Jump to content
Sign in to follow this  
Guest DarkandStormy

Personal Finance / Investing Thread

Recommended Posts

^ My experience is that if I finance something, I will generally spend more than I would if I paid cash.  YMMV

 

Absolutely.  This goes for purchases of any kind ranging from visits to the grocery store up through episodic purchases like furnaces and vehicles.  The biggest dangers are college tuition and home/condo purchases.  I used a credit card to purchase an expensive bicycle a few years ago but otherwise haven't used one at all, let alone carried a balance, since maybe 2012.  You definitely spend more even when using a debit card as compared to cash.  Yes, I pay cash for pretty much everything including gas. 

 

People really need to get over the idea that a primary residence is an investment.  If you live in a multifamily, then it could be, but condos and single-family homes have only appreciated 1-2% annually for the past 100 years and only 10 metro areas have seen prices exceed their 2005 highs.  Otherwise, most of the country has recovered only 80-90% of pre-crash value .

 

I am of the opinion that it's very, very unlikely that an ordinary citizen (non-investment professional) can have any special insight on more than 1-2 stocks in their investment career, but they CAN have a lot of special insight in local real estate and perhaps vacation real estate in one or two locations.  So if want to swing for the fences, spend 5 years following your local real estate market.  In Ohio there are obviously still a ton of cheap properties around. 

 

 

 

 

 

 

Share this post


Link to post
Share on other sites

^ My experience is that if I finance something, I will generally spend more than I would if I paid cash.  YMMV

 

I seriously mean no offense, but duh!  If you finance and pay interest as opposed to cash, you are going to spend more.  What I am saying is take advantage of cheap debt. If I can borrow at 3% and make 5% plus in the market or some other investment, I get the benefit of that spread.  Of course I fully realize you have to (1) actually invest the money and (2) actually make a decent return on that money.  Just saying cheap debt ain't a bad thing.

Share this post


Link to post
Share on other sites

^ My point is that if I am looking to spend $8,000 on a car.  I will then stretch to like $10,000 because I'm financing anyway.  therefore I came out of pocket $2,000 more than I would have anyway.  Besides, If I have to make debt service payments, then that is less money i have to invest each month.  So it is likely a wash. 

Share this post


Link to post
Share on other sites

Actually they were pretty expensive back around 2012-2013 thanks to cash for clunkers taking so many off the road. 

 

We got to have autocrosses at auto auction lots in 2013 since used car supplies were so tight. Now those lots are close to full again. It was probably the biggest, fastest autocross that ever took place in Franklin County besides the ONE time they let us do it at Rickenbacker.

 

But it wasn't just Cash for Clunkers... it was also the fact that scrap metal prices were so high that you could get minimum $400-500 for ANY car. Junkyards weren't selling car parts; they just scrapped everything. If people got bored waiting for their car to sell for $1000 they just scrapped it.

Share this post


Link to post
Share on other sites

Crossovers are already dangerous resale-wise since only women want them and they don't like used cars over 5 years/100,000 miles. If the used market gets flooded with crossovers they might just be worth nothing.

Share this post


Link to post
Share on other sites

This post is hilarious because these "bad" tenants didn't really trash the place at all (complaining about dog poop in the backyard? Really?):

http://www.financialsamurai.com/being-a-landlord-tests-my-faith-in-humanity/

 

I just get the sense that this writer hasn't been around low-class people at all and that didn't prep him for the low-class behavior from these SF preppies.  When the time comes to rent out my house near UC to a bunch of 20 year-olds, I fully expect the thing to be trashed a year later.  Bong water stains in the carpet, holes in the wall, missing tile, broken hinges, etc.   

Share this post


Link to post
Share on other sites

You might be surprised. So many college kids are nerds now that they won't mess it up too bad... but I suppose those kind don't tend to go for off-campus housing. The meathead thing has scaled back significantly in the past 5-10 years. You might even have trouble renting it out by then since nerds favor the dorms and the Supermax buildings.

