This is not exactly my usual style of thread that I start, but I'd like to get your honest opinions for those that are older and wiser than I am.

I am at a time in my life where I'm beginning to think selling my Z06 might be the right decision. I am 24, and I graduated university a year ago and I have started my career path. I just purchased my first home this year and am am starting to look further down the road at my life goals. I am entertaining selling the car in order to finance a down payment on my first rental/investment property.

For those of you who have been at this crossroads before, how did you handle it, and do you feel you made the right decision?

-Adam

 

Cars come and go (I average one a year ) but pursue your dream. If you miss it, you can always get another.

 

Wow I am pretty much in the exact same situation, but I was just thinking about selling it because I want to put down on a house and free up any debt that I do have and me and my fiance want to start having kids and so much money tied up into my z just doesn't make sense financially. Looking forward to some responses!

 

Look up the Papa Johns story if you don't already know it!
Letting the Z go now to begin a rental property empire is a no brainer....

 

That's a really tough question to answer without more specifics, both lifestyle preference and financial.

When it comes to money and long-term plans, I'm a real prude. I've always had a 2-door 'muscle' car of some kind; most of them were 'beaters' that ran well mechanically but weren't much to look at--they weren't in primer, but they weren't by any means in 'show' condition either. At the same time, I had a house note I was paying off. I never had a 'nice' muscle car until I was sure our housing situation was set and our finances were completely under control in that regard. (and by "completely under control", I mean that we were able to add a minimum of $100 per month to the principal in our monthly payment. Most of the time, we were throwing in at least $2-300 more per month--whatever we had 'excess' for that month. By the time it came to sell in our 3rd year, our 15-year $120,000 mortgage was at 94G's--the real estate agent was really surprised; she said, "you're really conservative... but you've got a lot of equity now, and you've saved the interest [@6.75% compounded] on a 15-year loan of $26,000.)

Your problem is, I think the real estate market has changed permanently--there may be some equity appreciation in the right property, but it probably won't ever be nearly as frenzied a market as it was in the late 80's, late 90's and early 2000's. Too many people have been burned for property values to run amok as they did. (My point is, I think you'll always have time to see [and read about anticipated] market trends from now on.)

Still, I like the idea of property as an investment, especially if you're living in it at the same time (read that as "single-family dwelling")--there are still tax deductions that make it an advantage, so long as you're committed to owning property for the looongg term--7-10 years and longer. Your long-term goal has to be to be able to have your personal housing paid off completely at least by your retirement years. Otherwise, I think real estate values and projected appreciation(s) has changed so drastically that 401K's coupled with mutuals coupled with renting might be a better play. But with that plan, at retirement, you're still gonna need enough money to fund 'permanent' residence.

In my youth (when I was in my early 30's), I needed the psychological security of the knowledge that one day I could come home to a dwelling that I owned. Now all I owe are the property taxes, insurance, and maintenance, which are easily affordable without a mortgage payment. I was lucky ,though... I bought into a rising market and made a killing with my investment twice. I bought in 1986 and sold in '89, selling for 50% exactly more than I paid. The recession hit in '90-94, and that next house sold in '97 for exactly what I'd paid in '89. Then, in 2003, I sold the 1997 house for 1.9x what I paid. I moved out of CA then and with the money I made, I paid in cash the equivalent of 21% of my last sale.

However, I think this economy is a 'permanent' and new economy... The notion of property as a nest egg is much tougher to achieve when the interest rate is low coupled with slow appreciation. There's something to be said for renting--you can walk away from any headaches by simply moving; there are no property taxes, upkeep expenses, insurance, nor maintenance costs. You don't have to pay (the customary 6%) selling costs (to the real estate agency and agent).

