Investing vs consuming... where to draw the line
I own a 2004 pickup truck with 175000 miles. I just took it to the shop to get a repair quote. It’s about $2000 for the main repair. There are a few other smaller things that need repair as well.
I have the cash to buy a new/used truck but I know that money should and can be used in smarter ways.
The consumer side of me is trying to justify the purchase because I own and operate a small construction company “and I need something bigger for work anyway...”
The investor in me wants to use the money to create a return... letting our money work for us.
How do you guys make these difficult decisions and if you were in my shoes what would you do with 30k right now?
Quick background. I have around 110,000.00 in cash.
No debt. Emergency fund in place. But I recently went full time working for myself (I was working a w2 as I grew my business). I do not own a home, I rent for a very reasonable price. I have a feeling a large percentage of people will say I should house hack.
I’m being told by a lender, they will use the average of my business income for the last 2 years. I only claimed around 10k in 2019. After deductions, 2020 should be around 100k.
So the average of 2 years will only be around 50k considering they will not use my w2 sense I’ve recently left.
Thanks.
I am fairly new to the investing scene and not nearly as experienced at it as others but I personally have taken things a little different regarding transportation. I read many years ago from others recommending to purchase a rental and use the cash flow from it as your car payment amount, but at the start i couldn't invest in a rental right away, so i took the approach with the apartment i was renting. I was initially in a 1/1 787sq ft unit paying $1,000/month and working my W2, but i decided since i couldn't afford a rental at the time that when a 3bedroom unit opened up in my apartments, i talked to management and switched, because it was only $1,400/month and decided to get a roommate. Initially i got 2 roommates, but i was unhappy with having 2 and to many times conflicts occurred, so i got rid of 1 and rented the 3rd room out for $800/month and because we were both into computer gaming we setup the 2nd room as a computer office. This put an extra $400/month in my pocket to not include the splitting of utilities and internet resulted in me paying around $550/month less in living expense. So i used part of this gain for my purchase of my car and it added no additional stress or financial impact to me over living alone and not owning the new car.
Now I lease my trucks, about 12 years ago I got into a killer deal on a leased Ford F150 V6 $99/month. ya it was not the fanciest of trucks, but it was an extended cab pickup truck for $99/month to drive...
My most recent lease is a 2020 ford ranger im leasing for $249/month with $0 down.
Also is there any specific reason you need a truck? I only ask this because i have a plumber friend of mine who got into smart money management recently while running his own plumbing company and downsized from his big full size van he was running before getting like 12-14mpg and recently purchased not joking you a 2020 Chevy Spark for his business and bought a 4x6 enclosed tiny trailer that he spent a weekend custom building multiple long like 4ft long sliding drawers that go like 3/4 the length of the trailer insides which he stores all his stuff organized, then on top he has 2 large pvc pipes with caps to allow him to transport large bundles of pvc pipe and such.. He left just barely enough room between the back doors and the drawers to fit his normal water tank size he has to transport. He was shocked how well the little car has been doing for him pulling the trailer since he switched over. The car is rated for like 5,200lbs towing and he is getting around 28mpg now over the previous 12mpg. So overall huge drop in his monthly expenses, plus the car was steal of a deal to pass up on.. He paid $8,300 out the door for the car brand new..
@Ricky Cassidy while personally would have the same internal struggle and debate with myself it is important to remember that purchasing equipment for your business is an investment as well. If your older truck breaks down and you can’t get to jobs for a few days you are losing cash flow and damaging your business reputation. Even if you are constantly spending time working on it yourself that is time you could be making money.
That said, you don’t need to go out and buy a top of the line truck. And, I’m not positive about trucks, but there are a lot of 0% or very low interest car loan offers out there which means that as long as your business could handle the debt payments (which it sounds like it could at 100K in profit) then you could still use some of your cash to also buy an investment property.
You should also talk to your CPA about giving yourself a Salary so you do have a w2. Underwriters like w2s better even if it is from your own business. They will add in the Biz income as well, but a w2 is just more straightforward.