Share this post


Link to post
Share on other sites

This post is hilarious because these "bad" tenants didn't really trash the place at all (complaining about dog poop in the backyard? Really?):

http://www.financialsamurai.com/being-a-landlord-tests-my-faith-in-humanity/

 

I just get the sense that this writer hasn't been around low-class people at all and that didn't prep him for the low-class behavior from these SF preppies.  When the time comes to rent out my house near UC to a bunch of 20 year-olds, I fully expect the thing to be trashed a year later.  Bong water stains in the carpet, holes in the wall, missing tile, broken hinges, etc. 

 

Hahaha he picked the tenants...did he not expect college kids to have parties and ignore lawn care?  Hilarious.


Very Stable Genius

Share this post


Link to post
Share on other sites

Crossovers are already dangerous resale-wise since only women want them and they don't like used cars over 5 years/100,000 miles. If the used market gets flooded with crossovers they might just be worth nothing.

 

It sounds like I should look for a crossover next.  I should be able to get one cheap.  I am unconcerned with resale value because I drive a car until there is no value left in it.

Share this post


Link to post
Share on other sites

^ My point is that if I am looking to spend $8,000 on a car.  I will then stretch to like $10,000 because I'm financing anyway.  therefore I came out of pocket $2,000 more than I would have anyway.  Besides, If I have to make debt service payments, then that is less money i have to invest each month.  So it is likely a wash.

 

If you invested the $8K over your financing period (4 or 5 years?) you'd come out ahead of the $10K you referenced.  For financing to be a viable option you either have to actually invest the cash and beat the interest rate and/or have a consistent, steady income over the financing period, and also invest along the way.

 

If rates tick back up above 5-6%, you'll see a lot less borrowing.


Very Stable Genius

Share this post


Link to post
Share on other sites

I do not use investment money to purchase vehicle anyway. I use money from my rainy day fund that I keep in cash investments.  You also are ignoring the fact that no financing a vehicle gives me more personal cash flow each month that can be invested periodically.  I put it this way.  I would never borrow money to invest in the market.  That's exactly what I'd be doing be financing a vehicle to try to get positive arbitrage.

Share this post


Link to post
Share on other sites

I do not use investment money to purchase vehicle anyway. I use money from my rainy day fund that I keep in cash investments.  You also are ignoring the fact that no financing a vehicle gives me more personal cash flow each month that can be invested periodically.  I put it this way.  I would never borrow money to invest in the market.  That's exactly what I'd be doing be financing a vehicle to try to get positive arbitrage.

 

In this scenario, you've just drained your emergency fund by $8k to buy a vehicle (probably not a smart move?) and so even though you have more cash flow that could be invested, you'll likely put most of it to building back up your emergency fund, no?

 

I would borrow money to invest in the market IF my interest rate on financing is below 5% (and I have a steady income to offset downturns in the market).  Obviously, in this case, there are other factors - total amount to purchase the vehicle, fuel efficiency, reliability of the car/brand, car history if its used, etc. etc.

 

Personally, I wouldn't finance a brand new $30K+ vehicle because if I lose my job, there goes my steady income for monthly payments and I wouldn't want to take that much out of my investments to cover my outstanding liability on the vehicle.  If it's an amount less than that and the interest rate is low, then yes that's a move I'd make, if only because I know I'd have the assets to cover $8-$12K should I lose my job/income stream.


Very Stable Genius

Share this post


Link to post
Share on other sites

I do not worry about moving a $8,000 out of an emergency fund because the likely of an emergency of that magnitude before i redirect $8,000 back into the fund is slim.  And I have credit available to me if need be.  I just do not support the financing of a depreciating asset under any circumstance.  This is a view shared by most of the popular early retirement or frugal experts.  Markets are volatile and gains are not steady.  You can easily endure periods of 3-5 years of losses on investments.  I wouldn't want to compound my losses by having debt service to retire.

 

One other item I forgot to mention is that since I drive very little and have a garage, I only carry liability insurance with high deductible.  A lender would not permit me to do this.  I do not insure anything I buy except my house for obvious reasons.  Since I can easily afford to replace my car, I see no reason to insure.  Self-insuring is a big cost savings as well. 

Share this post


Link to post
Share on other sites

I do not worry about moving a $8,000 out of an emergency fund because the likely of an emergency of that magnitude before i redirect $8,000 back into the fund is slim.

