Justifying a depreciating asset?
#1
Justifying a depreciating asset?
Just trying to get a sense of how you guys are financing these vehicles. Allot of people on this site are proud to chime in say with CASH others are financing at a very low rate and others with some combination of both.
The part I really struggle with is the fast depreciating asset from the day it rolls off the lot whether is all CASH, financed or some combination of both.
I'm considering a cash purchase of a rental property and using the rental income to finance a 5 year note.
I'm looking to poke some holes in this plan to see if it continues to make sense.
Any thoughts?
Mike
The part I really struggle with is the fast depreciating asset from the day it rolls off the lot whether is all CASH, financed or some combination of both.
I'm considering a cash purchase of a rental property and using the rental income to finance a 5 year note.
I'm looking to poke some holes in this plan to see if it continues to make sense.
Any thoughts?
Mike
#2
Drifting
Finance the Rental Property and the Interest is deductible finance the car and it is not. Check with your Tax professional.
#3
Cars are not investments. About the best you can do is to buy a used car and let somebody else take the depreciate hit. They are otherwise a net loss if you don't count the utility value of the transportation they provide or the emotional value of the enjoyment you get from it.
I preferred paying cash upfront because I didn't want to create a cash flow problem with monthly payments. But that's my unique situation. Everybody will be different.
I preferred paying cash upfront because I didn't want to create a cash flow problem with monthly payments. But that's my unique situation. Everybody will be different.
Last edited by scottsh; 11-23-2015 at 03:16 PM.
#4
Drifting
Your right, it is a depreciating asset, with no good tax implications, IE: ability to write off that interest. However, if you can get it at a very low interest rate, 0%-.99% then it doesn't make sense to pay cash...
If you have $50K in cash available, invest it, and it will help pay for a large chunk of the cost....
For instance, find a US Banks ETF that pays 4-5%, then if the capital base cost of the ETF goes up by 10-20% you can liquidate 10% ($5000) of that ETF to further finanace the purchase of that car per year. There is a dimishing return eventually but you will find that if you pay $50K, after 3 years its guaranteed to be worth about half that ie:$25K. This is put very simply just to show you that sometimes it doesn't make sense to shell out that kind of cash on a depreciating asset.
If you have $50K in cash available, invest it, and it will help pay for a large chunk of the cost....
For instance, find a US Banks ETF that pays 4-5%, then if the capital base cost of the ETF goes up by 10-20% you can liquidate 10% ($5000) of that ETF to further finanace the purchase of that car per year. There is a dimishing return eventually but you will find that if you pay $50K, after 3 years its guaranteed to be worth about half that ie:$25K. This is put very simply just to show you that sometimes it doesn't make sense to shell out that kind of cash on a depreciating asset.
#5
Le Mans Master
If you want an asset, buy a collectible car. The bottom line---- is the enjoyment/fun factor worth the money to you. If yes buy the car, if not don't. These cars make no financial sense from a pure $ and cents perspective, but make a heck of a lot of sense from other perspectives.
#6
Melting Slicks
I look at it in a rather simple way. I want to have fun. Fun cost money. Corvette is lots of fun but depreciates maybe $5k a year. Do I get $5K a year out of it in fun? I think so.
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#7
Melting Slicks
I bought used and financed the car at a decent rate, I don't have the lump sum to pay cash but I can comfortably afford the monthly hit. Everything doesn't need to make 100% financial sense or else life will be quite boring.
#8
Instructor
It's a car, holy moly what's the big deal! There is no car you are going to drive that doesn't take a depreciation hit (OK, except an investment grade classic, and there aren't many of those). Dollar wise I financed 70% of mine at a low rate and use it as my DD, and the way I look at it is that after 5 years and about 70K miles I'll recoup about half of my original investment. All in all it will be a fairly cheap car to own and a fair trade for the amount of fun, pop and sizzle I'll get while driving it.
If I wanted cheap I'd have bought a Camry. Dollars are dollars and it really matters little where they come from. My choice was to finance at less than 1.6 and let my money work for me. Your option to use rental real estate can make sense and possibly appreciate as well, but it isn't as easy as it looks from the outside.....Ask me how I know My real estate currently returns 13% ROI and I'm very happy with it, but there are tax consequences down the road, and in today's world we will never really know what they are until we sell.
