Buy a car or house first?

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Buy a car or house first?

Michael Guzik
Real Estate Agent · San Antonio, TX · Member since 2017 · 523 posts · 362 votes

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!

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Thomas S.
Member since 2016 · 13k+ posts · 12k+ votes
8y

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.

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  • Brian Schmelzlen
    Accountant · La Mesa, CA · Member since 2017 · 477 posts · 476 votes
    8y

    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.

    2Reply
  • Michael Guzik
    OP
    Real Estate Agent · San Antonio, TX · Member since 2017 · 523 posts · 362 votes
    8y

    @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...

    0Reply
  • Thomas S.
    Member since 2016 · 13k+ posts · 12k+ votes
    8y

    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.

    21Reply
  • Joe VilleneuvePro Member
    Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
    8y

    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.

    13Reply
  • Michael Guzik
    OP
    Real Estate Agent · San Antonio, TX · Member since 2017 · 523 posts · 362 votes
    8y

    @Thomas S. So you wouldn't recommend a house hack with an FHA loan then?

    0Reply
  • Michael Guzik
    OP
    Real Estate Agent · San Antonio, TX · Member since 2017 · 523 posts · 362 votes
    8y

    @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!

    0Reply
  • Sterling WilliamsPro Member
    Real Estate Agent · San Antonio, TX · Member since 2017 · 104 posts · 89 votes
    8y

    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. 

    4Reply
  • Andrew M.
    Rental Property Investor · San Diego, CA · Member since 2016 · 73 posts · 55 votes
    8y

    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!

    12Reply
  • Daniel Ortiz
    Rental Property Investor · Andover, MA · Member since 2017 · 126 posts · 67 votes
    8y

    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.

    Dan

    6Reply
  • Michael Guzik
    OP
    Real Estate Agent · San Antonio, TX · Member since 2017 · 523 posts · 362 votes
    8y

    I've never heard of debatize @Sterling Williams I will definitely look into it and give it a try! Thank you for the resource!

    0Reply
  • Michael Guzik
    OP
    Real Estate Agent · San Antonio, TX · Member since 2017 · 523 posts · 362 votes
    8y

    @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.

    0Reply
  • Michael Guzik
    OP
    Real Estate Agent · San Antonio, TX · Member since 2017 · 523 posts · 362 votes
    8y

    @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!

    0Reply
  • Daniel Ortiz
    Rental Property Investor · Andover, MA · Member since 2017 · 126 posts · 67 votes
    8y

    @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.

    0Reply
  • Shawn Q.
    Rental Property Investor · Champaign, IL · Member since 2015 · 146 posts · 80 votes
    8y

    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.

    2Reply
  • Alexander FelicePro Member
    Guy with Great Hair · Austin, TX · Member since 2013 · 2k+ posts · 4k+ votes
    8y

    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.

    [email protected]Podcast Guest on Show #301
    12Reply
  • Michael Guzik
    OP
    Real Estate Agent · San Antonio, TX · Member since 2017 · 523 posts · 362 votes
    8y

    @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!

    0Reply
  • Matthew Paul
    Severna Park, MD · Member since 2013 · 7k+ posts · 7k+ votes
    8y

    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 .

    1Reply
  • Michael Guzik
    OP
    Real Estate Agent · San Antonio, TX · Member since 2017 · 523 posts · 362 votes
    8y

    @Alexander Felice The truth hurts thanks for the input! I'm definitely strongly considering an older car after reading all these comments.

    0Reply
  • Caleb Heimsoth
    Rental Property Investor · Durham, NC · Member since 2016 · 7k+ posts · 7k+ votes
    8y
    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
    2Reply
  • Rose Torio
    Riverside, CA · Member since 2017 · 60 posts · 36 votes
    8y

    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.  

    0Reply
  • Michael Guzik
    OP
    Real Estate Agent · San Antonio, TX · Member since 2017 · 523 posts · 362 votes
    8y

    @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?

    0Reply
  • Caleb Heimsoth
    Rental Property Investor · Durham, NC · Member since 2016 · 7k+ posts · 7k+ votes
    8y

    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.

    2Reply
  • Michael Guzik
    OP
    Real Estate Agent · San Antonio, TX · Member since 2017 · 523 posts · 362 votes
    8y

    @Caleb Heimsoth Thank you so much for your input and advice I really do appreciate it!

    0Reply
  • Michael Guzik
    OP
    Real Estate Agent · San Antonio, TX · Member since 2017 · 523 posts · 362 votes
    8y

    @Rose Torio thank you for the advice and for commenting! That seems like the way to go after listening to everyone's input!

    0Reply
  • Rachel Luoto
    Lake Oswego, OR · Member since 2015 · 174 posts · 115 votes
    8y

    @Michael Guzik I bought my first and only car around your age and making a similar amount of money.

    If you like the rehabbing end of things you will definitely want a truck or at least a hatchback (USED & RELIABLE). If you buy a place and your current car breaks down for good, you will be in a bad spot. You can bike or bus to work grocery store etc, but you can't haul windows or hardiboard or cases of flooring!

    Have you talked to a lender to know what you can qualify for? I'm in an expensive area where $25k salary could not get you a property that's FHA-approved, but maybe prices are a lot lower in your market! It might be worthwhile to focus on income if you find yourself needing a higher lending limit.

    0Reply
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