 

Then why have $8k sitting in cash at all?


Very Stable Genius

Share this post


Link to post
Share on other sites

This post is hilarious because these "bad" tenants didn't really trash the place at all (complaining about dog poop in the backyard? Really?):

http://www.financialsamurai.com/being-a-landlord-tests-my-faith-in-humanity/

 

I just get the sense that this writer hasn't been around low-class people at all and that didn't prep him for the low-class behavior from these SF preppies.  When the time comes to rent out my house near UC to a bunch of 20 year-olds, I fully expect the thing to be trashed a year later.  Bong water stains in the carpet, holes in the wall, missing tile, broken hinges, etc.   

 

What I have learned through my rentals is that for every 5 great tenants there is another bonehead out there who thinks no one is paying attention. Just last night we had to get the police to one of our complexes at 1 AM because the brother of the tenant, who was staying there for 2 weeks while the tenant was out of town, choose to bring his drug dealing operation to our place and found out quickly that such behavior is not tolerated as they enjoyed a nice ride to their jail cell.

 

I had another one time who broke her own window and wanted to break her lease and get her money back so she cooked up a story to me about being robbed and raped by her ex boyfriend. She planned to meet me expecting to get her rent refunded and full security deposit back and was surprised when I gave her an eviction notice and copy of her 911 tape instead.

 

You may ask, o but it depends on the neighborhood these people live in. While certainly it is not San Francisco with the high end apartments, one of these examples was from someone who rented in Oakley. The other was a suburban working class setting.

 

So, nothing surprises me when it comes to knucklehead tenants.

Share this post


Link to post
Share on other sites

^ i got out of the rental business a long time ago due to tenant issues.  Fortunately, I sold my rentals off before the great recession.  I couldn't have timed it better if I tried.

Share this post


Link to post
Share on other sites

^ I still love the business. Just the cost of doing business and I absolutely love the returns. I find the tenant horror stories humorous in the grand scheme of things because it amazes me about people in general and how they could act like that.

 

On the college rental part, we once had a group of guys who threw a party one stormy evening and brought everyone inside. After hours of people spilling beer on the hardwood floors and people tramping in wet shoes, there were puddles on the floor. GIven that they left those puddles of stale beer and water, for 2 weeks, it caused the wood floor to warp in some spots. Instead of notifying us to have us try and remedy, they tore up the warped floor boards necessitating the entire floor to be replaced. The most appalling thing is that when we showed the results to mom and dad who were co-signers on the lease, instead of being angry at their kids, they were upset with us because we fostered an environment to let them party.

Share this post


Link to post
Share on other sites

This post is hilarious because these "bad" tenants didn't really trash the place at all (complaining about dog poop in the backyard? Really?):

http://www.financialsamurai.com/being-a-landlord-tests-my-faith-in-humanity/

 

I just get the sense that this writer hasn't been around low-class people at all and that didn't prep him for the low-class behavior from these SF preppies.  When the time comes to rent out my house near UC to a bunch of 20 year-olds, I fully expect the thing to be trashed a year later.  Bong water stains in the carpet, holes in the wall, missing tile, broken hinges, etc. 

 

I read around some more on that site and all of his articles come across the same way.  There's even a post about how to "stay under the radar" and connect with the common folk.  I have a feeling he's some Silicon Valley millionaire and his target audience is people who have a net worth north of 7 figures.  At least, that's what I've gathered after reading a few articles and his follow-ups in the comments.  Probably why he's complaining about his tenants, while not entirely taking responsibility for letting them pay rent late 8 times in 24 months.


Very Stable Genius

Share this post


Link to post
Share on other sites

^Reading his article, he is a horrible property manager. There are a lot of things he does that just make me scratch my head and say, you are contributing to the problem. Owning rental property is not for him, that is for sure. 

Share this post


Link to post
Share on other sites

^ he wants a 30%-40% ROI without having to do the work involved

 

He even notes how much money he made over the two-year period ($216,000 in rent payments!) but then complains because there was a little trash and some dog poop.  Dude...the cost to "clean" in between tenants is minimal compared to what you're making and you should have built that in to your financial model anyway.