I never liked the idea of rental property; maybe because I just didn't do well with it. At best, I broke even with three good properties in decent locations--however, I was forced to sell them all in mediocre markets, and that has a lot of influence on my perspective. In two cases, they were single-family homes; one was a duplex. I never lived in the duplex. It's a fairly common 'wisdom' that you should do better financially with a rental property if you're living in one of the units. Pushed into a corner, my opinion is, rental property as an investment is just too much of a headache. It's tough to find multiple dependable, responsible tenants. Maintenance costs have no 'reward' except to keep the property pristine enough to appeal to new renters and keep the property in condition for a sale. They are not a tax write-off. If you're not gonna live in a unit (and be able to monitor its' condition) you should pay an agency to do that, and even they aren't all reliable. (agency fees are a write-off)

I know that doesn't help much, but it's as far as my thinking and experience takes me, and all the knowledge that I can pass on. I don't follow the real estate market very diligently anymore because I'm sure I'm in my last house, and in that sense, it doesn't matter what its' worth nor if/how much it appreciates or declines. The neighborhood is predictably set; 20 years of 'change' here won't hurt me.

I guess my advice would still be, though, to sell the car and invest in *something*. Google the notion-"guns or butter"; it applies to your situation in the broadest sense.

*I misread your post--you already have a house. Pay it down first before you take on more debt. You shouldn't "invest" by taking out a loan when you already have one (if you do). If you don't owe anything, it's fine to invest in some other mechanism, but if you owe on the house, bite into the mortgage with as big a principal payment as you can (provided there is no pre-payment penalty clause attached). No matter what the interest rate is on an outstanding loan, interest is interest--money that could be saved by paying early. The notion of "leverage" makes sense only if both your financial situation and the economy are stable. And I'm a firm believer that with 16 approaching 17 TRILLION dollars' debt, there's nothing stable about our economy. All that has to happen for us to go into another "official" recession is to have another disaster like 911 or the 2008 financial crisis--that'd crush the fragile Wall Street 'stability' like "Godzilla meets Bambi"... if that happened, there's no telling how far the job market and general economy would plummet. And "something" will happen--a day, a year, 5 years from now--whenever Wall Street goes into a down cycle, the entire national economy will follow. Be ready for it.

 

Your car is my favorite C5 ever, let alone Corvette. Don't do it But it is probably wise I guess. I'm 20 trying to finish college right now, so I don't know your situation exactly, so I'm not going to give advise, but cars come and go, I've had plenty myself and I've gotten over each one I've gotten rid of that I "couldn't live without." Investing in property could really pay out later down the road....Good luck with your decision!

 

Geeez...no brainer. Sell the car, get on your way to buying investments that will pay you back.

 

Something else I wanna say.... "leverage"--the notion that a 20% down payment can allow a party the right to an "80%" cash loan--for instance, if I want a mortgage loan of $120,000 for a $150,000 house, I can get it with a down payment of 30G's. (20% of 150) In today's economy, with mortgage rates outrageously low (compared to historical 6-7-8% loans), it might seem that the leverage is greater and thus much more appealing. In a sense, it is, but the concept is still constant--you owe the balance--principal (the nut) and interest (the "minor" inconvenience, a. k. a. the "vig"). No matter how small the interest rate, it's not the interest rate that kills when the note comes due, it's the principal. In unfortunate times, when most folks are thrust into bad situations, they can't come up with either enough of a payment to fend off the bank, or they don't have the principal to wriggle out of the loan. Don't let the illusion of leverage camouflage the obligation.

I have an accountant friend; as an accountant, he was enamored with the idea of 'leverage'. I was not. I was the scaredy-cat. He leveraged himself into plenty of house in 1990 because he was able to get his loan at 2pt less than I did--$800,000. I bought in a neighborhood almost as nice about 5 miles away for just less than half (because my neighborhood doesn't have a national reputation. John Madden didn't live just around the corner). I've been retired since 2001, when I was 50. He just retired this year at age 63. He still owes on his house; it's not like he can't afford it... but one of us was grousing about a work situation for the last 8 or 9 years of employment. If he'd leveraged less, he could have gotten out 'way sooner. It's not like he's not happy, but that's not the point. Leverage kept him obligated longer than he liked or anticipated.

