20k - Pay off Car or Buy First Buy and Hold SFR?

20k - Pay off Car or Buy First Buy and Hold SFR?

Investor · Acworth, GA · Member since 2015 · 95 posts · 23 votes

I am a single 31 year old living in the Atlanta area that currently has 20k liquid to either pay off a 18k car note or invest into an investment property. The auto loan is at a low rate of 2.25% and has a payment of $413 however I usually pay $450. Paying this off would net me a $450 positive cash flow per month but would wipe out any money I would use for a down payment on an investment property.

I have been looking at the market and most of the analysis of properties around my area net after all expenses a cash flow of $100 - $150 per month. I use the assumptions of a SFR - 90k property with 18K down.

I currently save around $600 a month on top of my current payment auto payment and other bills.

I currently work in a job that pays the bills, but real estate is my passion. I want to jump in as soon as possible but I do not want to make a careless decision.

With these variables, what would you do?

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Investor · Louisville, KY · Member since 2014 · 202 posts · 111 votes

Sell the car and buy a 5K ride. Use the rest of your funds to purchase a SFR or multi rental. Keep some funds for an emergency fund. My 2 cents.

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Christian Marin
Real Estate Broker · Orlando, FL · Member since 2014 · 153 posts · 73 votes
11y
I would buy the SFR and keep paying on the car. Paying a car off is great but it is still a depreciating asset. You can pay it off and 2 weeks later crash it and have to get a new car and hopefully you get that $18k back from the insurance company. In the meantime buying a SFR with some equity can increase your cash flow to help pay off the loan and in a year or two if your market is good can give you enough equity to where you can purchase another SFR and more cash flow.
3 Reply
Bob B.
Investor · Jasper GA · Member since 2015 · 1k+ posts · 1k+ votes
11y
Buy a house that will make $350-400 a month and it will make your payment. Then NEVER buy a car unless you pay cash.
You're doing a god job.
5 Reply
Jason James
Investor · Louisville, KY · Member since 2014 · 202 posts · 111 votes
11y
Sell the car and buy a 5K ride. Use the rest of your funds to purchase a SFR or multi rental. Keep some funds for an emergency fund. My 2 cents.
7 Reply
Randy E.
Rental Property Investor · Durham, NC · Member since 2014 · 1k+ posts · 1k+ votes
11y
Originally posted by @Jason James:
Sell the car and buy a 5K ride. Use the rest of your funds to purchase a SFR or multi rental. Keep some funds for an emergency fund. My 2 cents.
Bingo! My 2 cents added to yours makes 4 cents.
1 Reply
Jason James
Investor · Louisville, KY · Member since 2014 · 202 posts · 111 votes
11y
@Randy E.
I love it.... :) LOL
0 Reply
Shawn McenteerBusiness Member
Realtor · Boonton Township, NJ · Member since 2013 · 2k+ posts · 1k+ votes
11y
Also consider checking with lending. Paying off car will increase your lending power but if you are already pre approved for what you want to purchase I recommend you put the money to REI as well. Once you pay off your car you save that money but the money you receive in cash flow from an investment property last for as long as you take care of it, not to mention the equity you will gain. It may be possible to pay off your car with cash flow from your purchase as well.
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0 Reply
Decorium Johnson
Investor · Atlanta, GA · Member since 2012 · 14 posts · 0 votes
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Feel free to contact me man there are a lot better deals in Atlanta area where I cash flow quite well more in the 500-800 range after all expenses paid man I paid 23k for one deal 6k in renovations rents 1275 a month and documents to back those claims. Do the math if I fin. 30k monthly payment? Taxes 650 yr insurance 65 a month you see where I'm going. Look outside your area. So personally I would prefer investing instead of paying car off at 2% the money is cheap to borrow
0 Reply
David Wilson
Springfield, MO · Member since 2014 · 16 posts · 3 votes
11y
@Jason James
make that 6 cents! That was my first thought about this situation.
1 Reply
Steve Vaughan
Rental Property Investor · East Wenatchee, WA · Member since 2014 · 10k+ posts · 16k+ votes
11y
Pay the car off and in the memo line, put "stupid tax". Feel the pain and never buy a car on payments again!
1 Reply
Elizabeth Colegrove
Hanford, CA · Member since 2013 · 5k+ posts · 1k+ votes
11y
I have a car on a 0% loan that I am absolutely fine with. I would much rather invest my money leveraged at someone else cost than my own! Therefore I take advantage of higher interest rates all the time!
That being siad it all about your goals and position! If you are in a growth phase where you are willing to be highly leverage and aren't living off your vestments I would buy a house. These low rates and houses for sale won't last forever!
If you want to be conservative and have no debt pay off the car ;)
There will be a time where growing and buying houses don't make sense! That's the time we plan on paying stuff of ;)
Good luck again it's a really personal opinon ;)
1 Reply
David Krulac
Mechanicsburg, PA · Member since 2013 · 3k+ posts · 2k+ votes
11y
@Mark Graziano
Lets see here, Pay off a depreciating asset or buy an appreciating asset?
You twisted my arm, but I'd go with buying the real estate.
You might get another answer on a car website or with Dave Ramsey?
0 Reply
Joshua D.
Investor · Columbus, MT · Member since 2013 · 1k+ posts · 1k+ votes
11y
Option C...
Sell the car for 20k (I hope its not underwater)
buy a $5000 reliable car... Yes they do exist
take 10k and buy a rental property.
HAVE 7K IN CASH RESERVES......
you could skip that last part if you want... Buy i think that is CRAZY.
Now you are saving over a $1100 each month. save up and do it again.
This is what i would do in your situation.
1 Reply
Alexander FelicePro Member
Guy with Great Hair · Austin, TX · Member since 2013 · 2k+ posts · 4k+ votes
11y
Originally posted by @Jason James:

Sell the car and buy a 5K ride. Use the rest of your funds to purchase a SFR or multi rental. Keep some funds for an emergency fund. My 2 cents.
Love this advice! Reduction in liabilities, reduction in property taxes, reduction in insurance, no loss in capital.
8 cents total boys!
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0 Reply
Joshua D.
Investor · Columbus, MT · Member since 2013 · 1k+ posts · 1k+ votes
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Wow I did not see @Jason James post before I wrote mine. Funny we even had the same amount for a reliable car...
0 Reply
Jason James
Investor · Louisville, KY · Member since 2014 · 202 posts · 111 votes
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@Alexander Felice @Joshua D.
Technically we have a DIME now since Joshua had the exact same advice.
0 Reply
Mark Graziano
OP
Investor · Acworth, GA · Member since 2015 · 95 posts · 23 votes
11y
Thank you all for the great advice. Now to throw a wrench into the equation. @Jason James , @Joshua D. to see if you have anything in the pipeline.
0 Reply
Jason James
Investor · Louisville, KY · Member since 2014 · 202 posts · 111 votes
11y
@Mark Graziano You have to decide if the loss of 2k is worth it or not. I know the car will continue to depreciate daily so every day you wait and put miles on it the more you will lose.
So I would sell the car at a loss (since I would lose the money "depreciation" if I kept it anyway) and buy a car that fits my needs for as little as possible. I stated 5k car earlier but you may be able to find something that serves its purpose for around 3k. Remember this is just an A to B ride and something to help you reach your goal.
I would then be patient and stack more cash as I look for the prefect deal. You make money when you buy in this game 99% of the time. No need to rush and make a bad move, Also this allows you to stack cash, reach out to other investors and wholesalers. Take the time to build a solid network that will help to generate leads for you. Also look at wholesaling or bird dogging yourself to help you stack even more cash and gain the experience of doing a couple transactions. There are many many ways to get in the game but I would rather start with ASSETS not LIABILITIES (CAR PAYMENT).
That’s another 2 cents…
0 Reply
Stephen Hundley
Realtor · Lafayette, LA · Member since 2011 · 297 posts · 175 votes
11y
Buy the SFR and start investing in your future! Your interest rate on the car is really low. Get started as soon as you can!
0 Reply
Bryan O.
Specialist · Lakewood, CO · Member since 2014 · 1k+ posts · 1k+ votes
11y
Just as with other investments you need to look at the numbers. If you can invest your money at 2.5% (paying off the car) is that a better investment than you can get from a cash-flowing property?
Most likely you will get much higher than 2.5% on an investment property, particularly given all I hear about Atlanta. Look at your potential property ROI, then compare that to your 2.5% loan rate. Go with the better one.
1 Reply
Alexander FelicePro Member
Guy with Great Hair · Austin, TX · Member since 2013 · 2k+ posts · 4k+ votes
11y
@Bryan O. the only downside to your argument is that you aren't figuring in depreciation of his current vehicle.
I spent 10 years in the auto industry between lending and sales. The only way to buy a car in a financially responsible manner is to buy the absolute least expensive thing you can possibly stand to live with.
@Mark Graziano get some offers on the cars value, and sell it. Yeah, you may lose 2k but you're going to lose that anyway. Get on craigslist, find something with bulletholes in the windshield, give up all hope to get laid by driving a cool car, and get to making money ;)
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0 Reply
Mark Graziano
OP
Investor · Acworth, GA · Member since 2015 · 95 posts · 23 votes
11y
@Alexander Felice , lol real talk.
0 Reply
Maria Durflinger
Parnell, IA · Member since 2015 · 26 posts · 7 votes
11y
We close on our first rental home next week. The bank suggested for us to pay off our car to reduce DTI. We did. Diesel Passat. Over 50 mpg. My husband drives all over the state, so keeping it was nessesary.
0 Reply
Will M.
Henderson, NV · Member since 2015 · 15 posts · 2 votes
11y
Great discussion.
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