Very Stable Genius

Share this post


Link to post
Share on other sites

^Also, he's just not a very good writer because he's not enough of a wise ass. 

 

 

I would never borrow money to invest in the market. 

 

 

In the late 90s I heard of two people maxing out their credit cards to buy early internet stocks.  At that time credit card limits were much lower ($2,000 at most for most college students) so nobody ended up $50k in debt, but the two people I knew who did it definitely learned a tough lesson.  Since so many first-time "investors" (they were speculating, of course) a lot money 1999-2001, they and people who heard their stories shied away from the stock market and especially tech stocks for the next decade. 

 

Benjamin Graham's Book The Intelligent Investor taught me a ton [https://www.amazon.com/Intelligent-Investor-Definitive-Investing-Essentials/dp/0060555661/ref=sr_1_1?ie=UTF8&qid=1495822937&sr=8-1&keywords=the+intelligent+investor].  I own the edition from around 1972 and he discusses at length the difference between investing and speculating.  He also sticks completely to stocks and makes no recommendations with regards to real estate, but pretty much everything discussed in the book does apply to real estate. 

 

Choosing individual stocks without researching and following the company for years is basically just speculation.  For Graham, Buffet, and Munger, value investing has always come very easy because they have the discipline to simply not buy anything at retail.  They buy low and sell high, every time.  With real estate, it is almost impossible to get a deal on a single-family house that is brokered through a realtor.  They're not going to let it sell for much less than what it's worth.  You're only going to get deals at sheriff's auctions or on less-popular real estate types. 

 

One of the big reasons why unimproved land can be a great investment is because nobody pays attention to it.  The parcels often stay on the market for a year or more.  Also, you can contact the owners of land that isn't for sale and make an offer to purchase.  This year I bought two vacant city lots from different entities who didn't even know they owned the lots and had never laid eyes on them.  One was a commercial electrician who acquired his lot when he bought out another company. The other lot was owned by an outfit that owns and rents over 100 single-family homes...they got this lot as part of a package they bought from another investor.  I'm working on a third lot right now owned by a church that according to public record is not properly registered anymore, so I'm going to get another deal. 

 

 

 

Share this post


Link to post
Share on other sites

You might be surprised. So many college kids are nerds now that they won't mess it up too bad... but I suppose those kind don't tend to go for off-campus housing. The meathead thing has scaled back significantly in the past 5-10 years. You might even have trouble renting it out by then since nerds favor the dorms and the Supermax buildings.

 

I can't imagine being in college without the epic parties and nasty houses and apartments in Cedar Falls, IA.  I did sort of a see a slow down on this from when I first got there to when I left which was a 3 year period.  I always thought it was because I wasn't in the mix as much as I was when I was a sophomore and junior, but later on I learned things were turning "lame", though some of the younger guys knew how to have a good time. But everything I'm hearing on here sounds like it's really slowed down nation wide and it must be happening quick.  I wouldn't change my college experience for any except the time I got a public intoxication walking back to my buddies place, that was no fun

Share this post


Link to post
Share on other sites

^Also, he's just not a very good writer because he's not enough of a wise a$$. 

 

 

I would never borrow money to invest in the market. 

 

 

In the late 90s I heard of two people maxing out their credit cards to buy early internet stocks.  At that time credit card limits were much lower ($2,000 at most for most college students) so nobody ended up $50k in debt, but the two people I knew who did it definitely learned a tough lesson.  Since so many first-time "investors" (they were speculating, of course) a lot money 1999-2001, they and people who heard their stories shied away from the stock market and especially tech stocks for the next decade. 

 

Benjamin Graham's Book The Intelligent Investor taught me a ton [https://www.amazon.com/Intelligent-Investor-Definitive-Investing-Essentials/dp/0060555661/ref=sr_1_1?ie=UTF8&qid=1495822937&sr=8-1&keywords=the+intelligent+investor].  I own the edition from around 1972 and he discusses at length the difference between investing and speculating.  He also sticks completely to stocks and makes no recommendations with regards to real estate, but pretty much everything discussed in the book does apply to real estate. 