If I wanted cheap I'd have bought a Camry. Dollars are dollars and it really matters little where they come from. My choice was to finance at less than 1.6 and let my money work for me. Your option to use rental real estate can make sense and possibly appreciate as well, but it isn't as easy as it looks from the outside.....Ask me how I know My real estate currently returns 13% ROI and I'm very happy with it, but there are tax consequences down the road, and in today's world we will never really know what they are until we sell.
#9
Racer
#10
Drifting
You can look at it another way... you can take a trip and easily spend 10K on a trip, and at the end of it you got 0 left...
with the vette, after a few years you still have 25K left, so in reality, it only cost you 25K.... and you get lots of happiness 365 days a year, even if your not driving it....
with the vette, after a few years you still have 25K left, so in reality, it only cost you 25K.... and you get lots of happiness 365 days a year, even if your not driving it....
#11
Le Mans Master
Just trying to get a sense of how you guys are financing these vehicles. Allot of people on this site are proud to chime in say with CASH others are financing at a very low rate and others with some combination of both.
The part I really struggle with is the fast depreciating asset from the day it rolls off the lot whether is all CASH, financed or some combination of both.
I'm considering a cash purchase of a rental property and using the rental income to finance a 5 year note.
I'm looking to poke some holes in this plan to see if it continues to make sense.
Any thoughts?
Mike
The part I really struggle with is the fast depreciating asset from the day it rolls off the lot whether is all CASH, financed or some combination of both.
I'm considering a cash purchase of a rental property and using the rental income to finance a 5 year note.
I'm looking to poke some holes in this plan to see if it continues to make sense.
Any thoughts?
Mike
Yes, if you want an investment look to the stock market or housing market.
Last edited by Maxie2U; 11-23-2015 at 04:15 PM.
#12
Le Mans Master
Member Since: Sep 2012
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St. Jude Donor '15-'16,'18
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Carvin (11-24-2015)
#13
Safety Car
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Location: SouthEast PA
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Unmodified C8 of the Year 2021 Finalist
2018 C7 of Year Finalist
A long, long time ago I learned to save up to buy brand new cars, whether DD or Toys. Never expected a return on equity just depreciation. Always as the warranties expire. Just start the process over beginning the next day saving/investing for the next one.
"I'm considering a cash purchase of a rental property and using the rental income to finance a 5 year note."
Should work if you've considered all the property expenses, taxes, etc.
Edit: And assess if it makes sense to use a Property Manager.
"I'm considering a cash purchase of a rental property and using the rental income to finance a 5 year note."
Should work if you've considered all the property expenses, taxes, etc.
Edit: And assess if it makes sense to use a Property Manager.
Last edited by CRABBYJ; 11-23-2015 at 04:37 PM.
#14
You can call in an investment if you want to put it away for 50 years.
#16
Heel & Toe
I recently got rid of my Ferrari 328 to get a 2016 Corvette. The Ferrari had more than
doubled in value in the three years I owned it; the Corvette will without a doubt depreciate.
Unless you are a dealer, cars are not an investment. Our cars are for fun. Separate the two.
doubled in value in the three years I owned it; the Corvette will without a doubt depreciate.
Unless you are a dealer, cars are not an investment. Our cars are for fun. Separate the two.
#17
Intermediate
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Financed it for 84 months-couldn't care less about depreciation-just hoping I live long enough to pay it off !! It was either this or a 1965 twin engine Cessna 310. Corvette won out.
#18
In the very early 60s all I knew about Stingrays was their mention in the songs Shutdown and Dead Man's Curve as heard through my transistor radio. When we moved to town from the farm in 1966, I saw a yellow Corvette right next door to our house and knew right away what it was simply from the image I had made up in my mind. I wanted one ever since and every car I ever bought I wished it had been a Corvette, but kids and family and priorities were always first.
So when the new C7 came out I needed only to see the first picture and I had no choice but to get one. No choice other than color - either yellow for the memory or black because it is my favorite. The grandkids said black.
I know this all sounds hokey and a little off topic, but when you think about it, it is precisely on topic and straight to the point. Buying one of these things truly is an investment and an asset to life.
Last edited by TyBoo; 11-23-2015 at 05:27 PM.
#19
Melting Slicks
Why use your cash money for a depreciating product when you can get a 0.99% loan ?
I rather use my cash for something that would return a profit.
I rather use my cash for something that would return a profit.
Last edited by bluman; 11-23-2015 at 05:28 PM.