BiggerPockets

Here is an entirely different viewpoint with a more analytical approach:

Im 27, i own 4 cars, only 1 with a payment and not a single one has less than 100K miles. 2 of them have over 200k miles.

The one with a payment i purchased just over a year ago, when i started my sales job.

2007 335i sedan It was worth $24k when i got it for $20k. I put $3k down, and have driven it about 37k miles in 13mo.

What drove my decision? I LIVE IN MY CAR (pretty much) and I have a background working for professional race teams and i turned wrenches to pay for college so i really enjoy driving. This was important to keep my sanity on the road. Last sales job they provided me with a Charger and i would come home from a day on the road and feel tired. Now i come home energized and happy to see my wife.

The economic decision:
i went back and looked at how the 3 series BMW has depreciated. The easiest thing to do is look at what they leased for NEW. Manufacturers and dealers put a lot of work into assuming a certain amount of depreciation and wear and tear and they assign that value to it in the form of the lease payment. I also looked at other cars with high mileage and got an estimated % of depreciation per year. (came up with 14%, pretty high for an already 5yr old car but its German and i am packing on the miles).

After doing the math if i needed to sell it at any year within the 4 year loan i would get about 125% back year over year. It also helps that i am paid mileage that covers not just my payment but tires wear and tear. (for 2012 i netted $800 in the black)

Now I'm planning to quit the job and jump in RE full time in 2 mo after my marketing shows signs of consistency, (need 2 more months of 3 house purchases a mo). When this happens it becomes a much larger liability as i am on the hook for all payments.

Will just have to see how things are looking then and decide if i will sell. If i sell, will most likely find something i can pay cash for that is still fun to drive and more economical than my V8 land cruiser.

On the topic of "beater" vs new/semi-new car. Another thought that has to do with perception......I have been driving a 2001 Pontiac Grand Prix since my Senior year in high school. At this point the car has 2 broken tail lights, a broken side mirror hanging off the side, rust on the bottom panels and just stopped running 2 days ago...this is a textbook "beater"...

I have finally run my car into the ground, but I wonder how I have been perceived by my associates at work and other business professionals that I might encounter in my real estate dealings because I drive a POS? What's the first impression I give off when I meet new people? Does what I drive effect my business? Would a private money lender lend money to me if I pulled up in a "beater"?

Have I saved money? Yes...but have I missed out on potential business opportunities or relationships because of perception?......

...Makes me wonder...

Great point @David Robertson. I wonder if there's a class of cars that are in between. I don't think showing up to a rental in a BMW is necessarily a good idea but meeting a private money investor in one would. It really depends on your core business. Most of our most successful real estate pros don't drive a super fancy car out in the field. We have one friend that finally gave up his truck at 500,000 miles.

That worst case is eroding my core. My base to be effective. If I lose a vehicle, that wrecks my credit. If I lose my vehicle and I no longer have any cash, that leaves me without a vehicle. It is hard to impress a tenant or new employer or banker rolling up on a schwinn or taking the bus. With purchasing that vehicle in cash, if worse comes to worse, I can cut back my extras such as cable or scale back phone service and no eating out blah blah blah and be fine. Then if I need to my credit would still be good and if I had to Incould sell that SUV to bring out cash and get a $2,000 beater and still have cash and good credit.

I think a lot of this is all sematics if one has a solid emergency fund. This way you again have control because you have $15,000 - $20,000+ in case anything happens but again I would have that amount above any consumer debt held. I understand your comparison to an investment property loan. I mitigate that risk by having prudent business practices. I have personally never taken a hard money loan and at this time do not plan to. In a flip situation I would consider it but at this point I do not feel I have a solid enough base to take such a risk. I also have adjusted my original 30 year note strategy to a 15 note strategy. This lowers my cashflow but also is less risky in that it reduces my principal owed greatly and gives me more options. With a 15 year note I am able to have much greater flexability in my future financing options because my balance is lower. If something was to happen were I lost my job and I was 3 years into a 15 year note on an investment property that I put 20% down on and repaired and remodeled for best results quickly I can still qualify for a commercial loan, possibly pull out cash. Or at the very least have a property that helps my ratios and improving noticibly monthly as well as still providing adequate cashflow.

It is a struggle sometimes to properly manage risk as well as continue a growth path. I for one am looking to be a fulltime real estate investor within 10 - 13 years with no need for a day job. I am willing to sacrifice the nicer car and many other things for down the road. I see this as the best path for me and it might not be for you. Your goals and strategies can be different and still allow you to accomplish your goals. I guess I am more comfortable with my worst case. I don't mind willing explain to an investor, banker, or tenant that I left my job quickly and was still able to accomplish this or that. Again in that case I have the option to disclose that. If I have a vehicle repossessed, that is not something I would feel good about explaining to an investor, banker, or tenant.

