I bought my wife a brand new car for Christmas for only $10,000
In December I bought my wife a new car for Christmas. The price of an average new car in 2014 was a bit over $30,000, but I bought it for only $10,000, and it’s newer than new. It’s a mid-size vehicle, and although not a luxury car, it does have everything most people need and want, like power everything, alloy wheels, 8 airbags, 30+ mpg, room for 5, a bumper-to-bumper warranty, and that wonderful (to my nose!) new car smell. The only catch with the good price is she can’t take immediate delivery. In fact, I prepaid for a 2019 model year vehicle, so she has to wait to the end of 2018 to pick it up.
The fact that I’m writing about this fantastic car deal on Bigger Pockets may clue you in that the deal has something to do with housing, and indeed it does. What I actually bought was a small condo, but I’ll show you how that translates into a new car four years from now, in the 2019 model year. The condo is in a complex near my workplace, and I heard that it was for sale by word of mouth. The complex where this condo is located started out years ago as an apartment complex, but at some point many years ago it was turned into a condominium association. Two thirds of the condos at the complex are two or three bedroom townhouses, and the majority of those are owner occupied. However, the 1 BR units are in their own buildings, with the majority owned by landlords, and probably should have stayed as apartments all along. At any rate, a gentleman who had only 1 apartment, which he had lived in for years and then rented out for many more years, decided the hassle of dealing with one unit and the tenant issues wasn’t worth it, and put out the word he wanted to sell.
Since we have other units nearby, the incremental load to manage one additional rental property is relatively small, so I was interested. We negotiated a land contract because the price, $18k, is so low that my regular financing bank wasn’t interested, and we put $5,000 down with the balance of $13k paid over 4 years at 5% interest, which works out to $300/mo payments. Closing costs ran close to $1000, so we ended up with about $6000 in the deal so far. I’ve set aside a further $4000 to address some of the maintenance and updating issues the previous owner had ignored. Blue 70s carpet in the main room will be removed and the hardwood floor refinished ($650), the kitchen floor will be replaced ($400), the through-the-wall A/C is toast ($500), blinds, fan, and light fixtures will be brought into this century ($250), a keypad deadbolt goes on the door ($100), and next time the unit turns over it will be repainted ($600). These items add up to $2500, and the other $1500 of the $4000 is assuming I have to replace the 30 year old furnace, but if keeps going I won’t.
Over the next four years, the numbers should look like this:
Rent - $550
Land Contract - $300/mo
HOA - $120/mo
Taxes - $68/mo
Insurance - $12/mo
Maintenance and lost rent - $50/mo
Cash flow - $0/mo
By the end of 2018, the condo is paid off, I have an up-to-date unit that rents easily, rent will have increased to $575/mo or more (some similar units are already rented at $600/mo), and cash flow jumps to $300 - $350/mo (36% cash on cash), depending on rent and expenses. I have depreciation and offsetting expenses from other property, so this income is tax free. Time to go shopping for a lease car! Currently there are number of mid-size sedans on the market for $250/mo all-in with zero down for low mile leases, so $300/mo should cover us four years from now. When the lease is done in 2020, we'll go out and lease another new car, and another new one after that. We're already paying for my lease car this way, so if it's good for the gander it's good for the goose :-). If I ever decide to sell, I'll package this condo with some others for another investor so it can be easily financed, and as an updated unit it should bring $25k or greater, a pretty good ROI on the initial $10k investment. I'm trying to teach my kids the benefits of deferring gratification to invest in real assets that generate continuous cash flow (like Rich Dad/Poor Dad taught me), and thought I'd share this story in case anyone else wants to pass it on.
Ken