Hey guys I'm 19 years old and work for a Real estate property management company in San Antonio. I make 25k a year and have a credit score of 720-725 depending on what score is used. I need to get a new car because my old one is nickle and diming me and the repairs cost more than the value of the car. I bought this car used for cash a while back so I wasn't making monthly payments on it and didn't have a car loan. I would like to take over the payments for the vehicle that my Dad drives (he has 9k still owed on it and it is worth about 14k) and put it in my name to build my credit. I would like to build my credit as much as possible since I am also looking to purchase a property this summer or fall 2018 and house hack. I've heard two different sides to the issue of buying a car or house first. Some say that the car should wait because then I won't be able to get a decent house because I will have more debt. Others say that the debt and consistent payments will show mortgage lenders I am responsible and can pay important payments every month with no issue. I know I'm young and don't make much so I don't have a lot going for me and I realize this but I would like to get started in real estate ASAP. With this in mind I am trying to be very careful and not do things that will hinder me being able to get my first property and house hack and begin my real estate journey to freedom. What do you guys/gals think and why? Any and all comments or opinions are appreciated thank you!
If your dad is willing to let you have his car in return for taking over the loan payments, do that. While lenders care about your debt level, they primarily care about your required debt payments to income ratio (at least that is my understanding). I am guessing that the monthly car payment isn't too much.
@Brian Schmelzlen no the payment is only 450 a month including my insurance and will be paid off in 26 months if everything goes right. It doesn't seem like a lot but as you stated it does impact my debt to income ratio...
At this stage in your life do not buy a car, or any large item, that you can not pay cash for. You only use credit when you can pay it off as soon as the bills come in. Clear all bad debt first and begin to save diligently to invest.
You need to get established, improve your income, possibly with a second job, learn to live frugally, save every penny possible for the future, put aside your ASAP investing plans and begin to associate with the right people.
What you are working toward is a life plan not a today plan, life is not a race. You must plan and save till the time is right based on your financial readiness. All too many beginners want to rush into what is a long slow race to the finish and will burn themselves out before they even begin.
Buy an income property with the cash flow enough to buy the car. When the car is paid off, you have that as income to you....and your tenants will be buying your property and your car for you.
@Thomas S. So you wouldn't recommend a house hack with an FHA loan then?
@Joe Villeneuve I really hope I can find a property that good in this area! That would be a diamond in the ruff thanks for the imput!
Agree with the above comments. Why not just keep the car in dad's name to keep your DTI down. I would get a credit card and connect it with a service like Debitize which will allow you to use your credit card as a debit card while keeping it paid off at the end of the month. This should help with keeping an established credit history and improving your already good credit score.
Michael, at 19 years old, just keep in mind that the decisions you make now will be the foundation of your future. Small decisions now will make huge directional changes over the course of the coming years. Think with the end goal in mind!
I am still driving the used pickup I bought when I was making $20K/yr. Now it has hail damage and looks like a real gem :) At the time, buying a used car for cash was necessity. Now that I save in a month what I used to make in a year, it's become more apparent that capital is the tide that will raise your business. Nickel and diming you every month is still less than $450 a month in payments. Credit will come without it. That represents a huge percentage of your income and saving ability. I say skip the car, you don't need it. Reach out if you need any input!
Hey @Michael Guzik ,
If you haven't already, I suggest building your personal financial statement. Lay everything out in order to fully understand your income, expenses, assets, debt, savings rate etc. This gives you better visibility into your financial runway, and will allow you to run "what-if" scenarios to see how decisions now will impact you within the next few years. Then you can perform your own analysis and see what getting the car now will do to your financial situation over the course of the next year or two. Numbers never lie, so I say lay out the data and see what it tells you.
I've never heard of debatize @Sterling Williams I will definitely look into it and give it a try! Thank you for the resource!
