paying cash vs financing

[Ess Vee]

I'd rather take a loan out on the car, put the rest into a home using FHA and rent it out... the profit right there is the car payment... and income after it's paid off in 72 months.

Not to mention the house would appreciate in value in this market.

If you come out on top over the interest rates offered to you by banks, then it's kind of a no brainer?

Either it makes sense, or it doesn't.

Banks make money on lending money away. In order for them to have money in the first place, they need to offer interest rates to people who deposit money into their banks.

If you don't want to worry about having to make payment (becoming a slave to the financial system), by all means, pay it off outright. You won't have to babysit your funds then.

[thill]

Originally Posted by Ess Vee

I'd rather take a loan out on the car, put the rest into a home using FHA and rent it out... the profit right there is the car payment... and income after it's paid off in 72 months.

Not to mention the house would appreciate in value in this market.

If you come out on top over the interest rates offered to you by banks, then it's kind of a no brainer?

Either it makes sense, or it doesn't.

Banks make money on lending money away. In order for them to have money in the first place, they need to offer interest rates to people who deposit money into their banks.

If you don't want to worry about having to make payment (becoming a slave to the financial system), by all means, pay it off outright. You won't have to babysit your funds then.

In the past, I would have agreed with you. From 2007 to 2009 all bets are off. Looking at the current economy, I just don't think there are guarantees anymore for most traditional investments including housing, mutual funds, stock market, etc will generate a positive return.

I consider the majority of investments to be gambles. I can't tell you how many people I know over the past 6 years or so that took out home equity loans, big car loans, etc and invested in what was considered safe investments and lost their shirts. Look at places like Arizona, Florida, California, etc where people took out massive loans for rental properties or flips and lost everything.

I don't buy that we are completely out of the weeds. Europe is a mess. Unemployement is still high. Health insurance has some huge question marks. A huge percentage of Americans owe more on their house than it is worth. And our country seems to have no answer for the amount of debt we are taking on and how to pay it back. Hint. Taxing just the rich aint gonna even put a dent in our debt, so as usual, the middle class will carry the burden.

[Dadhawk]

Originally Posted by Ess Vee

I'd rather take a loan out on the car, put the rest into a home using FHA and rent it out... the profit right there is the car payment... and income after it's paid off in 72 months.

Not to mention the house would appreciate in value in this market.

If you come out on top over the interest rates offered to you by banks, then it's kind of a no brainer?

Either it makes sense, or it doesn't.
....

What you are not taking into account (or at least not mentioning) is Risk.

In your scenario you are doing two things that create risk. First, you are taking out a loan that requires repayment. At the same time, you are assuming that the home you purchase will appreciate (we all have learned in the past several years there is no guarantee of that at least over 5 years), and you are taking on a even larger amount of risk by taking a loan on the home since you mention FHA.

On the other hand, if you pay cash for your car, you are "out the money" and any differential you could have profited (note that is not the same as "earned") from the investment. Don't forget to include costs for such things as taxes, interest on both loans, etc in figuring out what you really "earned".

The only risk you have with the paid off car is that if you run into a situation where you need money from the car, you must sell it probably at a wholesale or slightly higher value for a quick sale.

Just food for thought.

[Erroneous]

Originally Posted by Dadhawk

What you are not taking into account (or at least not mentioning) is Risk.

In your scenario you are doing two things that create risk. First, you are taking out a loan that requires repayment. At the same time, you are assuming that the home you purchase will appreciate (we all have learned in the past several years there is no guarantee of that at least over 5 years), and you are taking on a even larger amount of risk by taking a loan on the home since you mention FHA.

On the other hand, if you pay cash for your car, you are "out the money" and any differential you could have profited (note that is not the same as "earned") from the investment. Don't forget to include costs for such things as taxes, interest on both loans, etc in figuring out what you really "earned".

The only risk you have with the paid off car is that if you run into a situation where you need money from the car, you must sell it probably at a wholesale or slightly higher value for a quick sale.

Just food for thought.

Hopefully he's renting out a property that's cash-flow positive and not counting on the appreciation, which would just be a bonus.

[Dadhawk]

Originally Posted by Erroneous

Hopefully he's renting out a property that's cash-flow positive and not counting on the appreciation, which would just be a bonus.

Understand, but that in itself has several different facets of risk to it.

Again, I'm not saying its a "bad" idea, its just not a no-brainer.

[Ess Vee]

Originally Posted by Erroneous

Hopefully he's renting out a property that's cash-flow positive and not counting on the appreciation, which would just be a bonus.

Yeah, I would just count any appreciation as a bonus. Thanks for the different perspective, guys!

[thill]

Ironically enough this just happened to a buddy of mine last year. He cashed in a bunch of stock options from work, invested all of the money in a "sure thing oil/gas investment" which tanked. Problem was he forgot that the profit he received from those stock options was taxable income at the end of the year and had to write the government a big check and he no longer had the money. He was forced to take out loans against his 401k and sell other investments to pay Uncle Sam back.

[Ess Vee]

Originally Posted by thill

Ironically enough this just happened to a buddy of mine last year. He cashed in a bunch of stock options from work, invested all of the money in a "sure thing oil/gas investment" which tanked. Problem was he forgot that the profit he received from those stock options was taxable income at the end of the year and had to write the government a big check and he no longer had the money. He was forced to take out loans against his 401k and sell other investments to pay Uncle Sam back.

This is just an example of a bad move investment, and shouldn't deter anyone from making investments.

