. "If a financial advisor has a client who wants to collect cars, tell him to buy something in the best condition possible. Buy ones in better cosmetic condition rather than mechanical condition. You can restore a motor easier than restoring an original paint or fixing rust.

"Look at segments of the market that are globally recognized, like European sports cars, or ones that appeal to Americans, like the muscle cars, Camaro and GTO from 1966 to 1972," he advises. Then attack the mundane issues like insurance.

"Go to someone like us that deals in insuring collector cars," he says. "We have 'agreed value' policies, which presumes the value will increase and that the car will not be driven as much as a normal car. We do our own claims and have trained people who know collector cars. Then house the car in an appropriate garage with the right safety features and humidity control."

The Hagerty Web site, www.hagerty.com, has numerous downloadable brochures with information for the beginner or experienced collector.

"Collecting, even if it is a good investment, has to be fun," Hagerty adds. "I cannot emphasize that enough. It is not like investing in art. It is hard to drive a Picasso around."