Should I trade in my car to improve DTI if I am a Realtor?

71 Replies

Looking to trade in my $30k car to improve my debt to income. However, I will definitely take a loss on it as I just purchased it 2 months ago. I recently became set on being a real estate investor and have had buyers remorse ever since. 

I am getting my real estate license and will be able to write off my car and it's depreciation if I keep it. 

Should I Trade it and take a loss or should I keep it and deal with the dti and being a slave to the rat race for 5 years?

@Kameron Patterson this is kind of a confusing question without knowing your exact goals. If you're going to become an agent and live most places, you will need a car. I'm not sure why your DTI matters unless you are trying to qualify for a loan right now or cannot afford the payment

Ariel Vincent, Real Estate Agent in CA (#01997922 )
650-539-4416

I currently own a home and a car and am looking to start using the BRRRR method. So I will need to qualify for the refinancing portion of the BRRRR.

I added the real estate agent as I will need a reliable car and can write it off. So is it worth taking the loss or should I ride it out?

Hope that clears some confusion.

What’s your car payment a month?

If your car payment is 400 bucks but you make 6k then your debt to income ratio is still small. So to answer this question it varies a lot on what your income is

Originally posted by @Caleb Heimsoth :

What’s your car payment a month?

If your car payment is 400 bucks but you make 6k then your debt to income ratio is still small. So to answer this question it varies a lot on what your income is

 My gross income from my W2 is around 6k and my car payment is 570. But my goal is to get out of the rat race in the next 2 years (hopefully less)

Originally posted by @Ariel Vincent :

@Kameron Patterson this is kind of a confusing question without knowing your exact goals. If you're going to become an agent and live most places, you will need a car. I'm not sure why your DTI matters unless you are trying to qualify for a loan right now or cannot afford the payment

 Maybe that cleared it up ? 

What is the relationship between the car and getting out of the rat race. Your plans may not be realistic which would make the car a non issue.

How do you expect to stop working for a wage within two years.

Originally posted by @Thomas S. :

What is the relationship between the car and getting out of the rat race.

How do you expect to stop working for a wage within two years.

 I have enough money to start investing. I just need to qualify to refinance the property once it's rehabed. I am also working on my real estate license and hope to replace my income with passive income and commission through sales. 

Originally posted by @Ariel Vincent :

@Kameron Patterson this is kind of a confusing question without knowing your exact goals. If you're going to become an agent and live most places, you will need a car. I'm not sure why your DTI matters unless you are trying to qualify for a loan right now or cannot afford the payment

 Maybe that cleared it up ? 

@Kameron Patterson I would suggest keeping the car and lengthening your goal horizon.  It is very difficult to invest once you don’t have a W2.  

For example my goal give me until I’m 35 and that is 12 years from now.  I’d recommend a 7-10 year time like at least 

@Kameron Patterson , $470 is a payment on an $800/month rental.  I guess the question is do  you want to be a real estate agent or a real estate investor.  Consumers care about the show room and your car is a show room for clients.  Investors care about squeezing every penny out of an investment.  

Two years is ambitious.  You have zero time for distractions like depreciating assets and payments that aren't making you more money.

I like that buyers remorse is in your brain.  Listen to it.  Ditch the car, take a loss, buy a beater then go drive around in the beater like @Natalie Schanne suggests.  By the way which do you think puts you in a better negotiating position - to drive up in a luxury car and try to negotiate down?  Or to drive up in a beater and negotiate down???

What if......... we speak to a loan officer and ask them. I have a feeling that a 30k isn't going to be what makes or breaks your DTI for investments. Plus with a payment that high you're probably not getting any of that money back, so you'd of essentially tossed away money for nothing. Plus you'd have to replace said car so you'd lose some your cash reserves or save what a few hundred a mo ?

Originally posted by @Matt K. :

What if......... we speak to a loan officer and ask them. I have a feeling that a 30k isn't going to be what makes or breaks your DTI for investments. Plus with a payment that high you're probably not getting any of that money back, so you'd of essentially tossed away money for nothing. Plus you'd have to replace said car so you'd lose some your cash reserves or save what a few hundred a mo ?

 I was thinking that too. I am speaking with a portfolio lender tomorrow and plan to ask. I am also renting out extra rooms in my house so will see if I can add that to income if I get a lease. 

If it's a nicer car you could also look into renting it out on turo if you don't use it much. I'm not a banker but I don't think 570 over 5yrs (?) is all that bad and I don't think say half that over same time would really make a big impact if you're already losing money on that car. Drive it till the wheels fall off... 

Originally posted by @Matt K. :

If it's a nicer car you could also look into renting it out on turo if you don't use it much. I'm not a banker but I don't think 570 over 5yrs (?) is all that bad and I don't think say half that over same time would really make a big impact if you're already losing money on that car. Drive it till the wheels fall off... 

 It's right around 30k at 4%  not the best move but maybe I can overcome it  

Way too much car....but I don't know if I would trade it now.   Get a weekend job to improve your income and get that sucker paid off.   I would probably push your goal out a year or two.   Pay the car off this year.  Build up a good war chest for the next year after that.   

Listen to Dave Ramsey on the radio or podcasts more.