In the end, I believe it is a personal decision that one must look at an examine. Any decision I make I try to look at the ramifications with a long term view. So many times it is easy to get caught on the next 6 months or a year but it is essential to see how a decision fits into your goals 5 years and 10 years down the road and many times even longer.

Good topic ;)

I think I'll throw my hat into the discussion as well, as I - like @David Robertson, need to buy a new car this week because mine is falling apart.

I believe I should have been saving for the past few years. But I didn't.

So, now - I'm selling a house and about to clear about 10k. I could use that 10k to buy a car, outright (or at least most of one) OR I could add it to my emergency fund.

I think I'm going to put it in my emergency fund, and bite the bullet with a $250 per month car payment. Get myself a nice little 2007 Prius with 90,000 miles and save at least $100 per month in gas charges. Yes, the money sitting in the bank will be earning next-to-nothing - but there is one factor no one has brought up yet: The Wife Factor.

My wife will sleep better knowing we have an extra 10k to cover emergencies than not having a car payment.

Of course, we could go buy a 2k beater and have just an extra 8k in an emergency fund - but that puts me back in the same spot I'm now, with a car that's costing me more in repairs than a car payment would.

My 2 cents anyways!

Just an idea.

You can have 2 cars for real estate.

One is a beater that you drive around to look at properties and also in rougher areas that gets good gas mileage.

Then you have nicer car for professional business meetings and family outings that you put less miles on so it doesn't depreciate and get worn down as much.

I also know the owner of a limo company and he gives me great deals when I want to go on vacation and a drive to the airport or picking up clients to show properties to or going out for a nice dinner etc.

I live by most of Dave Ramsey advice except his take on gold and silver. his take on gold to me just doesnt add up.
I like buying houses with cash even if I am not doing 10 a year.
It just seems fewer people get there homes and cars foreclosed and reposed that arent making pmts.
If your really that worried about how you look when you go to a meeting then park a block away. I think most intelligent investors actually would respect a lesser car as a form of frugality.
I do understand everyones great desire to have nice wheels I have some nice wheels even though I never get to drive them since its a 2 seater and we have 3 in our family. lol

As long as we're discussing cars, I would like to add a few things.

We have three vehicles for two drivers. Having an extra car is nice if one is being worked on or if you want to sell one and take your time buying a different one. It takes the pressure off of having to pay too much.

As far as car insurance, shopping around can save you a LOT of money. I'm paying $154 per month for full coverage on three vehicles. It's through a company called Encompass, which I believe is a division of Allstate. I did have one claim and was very happy with the way it was handled. I know that car insurance varies greatly depending on your age, state, zip code, and driving history. It's worth it to make a few phone calls and compare.

I would recommend anyone who has kids to look for safety over gas mileage. My three vehicles all have full frames. Sure, I pay more for gas, but in an accident, I want my kids to be safe. If the other vehicle is tiny and they leave in an ambulance or a bag, that's their problem. I would much rather be the bigger vehicle getting hit by the smaller vehicle than vice versa.

Brian Hoyt As I see it, the problem with consumer debt, of which car loan is one example, is that the debt service is accomplished with pre-tax cash in most cases. For example, a $400/mo. car payment doesn't just cost $400/mo. One needs to earn money, then pay taxes on those earnings, and then have $400/mo. to spend on the car. Thus, for someone with an effective tax rate of say 30%, the income necessary to accomplish a $400/mo. payment is actually $571.43/mo. or $6,857.16 per year. The question becomes - can this money be spent more wisely, and I think you would agree that it could. If you must finance a car, run it through your business at least.

Originally posted by Rob K:

I would recommend anyone who has kids to look for safety over gas mileage. My three vehicles all have full frames. Sure, I pay more for gas, but in an accident, I want my kids to be safe. If the other vehicle is tiny and they leave in an ambulance or a bag, that's their problem. I would much rather be the bigger vehicle getting hit by the smaller vehicle than vice versa.

absolutely !!!
I have a picture I keep of 4 local kids who hit a tractor trailer head-on in one of our make of SUV's they all walked away.
All of our kids drive full frame SUV's & we paid cash but maint is minimal on them.
We own 3 ourselves, 2 are fully deductible, both were 179 deductions.
One has 200,000 hard business miles on it, it gets 18mpg but I have only done preventative maint, brakes tires & (3) $89 back door latches!!!
But I am now considering leasing, we no longer do the mileage, it's deductible & the cost is definitely not an issue.