 

Choosing individual stocks without researching and following the company for years is basically just speculation.  For Graham, Buffet, and Munger, value investing has always come very easy because they have the discipline to simply not buy anything at retail.  They buy low and sell high, every time.  With real estate, it is almost impossible to get a deal on a single-family house that is brokered through a realtor.  They're not going to let it sell for much less than what it's worth.  You're only going to get deals at sheriff's auctions or on less-popular real estate types. 

 

One of the big reasons why unimproved land can be a great investment is because nobody pays attention to it.  The parcels often stay on the market for a year or more.  Also, you can contact the owners of land that isn't for sale and make an offer to purchase.  This year I bought two vacant city lots from different entities who didn't even know they owned the lots and had never laid eyes on them.  One was a commercial electrician who acquired his lot when he bought out another company. The other lot was owned by an outfit that owns and rents over 100 single-family homes...they got this lot as part of a package they bought from another investor.  I'm working on a third lot right now owned by a church that according to public record is not properly registered anymore, so I'm going to get another deal. 

 

 

Jake - What are your plans for these lots once you acquire them? Do you plan to develop them or sell them?

 

As a caveat, you can find good investment grade property through a broker. You may not get a single family home because the market is priced differently, but investment property which is valued by income vs comps can be found through a broker.

Share this post


Link to post
Share on other sites

This post is hilarious because these "bad" tenants didn't really trash the place at all (complaining about dog poop in the backyard? Really?):

http://www.financialsamurai.com/being-a-landlord-tests-my-faith-in-humanity/

 

I just get the sense that this writer hasn't been around low-class people at all and that didn't prep him for the low-class behavior from these SF preppies.  When the time comes to rent out my house near UC to a bunch of 20 year-olds, I fully expect the thing to be trashed a year later.  Bong water stains in the carpet, holes in the wall, missing tile, broken hinges, etc.   

 

I read around some more on that site and all of his articles come across the same way.  There's even a post about how to "stay under the radar" and connect with the common folk.  I have a feeling he's some Silicon Valley millionaire and his target audience is people who have a net worth north of 7 figures.  At least, that's what I've gathered after reading a few articles and his follow-ups in the comments.  Probably why he's complaining about his tenants, while not entirely taking responsibility for letting them pay rent late 8 times in 24 months.

 

He is a San Francisco millionaire and that is his target audience.

 

Keep in mind that place he rented in SF's Marina District was $9,000 a month. Even for the Marina, that's a little bit expensive (five bros in that lackluster rental should be more like $7500-$8500 a month). He's likely making money hand over fist on that property so his "woe is me" attitude is hilarious. None of those pictures are remotely bad. Tenants in SF are remarkably good compared to most cities since everyone lives in fear of eviction and becoming homeless or moving to Oakland. With that said, of course tenants in the Marina are going to party hard. It's fraternity/sorority central, but luckily for landlords, roughly 60% of the neighborhood under 35 is female. The north side of San Francisco has the nicest flats and rentals, and the single women up there generally keep them clean. And most of those renters are rich enough to hire maids too. That's pretty common in neighborhoods like the Marina and Pacific Heights. I'm not saying all frat bros are dirtier tenants, but in San Francisco, the cleanest neighborhoods are the female-dominated ones. Pacific Heights is spotless. The heavily male-dominated neighborhoods are filthy (with the exception of the Castro). SOMA and the Tenderloin are disgusting (though at least the TL is fun!). It's pretty shocking to look at the gender disparities among young singles in San Francisco, but if you live in the Bay, you see it and feel it. Most of these singles are of course renters:

 

http://visualizing.nyc/bay-area-zip-codes-singles-map/

 

If Financial Samurai wanted spotless tenants, he shouldn't have picked a bunch of frat bros likely fresh out of college from out of town. I've had a few dirty female roommates, but only in Oakland. Generally speaking (these are broad strokes), the kind of wealthy sorority girls who dominate the Marina and North Side SF are quite high-maintenance and clean. They have big advantages when renting in a cut-throat market like San Francisco. It's illegal to discriminate on gender, but when 500 people apply for an apartment, landlords can get away with discriminating on all sorts of trivial matters ("They eat processed food! No way am I renting to them!"). The two sorority girls I lived with in San Francisco were remarkably clean (way cleaner than any girls I lived with in Ohio). One was a borderline clean freak, but she was an awesome roommate (one of my all-time favorites). We had keg parties too, but we always deep cleaned the flat right afterwards to make it spotless. Again, nobody wants to risk losing their flat in San Francisco! The consequences are grave. Financial Samurai would have a massive heart attack if he ever set foot inside any rental property in Athens, Ohio...lol, that dude needs to visit real America!