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Contractor with an unreliable or breaking down truck?...Hmmm. I wouldn't hire them. Take the 2K you were going to use for repair, use it as a downpayment along with a trade in and get one of those 0% (?!?!???) loans for a new truck. The interest is an expense of your business. Do the real estate deals and use that cash flow to make the loan payments. 5 year payments and you probably get at least 10 years out of this truck.
I'm not a fan of auto debt--happily paid off our two cars!--but there is a reason businesses all over use debt for their vehicles.
@Ricky Cassidy your goals should drive these decisions. Forget truck vs. rental property. What are your goals? How much money and what amount of time do you need to accomplish those goals? If you have excess funds after allocating necessary funds towards your goals, then use that as your "play money"
I have to say, I'm shocked at how many people are saying to buy a new truck, it's essential to your business- the truck part, yes, but throwing all of that cash at a brand new truck? That's crazy at this point in your journey. I can't tell you how many novice investors I meet up with who pull up to my office in a new truck or a BMW and they hate their job, desperate for freedom, but they have to have that car either to "get to work" or because the guy across the street or the other contractor has a nice truck too. Lots of them have car payments that are higher than the mortgages I pay on my investment properties.
Cars and car payments kill most Americans dreams. Don't fall in to that trap. Sure, you need a functional truck to do your work, but you don't need a "new" truck or even a nice one for that matter- you need a reliable truck. Get a reliable truck for as little as possible and do not buy yourself a car payment- either pay cash for the repairs or get an inexpensive truck that you feel confident will buy you a couple years.
Sacrificing now will give you the freedom and income to buy whatever truck you want in the future. Giving in now and doing the easy thing- getting the nice truck, will prolong or completely eliminate the possibility of you being free.
Originally posted by @Corby Goade:I have to say, I'm shocked at how many people are saying to buy a new truck, it's essential to your business- the truck part, yes, but throwing all of that cash at a brand new truck? That's crazy at this point in your journey. I can't tell you how many novice investors I meet up with who pull up to my office in a new truck or a BMW and they hate their job, desperate for freedom, but they have to have that car either to "get to work" or because the guy across the street or the other contractor has a nice truck too. Lots of them have car payments that are higher than the mortgages I pay on my investment properties.
Cars and car payments kill most Americans dreams. Don't fall in to that trap. Sure, you need a functional truck to do your work, but you don't need a "new" truck or even a nice one for that matter- you need a reliable truck. Get a reliable truck for as little as possible and do not buy yourself a car payment- either pay cash for the repairs or get an inexpensive truck that you feel confident will buy you a couple years.
Sacrificing now will give you the freedom and income to buy whatever truck you want in the future. Giving in now and doing the easy thing- getting the nice truck, will prolong or completely eliminate the possibility of you being free.
I didn't see anyone suggest he spend all of the cash on the truck. Most people that are suggesting to purchase it are doing so because he can write the truck off. Let's not jump to conclusions right away.
I agree with @Victor S. - I, along with some others, seem to be suggesting using financing for his business vehicle - a perfectly legitimate use of financing if the terms are good and his business cash flow can cover the cost. He doesn't need a $100K truck, or a new one for that matter, but a reliable one with good financing terms would allow him to invest in both his business and real estate.
@Ricky Cassidy Two points I have to offer. I agree with Joe. If a truck is necessary for your business, and you dont have a backup, you need a reliable vehicle to get to jobs. People will stop calling you for new work if your didnt show because you didnt have transportation, and you should mind your primary income. That doesnt necessarily mean a new truck, but something reliable.
Second point is, it also depends on the potential purchase and deals you are seeing. You will shoot yourself in the foot if you buy a bad deal and keep your current truck.
If you get a reliable used vehicle that will last ($15 -$20k?) and serve your business, and you find a good RE deal, I think youll be set up well. And it sounds like this is feasbible for you with your reserves. I do wonder if you are able to access the these amazing low mortgage rates too. They are pretty remarkable.
@Bill F.
Love the quote! Thank you!
@Evan Polaski
Very good points, thank you!
@Victor S.
I’ve decided to give the old horse one more shot.
This is her last major repair (that I’ll be paying for).