The issue is situational at best. If you have investments that are predicted to put you over the loan interest rate, it's your decision whether to take that risk or not.

As far as the car itself, I'm looking into it as somewhat of an investment in of itself. I'm looking to move up to Silicon Valley (hence SV, hence Ess Vee) and to get investors/programmers on board, what you drive is all part of the message you send. The message this car sends I think would be in line of what I'm trying to do.

I think the car says (I took an art class, so bare with me :P):
young
somewhat risky (which adds to the excitement)
refined aggression
well-rounded

Curious to as what your thoughts would be.

[sharky]

Originally Posted by Ess Vee

This is just an example of a bad move investment, and shouldn't deter anyone from making investments.

The issue is situational at best. If you have investments that are predicted to put you over the loan interest rate, it's your decision whether to take that risk or not.

As far as the car itself, I'm looking into it as somewhat of an investment in of itself. I'm looking to move up to Silicon Valley (hence SV, hence Ess Vee) and to get investors/programmers on board, what you drive is all part of the message you send. The message this car sends I think would be in line of what I'm trying to do.

I think the car says (I took an art class, so bare with me :P):
young
somewhat risky (which adds to the excitement)
refined aggression
well-rounded

Curious to as what your thoughts would be.

I wouldn't look at any car as an investment, it is just an expense. Yes, some times the type of car goes hand in hand with the job but it is always an expense.

Also, unfortunately, here in SV, the price of an FRS is no where near enough for a down payment for a decent house. Let along to make any money from the rent after paying the mortgage and taxes.

[BlaineWasHere]

I'm sort of splitting the difference, I'm putting $15K down and financing the rest @2.59

I literally have zero debt and I don't feel like taking on a HUGE car loan.

I'm pretty young (26) and this is my first brand new car, so with my limited (but good) credit history I feel I did pretty good.

[DeeezNuuuts83]

Originally Posted by BlaineWasHere

I'm sort of splitting the difference, I'm putting $15K down and financing the rest @2.59

I literally have zero debt and I don't feel like taking on a HUGE car loan.

I'm pretty young (26) and this is my first brand new car, so with my limited (but good) credit history I feel I did pretty good.

It's not a bad idea. With that much down and that little financed at that rate, your total interest paid won't be all that much, and it's likely that you can probably even pay it off earlier. It's good that you have a good credit history, but paying off a car really does help. When I bought my Evo when I was 23, I think my credit score was excellent at 768 (give or take), though it went to 800+ when I had paid the car off early in three years and change.

[FRSCoupe]

I was finding a new car over the phone and a dealer told me he can do 2.9% financing (seems a little high) or 3.9% financing if they took another $500 off.

That is like paying points for mortgage almost..
Is this shady practice or normal? That's why I thought financing affected my price.

[BlaineWasHere]

Like others have said it really depends on the dealer.

Some dealers would rather have cash others would rather finance you. Which dealer are you working with? I am also in the Bay Area.

[86'd]

It might have been said already, but if you pay cash for the car, let's say you have 30k saved and pay 27500OTD.

You now have 2.5k sitting in your bank. Sure the car is paid off, but it's also not worth what you bought it for.

So now not only do you have less of a cushion if something goes wrong, you own a car that's worth less.

Basically if you finance it keeps your money liquid and able to do other things. If you have a LOT of cash saved then sure go ahead, but if you don't I would be very hesitant. Especially in the above scenario.

Credit isn't a bad thing. It just happens to be abused more than it should be. If you're smart you can use it to your advantage.

[DeeezNuuuts83]

Originally Posted by FRSCoupe

I was finding a new car over the phone and a dealer told me he can do 2.9% financing (seems a little high) or 3.9% financing if they took another $500 off.

That is like paying points for mortgage almost..
Is this shady practice or normal? That's why I thought financing affected my price.

They may have in-house financing where they dictate the rates. Some places do that, but it's usually used car dealerships, from what I remember.

[FRSCoupe]

I am planning on paying them 100% OTD price with a cashier check.

Does the dealer ship have the title of each new car in a file cabinet somewhere? Do you receive the title of the vehicle right away?
I am buying a new car out of my state not sure if that complicates things, though.

[DeeezNuuuts83]

It gets mailed to you, it comes from the DMV.

[mickey177]

Originally Posted by 86'd

It might have been said already, but if you pay cash for the car, let's say you have 30k saved and pay 27500OTD.

You now have 2.5k sitting in your bank. Sure the car is paid off, but it's also not worth what you bought it for.

So now not only do you have less of a cushion if something goes wrong, you own a car that's worth less.

Basically if you finance it keeps your money liquid and able to do other things. If you have a LOT of cash saved then sure go ahead, but if you don't I would be very hesitant. Especially in the above scenario.

Credit isn't a bad thing. It just happens to be abused more than it should be. If you're smart you can use it to your advantage.

I aggree. I had close to enough between investment and cash to pay for the car. But ended up putting down 10k and financing the rest. my payment is still low enough that I can still make it if I ever happen to find myself on an unemployment check. I wanted to make sure I have a comfortable cushion in case a rainy day comes along and I need to money. Dont want to end up putting my car up for one of those stupid car title loans which charge you over 25% interest. So LEVERAGE your assets.

[fistpoint]

Cash for me(if I buy one)...I hate electronic auto-withdrawls so I'll save 60 envelopes and 60 ever increasing stamps. It's for the trees.