 

*Now Oakland tenants can be real nightmares. Burning Man houses and illegal warehouses can get disgusting beyond belief. Hipster flats can get unbelievably disgusting too. Oakland landlords have way bigger problems than San Francisco landlords. Even San Jose landlords do too (San Jose can get a lot grimier than you'd expect). Hell, even when I lived with USF undergrads in The City, they were spotless compared to anyone I lived with in Ohio. These were some of the few college kids in the Bay who actually did know how to party, but they always cleaned up after themselves (though of course students everywhere in the Bay are lightweights compared to Midwestern party school kids at legendary places like Ohio U). Even the fraternity houses at Berkeley and Stanford are pretty clean. Students in the Bay are very serious about their careers at an early age. It seems like they miss out on some of the fun of college, but most of them walk into extremely high-paying jobs at 23, so who can blame them? Being a landlord of a student rental in the Bay is low-risk compared to places like Ohio. If San Francisco ever had tenants as bad as in Athens, Ohio, half of the buildings would be condemned after one semester!

 

**The dude who writes Financial Samurai lives in a bubble lol. Even by SF standards, he's loaded, and being able to own multiple rental properties in SF means you're filthy rich by any real world standard. He should be thanking his lucky stars he is so wealthy. He constantly posts nonsense about how he thinks SF is undervalued for what it is, which anybody who lives in the Bay knows is pure BS at this point. It's insane how expensive it has gotten here and no amount of hometown bias can justify the Bay being so much more expensive than Toronto, NYC, London, or other truly global metro areas (those other metros have truly global diversity, not just rich kid diversity like in the Bay today). And nothing can justify this housing shortage or people bidding hundreds of thousands of dollars over asking price for marginal properties just because it's in Silicon Bay. While recent buyers in San Francisco will be alright, Oakland and San Jose are likely in massive housing bubbles again. Even lower-tier neighborhoods in SF like the Sunset District and Bernal Heights could see a major correction...Financial Samurai needs to stop pouring so much money into real estate at the top of the market! That's like some 2007 crap right there...

 

The only people who should be investing in San Francisco real estate right now are people with inside connections, special deals, or those buying slightly below market rate in top tier neighborhoods with long-term stability (like Pacific Heights, Nob Hill, Noe Valley, Russian Hill, North Beach, Inner Richmond, Upper Haight, NOPA, etc.). In Oakland, the neighborhoods of Rockridge, Adams Point, Piedmont, and Eastlake/Cleveland Heights are just about the only sane places left to park a couple million dollars in real estate. There aren't many smart places left to buy anywhere in San Francisco and Oakland these days. Even buying in the hyper-gentrified, tech-obsessed Mission could be a gamble right now if there is a tech bubble...buying in SOMA right now could be a terrible idea for multiple reasons...

 

Financial Samurai is right to point out that crowdfunding real estate development looks like a nice way to invest in real estate without the headaches. I think that is quite promising in most American cities. Let the professional developers and landlords deal with the headaches while you still get some solid returns.

Share this post


Link to post
Share on other sites

I do not use investment money to purchase vehicle anyway. I use money from my rainy day fund that I keep in cash investments.  You also are ignoring the fact that no financing a vehicle gives me more personal cash flow each month that can be invested periodically.  I put it this way.  I would never borrow money to invest in the market.  That's exactly what I'd be doing be financing a vehicle to try to get positive arbitrage.

 

So I finally ran a quick simulation of this.  Loan amount $18.6K over 60 months, at a 0.9% interest rate (this is a common offer from many of the dealerships on new vehicles, at least from what I've seen...some offer less if they're trying to move inventory).  That's 5 years of $317 monthly payments.