@Andrew M. Yeah I would agree with the nickle and diming the thing is my car is a Suzuki and they don't make them anymore so the replacement parts will have to be built and then shipped from Japan which could take 4-20 weeks. I definitely want to save money but at the same time am wondering if its even worth wasting my time with that car. I would love to connect with you sine you have actually done some stuff. I honestly didn't know there were this many BP members here in San Antonio.
@Daniel Ortiz Thank you for the advice! I am trying to think long term which can be hard for me but I'm working on being patient and thinking logically with every decision I make!
@Michael Guzik No problem. I completely agree with your approach. I am sure you'll come across many different opinions and viewpoints, all of which are very valuable. I just think in a case like this, you should see where you stand see what the numbers tell you is your best choice. If you run the scenario and it shows you that getting the car now will cripple your chances at an investment property in 2018 then you'll be answering your own question.
I definitely wouldn't assume your dad's car. At $450 a month in the 15% bracket you're using $518 of your pre-tax income for 26 months to do that, which doesn't seem like a good use of time or money. I would recommend selling the Suzuki and getting a beater for cash or just moving closer to work and biking (assuming you can - you didn't say what you do for the property management company). Focus on those cars that were mass-produced for the year so parts will be plentiful.
More importantly - get a better job! Your income puts you way to close to subsistence level at this point. Even if you can live cheap and save 50% of your income you wouldn't be saving enough to really accelerate down payment savings.
I wouldn't worry about credit at this point - your number is fine for a decent FHA loan. I would just be concerned with making sure you don't structurally restrict your options before you have a livable wage coming in.
I'm 34 and well established, own a couple renal properties, multiple flows of income and can easily afford a nice new car.
and yet I drive a $3500, 15 year old beater. what kind of econ math are you doing where you think buying something that depreciates so rapidly is a good idea? Stop using emotions to make financial decisions. Go get something dirt cheap off craigslist. nickels and dimes don't add up to tens of thousands.
here's my advice, spend 5% of your net worth on a car.
@Shawn Q. Thank you for the advice! That is also another issue I am debating is whether to go to school and get into debt for a degree so I can make more in the future or not. I would much rather make a decent income(over 50k) in real estate but I am just trying to find out what path or career I can take to get there. You are right though my income is crippling me!
You are 19 , great that you are thinking in financial terms and your future . Dont bother with your fathers car . If your car is nickle and diming you deal with it for a while , but start looking for a decent pick up truck ( not the bad A$$ diesel ones even though they are cool) With a truck you can make extra cash , when you get a property it will need work , you have a truck to haul things . Learn how to do some construction , that will save you BIG $$$$$. Then start banking cash , work 2 jobs , hustle . Once you have $$$$$ you have some leverage .
@Alexander Felice The truth hurts thanks for the input! I'm definitely strongly considering an older car after reading all these comments.
Buy a used car for 5 grand. No car payment. Car payments are the number one reason people don’t build wealth, at least in the US
Also just FYI if you go through a conventional lender in my experience they typically use the lower score
I'm glad to hear you're looking into financial freedom at such young age. I wish I would have started way earlier. My recommendation is to hold off on the car and work towards acquiring your first property. With your current income, you do not want to add debts that may impact your qualification for home purchase. Buying a house to house hack can pay help your mortgage, and possibly a car when you decide to get one after (purchasing a house). House hacking is positive income. Car is a necessity but as soon as you drive it off the dealership, it losses value.
@Caleb Heimsoth Thank you for commenting. I am thinking about that option because I have 4 grand saved up in savings but I was planning on using that for my down payment for an FHA loan... What would you do?
buy a used truck for 4 grand. My friend did that, got him a 2002 Ford F-150. Also if you think about going to college I'd do figure out if you want to do that or not before getting into REI. No matter what anyone tells you this business takes money. The more you have the easier it is.
@Caleb Heimsoth Thank you so much for your input and advice I really do appreciate it!
@Rose Torio thank you for the advice and for commenting! That seems like the way to go after listening to everyone's input!
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