@Kameron Patterson a FHA loan will cost you $575/mo for every $100k you finance. A conventional loan will cost you $500/mo for every $100k you finance.

You still need a car, so would trading it in and getting a cheaper one lower your payment? If so, by how much? Example, lowering it $100/mo with increase your FHA approval by $17k or your conventional approval by $20k

Brie Schmidt, Real Estate Agent in Wisconsin (#57846-90) and Illinois (#471.018287)
Originally posted by @Brie Schmidt :

@Kameron Patterson a FHA loan will cost you $575/mo for every $100k you finance. A conventional loan will cost you $500/mo for every $100k you finance.

You still need a car, so would trading it in and getting a cheaper one lower your payment? If so, by how much? Example, lowering it $100/mo with increase your FHA approval by $17k or your conventional approval by $20k

 Thanks for the reply brie. I'm a little star struck because the podcast you were on was one of the first I listened to. I am going to have carmax quote how much they would pay for it today. But it will save roughly 200 a month. That's not including the initial loss through depreciation and taxes. 

If I keep it, once I finish my real estate license I can write that off. 

@Kameron Patterson I am not a believer in fancy cars, but as a realtor you need a nice car. Who wants to buy a house with a realtor that drives a rust bucket? I am also not a fan of leasing, but I do think leases make more sense for realtors than buying. It allows you to keep a nice car all the time and it is a write off.

Originally posted by @Kameron Patterson :
Originally posted by @Brie Schmidt:

@Kameron Patterson a FHA loan will cost you $575/mo for every $100k you finance. A conventional loan will cost you $500/mo for every $100k you finance.

You still need a car, so would trading it in and getting a cheaper one lower your payment? If so, by how much? Example, lowering it $100/mo with increase your FHA approval by $17k or your conventional approval by $20k

 Thanks for the reply brie. I'm a little star struck because the podcast you were on was one of the first I listened to. I am going to have carmax quote how much they would pay for it today. But it will save roughly 200 a month. That's not including the initial loss through depreciation and taxes. 

If I keep it, once I finish my real estate license I can write that off. 

 Is 40k additional approval for conventional really that big of a deal breaker for your investments? Do you have the cash reserves to take advantage of it, do you have the down payment to take advantage of it? Kind of a mute point to go through the hassle of downgrading your car if you can capture the benefits of it.

Originally posted by @Matt K. :
Originally posted by @Kameron Patterson:
Originally posted by @Brie Schmidt:

@Kameron Patterson a FHA loan will cost you $575/mo for every $100k you finance. A conventional loan will cost you $500/mo for every $100k you finance.

You still need a car, so would trading it in and getting a cheaper one lower your payment? If so, by how much? Example, lowering it $100/mo with increase your FHA approval by $17k or your conventional approval by $20k

 Thanks for the reply brie. I'm a little star struck because the podcast you were on was one of the first I listened to. I am going to have carmax quote how much they would pay for it today. But it will save roughly 200 a month. That's not including the initial loss through depreciation and taxes. 

If I keep it, once I finish my real estate license I can write that off. 

 Is 40k additional approval for conventional really that big of a deal breaker for your investments? Do you have the cash reserves to take advantage of it, do you have the down payment to take advantage of it? Kind of a mute point to go through the hassle of downgrading your car if you can capture the benefits of it.

 I currently have access to about 50k in capitol. Just want to qualify when I refinance to hold. 

Originally posted by @Joe Splitrock :

@Kameron Patterson I am not a believer in fancy cars, but as a realtor you need a nice car. Who wants to buy a house with a realtor that drives a rust bucket? I am also not a fan of leasing, but I do think leases make more sense for realtors than buying. It allows you to keep a nice car all the time and it is a write off.

 I agree with you. My realtor typically met me at properties but one day we looked at 5 in a day and he drove so it's nice to have a nicer vehicle for that 

@Kameron Patterson - Thanks!  I appreciate the support!

Keep in mind, just because you have a real estate license, doesn't mean you can write off the car.  You can write off 53.5 cents per mile driven for business purposes.  Gas costs 15 cents a mile, so the deduction against the car is 38.5 cents.  

If you drop the payment by $200 bringing it to $370 a month you need to drive 960 miles a month for real estate purposes to offset the cost.

Personally, I don't do things or make decisions with the tax deduction as a factor.  

Brie Schmidt, Real Estate Agent in Wisconsin (#57846-90) and Illinois (#471.018287)
Originally posted by @Brie Schmidt :

@Kameron Patterson - Thanks!  I appreciate the support!

Keep in mind, just because you have a real estate license, doesn't mean you can write off the car.  You can write off 53.5 cents per mile driven for business purposes.  Gas costs 15 cents a mile, so the deduction against the car is 38.5 cents.  

If you drop the payment by $200 bringing it to $370 a month you need to drive 960 miles a month for real estate purposes to offset the cost.

Personally, I don't do things or make decisions with the tax deduction as a factor.  

 I agree. The problem I continue to run into is the 2 years of tax returns to benefit from those write offs. I rent a room out in my house and will be renting 2 rooms out in January. However the mortgage broker I spoke with will not add this to my income for 2 years. 

Trying to find a less conservative mortgage broker in Indiana. 

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