 

Now, in this scenario, I assume $500/month in left over income from one's job, typically invested in a conservative stock / bond mix which yields about 4% annually.

 

Let's cover paying in cash first.  Assuming you paid $18.6K in cash and kept the vehicle for 5 years, you don't pay $420 in interest.  I also assume you take that $500 and begin building back up your emergency fund (cash) which earns nothing - it takes you nearly 38 months to build your emergency fund back up $18.6K.  From there, you have 22 months to invest $500/month, and in a conservative mix earning 4% annually, you'd end up with ~$11,873 at month 60, as well as an asset in the car (worth, we'll call it $10K) - $21,873 in net worth, plus the original $18.6K in cash we built back up for a total of $40,473 of net worth (minus car maintenance costs, which would offset anyway with the next scenario).

 

In scenario 2, we opt to finance the entire vehicle purchase at the offered 0.9% interest rate.  We can keep that $18.6K in the emergency fund, earning the 4% annually - if we do that, the $18.6K becomes ~$22,800 at month 60 if we don't have to use it at any point.  We could also keep it in cash and have peace of mind that we're covered for any emergency up to $18.6K.  So back to the $500/month after tax discretionary income - if the $183 excess ($500 - $317 car payment) is continually invested for 60 months, that will become ~$12,200 at month 60.  Asset of the car is the same, of course.  So that's $22,200 in positive net worth, plus (potentially) $22,800 by keeping the initial cash invested.  Net worth potential is $45,000.

 

Financing CAN make sense if you are disciplined enough to keep investing and have a stable job/income stream over the next 60 months.  Obviously, it only makes sense if you get a really low interest rate and have excess monthly income to invest (and are disciplined enough to consistently do it).  The $45K potential also assumes you're comfortable putting your emergency fund in a conservative mix of stocks/bonds - the 4% is just a conservative average.  I'd probably consider something like VWINX from Vanguard (two-thirds bonds, one-third high-dividend stocks) - it's only had one five-year rolling returns average below 4% (2008: 3.36% annual 5-year return).  So the results could be even more pronounced if we assumed a ~7% annual return from that fund.


Very Stable Genius

Share this post


Link to post
Share on other sites

^ No offense but there are wayyyyyyyyyy to many assumptions in your post that I don't even know where to start.  But first of all, is I paid $18k for a new car, which I wouldn't, I would sure as heck keep it longer than 5 years.  You can easily find great quality used cars in the $6k - $8k range.  Your assumption of nearly 19k for a car begins with a premise that proves my assumptions accurate.

Share this post


Link to post
Share on other sites

Also 0.9% is for those with FICO 820+. Young people can't have that kind of credit since their history is too short even if they have a great ratio from having tons of high-limit cards thrown at them and not using much of the available line.

Share this post


Link to post
Share on other sites

Also 0.9% is for those with FICO 820+. Young people can't have that kind of credit since their history is too short even if they have a great ratio from having tons of high-limit cards thrown at them and not using much of the available line.

 

http://www.tanskysawmilltoyota.com/Toyota-Incentives-in-Dublin-OH-Serving-Columbus-and-Powell.html

 

This is just one example - Toyota is offering 0.9% or 0.0% on more than half a dozen vehicles right now (some 60 months, some 72 months).  (Full disclosure - I qualified with a credit score in the 750s)


Very Stable Genius

Share this post


Link to post
Share on other sites

^ These low rates are only for new cars.  And generally speaking when you finance through the dealer with their low rates they are less likely to negotiate the price of the car.  They wither make the money on the front end or back end, sometimes both.  I do not advocate a new car and wouldn't advocate it for anybody.  It is almost always a poor financial decision. 

Share this post


Link to post
Share on other sites

Join the conversation

You can post now and register later. If you have an account, sign in now to post with your account.

Guest
Reply to this topic...

×   Pasted as rich text.   Restore formatting

  Only 75 emoji are allowed.

×   Your link has been automatically embedded.   Display as a link instead

×   Your previous content has been restored.   Clear editor

×   You cannot paste images directly. Upload or insert images from URL.

Sign in to follow this  

  • Recently Browsing   0 members

    No registered users viewing this page.

×
×
  • Create New...