I hope that didn't come across as presumptuous; I just wanted to explain my use of the word 'leverage'.

 

At 25 I had my dream car a 67 BB Roadster, I decided to give up my car to build a new bigger home for family. At 33 I bought another corvette had it a few years until kids were about college age sold it. Once 3 kids were all finished with College I bought a A/E Vert, down sized home sold the 03. 2011 bought a 4k mi, 2002 vert and waiting for C7 in the future. All in all I did what I had to do at the moment and I will never look back just forward.


I'm in the center.....what the hell is Burger Chef!

 

 

If I had invested in my mortgage instead of the market (before the crash) I wouldn't have a mortgage today. I am 53, my goal was to retire at 55. Looks like I will be working till at least 62 now, unless I hit the lottery
I am lucky my job is not tied to the economy and, I truly love my job. That said, I would much rather retire in 2 years instead of 9. I didn't get my first vette, a 99, till I was 45. That one is now my wife's car, okay it was hers shortly after we bought it lol. I bought my 02 Z just over 2 years ago. Probably a good thing because I didn't have the disiplen back then to stay out of trouble with it, I hardly do now. Life is short, responsibility is more important than fun, but you still have to have fun. Good luck with your decision.

 

I had a 66 Convertible when I was 24 and soon after a 71 Convertible. Sold the 71 to get a family car. 30 years later got a 93 Coupe when I was 54. Got a my 2001 Coupe when I was 58. There is life after Vette's but it is in your blood. At some point in the future the time will be right to get another. Pursue your dreams. Cars come and go.

 

We got our first rental when we were fairly young like yourself, it worked out that when we decided to sell the original rental (Duplex) after about 12 years, we reinvested in a newer one and had enough to buy our first vette...We just sold the old C3 that we had for 18 years and bought our 01 Coupe. Basically the wise (mature) decision would be start your investment now, play later. You really don't want or need a loan on your Dream car....if it all works out. Good luck!

 

As a former rental property owner, my advise is be careful. If you or your family are familiar with the in's and out's of rental property you can probably avoid a lot of problems. I just sold my last rental property and I'm as happy as if I had just sold a boat.

 

Thanks everyone for the replies. I feel like I know the smart thing, but it's definitely reassuring to hear it from people that have been through this before.

Thanks for the in-depth reply. I lead a fairly inexpensive lifestyle. Aside from a mortgage I have no debt; I own three cars and have no credit card debt. I purchase what I can afford and live within my means. I am also in Canada, which shelters me a bit from what's going on with the US economy. Real estate where I am is both relatively expensive, and relatively stable. I'm not in it to make a killing on property appreciation - this is more for a long-term sustainable, profitable investment.

About paying off my first mortgage first, wouldn't it make more sense to accumulate more debt and leverage it? If I can run a triplex with a positive cashflow, wouldn't this be more advantageous than paying down the first mortgage?

Thank you for the kind words - it means a lot. It will be painful to get rid of this car...it's always been my dream car for an EB C5Z, and I finally have the car how I want it. Keep working at college

But, like people are saying, cars come and go. I can do it again later in life. $30,000 now will be a worth a lot more in a few years invested properly.

I am wishing you luck in your decision

 

Your car is amazing, but long term goals are a better thing to invest in.

 

The statement and question are "interwoven"--speaking from your frank self-evaluation of personality and tolerance--what would you consider a 'profitable investment'? (you don't have to answer publicly; I mean it as a rhetorical question to stimulate a thought process) Each investor has unique qualities that determines their singular set of desires for an investment-- sense of timing, longevity (in projected actual timeline), risk tolerance, loss tolerance, etc.

Common wisdom says a net 4% compounded surplus (a. k. a. 'profit') is a minimum requirement. In the US, most financial advisors will tell you that the stock market has easily performed that well over any 20-year span. Is that good enough to qualify as your idea of "profitable"? Does 20 years qualify as your idea of 'long-term' or is it too long/short? If the real estate market tanks and drives your investment value down, how long will you tolerate it? How much of a loss would you be willing to tolerate? What would force you to sell? If 4-6% net is 'good enough', I probably would invest in financial instruments instead of property. As I said, my rental property experiences weren't that good.

As to paying down the mortgage vs. borrowing to invest, my secondary answer would be a question--statement, really,-- I can't answer that. I know I wouldn't have been comfortable using (the Corvette) money to fund a second loan; in two roaring markets I didn't do it. That's historical proof of my sense of financial prudence.

You have to gauge your own tolerances and goals. In our example, I had a lock-solid job, as did my wife. "Nothing" could have ended our employment; the companies that employed us (unrelated) were so solid that our jobs withstood the recessions of the 80's and 90's and even the dotcom-meltdown recession. But our logic was this--a second property required two incomes. Sure, our goal would have been to keep it occupied and paying for itself, but if it became empty, the question we feared was, "on one income, how long could we maintain our lifestyle and both properties?" We knew we could 'maintain' a single home with one income. Sure, there'd be some trimming, but they'd have been the true extravagances.

However, I always knew the home I was buying was a property that I envisioned would finance my retirement when I sold it. I could live in it, watch over it, and 'control' its' curb appeal somewhat (through "maintenance"); and I knew that every property I purchased except this last one, was an investment in the literal sense. That may be the purpose of your rental (and not your home). If you feel the loss of one full-time (full-paying) job under your roof can still tolerate the added burden of a rental property, maybe you should consider it seriously. Unless 4-6% compounded is good enough--then I'd find a good financial adviser and just let money work for you--so long as you're adding enough to the mortgage payment to trim its' term by 1/3.

I feel like I hedged my bet--we paid down the houses as quickly as possible, maintained their values while we did it, got lucky enough to profit from them, and kept our bills both financially and psychologically manageable without stress.

For me, the most important feature of paying the mortgage down first instead of investing in more property was the idea that even if we lost a job, we probably would have not suffered, and the accelerated payments allowed us to retire early, though we didn't have as much property to show for our careers.

A last thought... is your house truly an "investment"? I give you this example:

We were shopping for wedding rings. The hard-sell diamond merchant was having a tough time with me (as the customer) buying my wife a ring. (I knew she didn't care nor hold a 'value' for diamonds.) We wanted plain gold bands.

"Why not this band with that diamond? It's a stunning diamond and a beautiful and worthy investment."

I didn't say it out loud, but I thought it--"No, it's not. It's only an investment if I plan to sell it. I'll have something for my money, but in this case, it only has to 'suffice'. Diamonds sure ain't no investment."

So would you be content with your current home as your retirement home, or is it an investment?

 

The purchase of investment property "now" seems like an excellent timed decision.....the money that you make on the property, you will be able to buy whatever you want. IMHO.

 

you should re-read DORK and try to understand the thinking process he has obviously been able to be successful in as his retirement at 50.

I understand Canada is more stable in many area's than the US but money is effected by US economy whether you believe or not.

With your life style of everything is paid off except the mortgage(which is fantastic) think like that for buying more borrowed money concept. Getting your current mortgage more manageable would be more appealing, meaning if you lost your job or something happened that took you out of the work force for a period of time(accident) could you pay your mortgage? all other Bill's? whats your emergency fund like? most due 2 months which after being out of work for some time doesn't work.

If you are able to have a 6 month full payment fund for everything (including your investment property) (emergency) saved and untouched and able to put more down per month on both mortgage's, remembering that you are responsible for all repairs to both places then go for it.

In any case, think it out, talk to an advisor that doesn't see whats in it for them but whats best for you.

Good luck

 

A lot of things come first in life before a corvette. It is a luxury. Treat it as one. It should be way done the list of thing you need. You are young and have time for what you want. I was 44 when I bought my corvette new.