Finance a car to purchase property: creative or crazy?

27 Replies

Hi all. I have an idea that I'm curious to get some extra eyes on because, as the saying goes, "you don't know what you don't know".

Short version: I am considering selling my truck and financing a newer one so I can use the cash from my truck (which I own) to purchase property. Good idea (creative)? Bad idea (crazy)? What are some factors I might not be considering?

Long Version:

I'll try to only include enough details to get to he crux of the question. My wife an I are aiming to buy our first property in 2018. We will be looking for a multi-unit in need of remodeling, likely a duplex, and live in one unit while renting the remainder - after/during remodeling of course. 

We currently suffer from a common challenge - cash to make the purchase. This will be our first property in general as well as our first investment so we plan to utilize a first time homebuyer program to minimize the cash needed; whether that is FHA, Well's Fargo's 3% down product, or some other yet unknown loan product is TBD.

I did however have an idea. I have a truck that, though old and with high mileage, is still worth about $10K and I own it outright.  I am considering purchasing a newer truck, one of the main drivers being gas mileage, the other being the cash that would give us to put down on a property. My current truck averages 12.5 MPG, so I have a some real gas money savings to be gained by upgrading - current trip to work is 30miles round trip per day, once we move could be 60 miles round trip per day (that estimate is based on areas that have decent stock of the type of property we are interested in). Based on my current gas mileage compared to newer trucks and using what I see as average gas prices locally, my current potential gas savings is around $100/month. If we move and double that trip my gas savings likewise doubles to $200/month. 

If I purchase a newer vehicle I can safely assume I can finance it for less than 3% APR, and with the benefit of end of the year deals could potentially finance at 0% APR. To use round numbers, lets say I purchase a newer truck for $25,000 (I actually want to spend a bit less than that, but trucks are pricey so lets play it safe) with payments for 72 months at 2.9%. That puts my payment at $379/month, minus $100/month gas savings resulting in a "net payment" of $279/month. By then selling my truck and putting that $10,000 into a property, I have effectively borrowed that $10K at 2.9% which makes up $151/month of that payment. The remaining $127/month is chalked up to consumer debt; at least until I can attribute it to gas savings with a larger commute.

As a result of the transaction I have an additional $279 flowing out every month I don't currently have. However, based on the (albeit few) properties I have analyzed, once we purchase a property and rent the other unit, it is likely to lower our monthly housing cost by around $200-$300/month (that's a conservative estimate) compared to our current rental situation - and that's factoring vacancy, saving for future repairs/maintenance, etc.. So, as I see it, "worst case" we could end up with our expenses for the month ultimately staying the same for the immediate future , but we get our first RE investment out of the deal, we are in an equity building position instead of paying rent, and I have a newer truck. I could however also see us doing the first property as a BRRRR, which once refinanced we would be out of PMI so it would cashflow better, and we would have cash to start the REI snowball rolling.

Minor contextual detail I will mention and then my monologue is done. I'm personally months away from being licensed as  General Contractor and am trained as an architect. My wife is also trained as an architect but now works as an interior designer. We both work for mid to high end remodeling companies in the area. That to say, acquiring a property is our week point, knowing what we could do with it and how to get it there once we own it is in our professional expertise and our passion.

So, what do you all recommend? I appreciate your wisdom and input.

I sort of did this.  We bought a 2017 Subaru Forester, 0% financing for 48 months.  Then I sold an older vehicle.  Gave us cash, dinged my debt to income ratio.  Have you thought about that?

While I haven’t done this yet, I have included an opportunity to get a loan out on my car as another way of raising cash for my next purchase. I think it’s a great way to access a cheap loan.

Buying new vehicles is the quickest way to lose alot of money. As I'm sure your aware, they depreciate very quickly and making payments on a depreciating asset is the worst. I drive an 18 year old car with high miles and it suits me because I don't have a $300 car payment each month and that allows me to save money. Ultimately you have to decide if this makes sense to you but personally I would find another way.

A majority of the time when sell a liability to acquire an asset, it's a smart transaction. Can you find a REI opportunity that produces enough cash flow to pay for your new truck? Then, it's a no brainer. Another option is to lease the truck and write off the lease amount in your taxes (consult a CPA on this one). Outside the box thinking @Tyler Bierce !

Have me now shopping for a new truck! :)

Hi @Tyler Bierce ,

Sounds like you want to sell your truck for 10K and then buy another truck for 25K which puts you in the hole. If you are looking at money and gas mileage, you could sell your truck for 10K and then buy a beater for 1500 that gets way better mileage. This gets you the down payment and does not add a monthly payment to kill your DTI ratio. Now if you "have" to have a new truck and a house then that changes things. Also with the difference in trucks what does the insurance difference become?

Good Luck!

Mike Cumbie, Real Estate Agent in NY (#10401285310)

@Tyler Bierce. I commend your out of box thinking.
In 28 years as an Agent / Broker, one thing I learned early on is - Whoever has the GOLD - makes the rules. Point being - whoever you plan to finance your property purchase through is who you should be consulting with on this decision.
If you plan on purchasing in 2018 - it's definitely not too early to be working on getting PRE-APPROVED for a loan.

512-633-3853

most bases are already covered but I wouldn't do this solely for the downpayment. as people have mentioned DTI is the biggest bummer in the situation.

however since you are a general contractor, you may still be able to use a better truck for your operations so that's a besides the point plus.

You can still finance plenty of used vehicles out there that wont kill your wallet or your DTI

I'm different than a lot of people here... I say get the new one. If you can make the numbers work then why not. I also pay 250 mo to lease a new car, but I sit in traffic and go no where for like 60 hrs month.

I wouldn’t do this if I were you. The minute you drive that new truck off the lot it’ll be worth 30 percent less than what you just paid for it.

The number one reason people don’t build wealth in the US is having a car payment. Cars go down in value a ton, very quickly.

I agree with what everyone here says about the payments affecting your debt to income, but if your income can sustain the hit, and the property can generate enough income to payoff the extra payment, I say go for it.

I say this because it sounds like you use the truck for work, and also it will be beneficial to have the truck if you need to do rehab work.

my only question, have you considered getting a slightly used one? this would save you a lot of depreciation and lower your monthly payment. also saves you mileage over your current model.

I leased a car once and had great experience with that process. It was a Subaru, not some other brand that would depreciate like hell, though. It was the last one on the lot, so I've also ended up getting it for a great price (the only thing I've paid for it was the first monthly lease payment and no money down). The residual value they provided me with at the end of the term was way less than what similar 3-year old cars were going for at the time. I figured, if anything, I'd buy it at the end and re-sell at higher value. I ended up buying it after 2 years and selling it for more than what I owed on it. Just like with homes, you need to do some comps analysis on similar cars after x number of years. 

This is how people get into trouble. I like what Samantha said (not sure how to tag on phone). Buy a beater and use the difference in what you get from your truck and the beater to invest. If you don’t want to do that I would advise in waiting until you have more cash saved up.

In your present financial situation if you are not able to save money there is no way you can hope to be successful at investing.

You are lacking many attributes necessary to be a successful investor.

Hard work and frugal life style are the answer not creative paths to higher bad debt.

Originally posted by @Victor S. :

I leased a car once and had great experience with that process. It was a Subaru, not some other brand that would depreciate like hell, though. It was the last one on the lot, so I've also ended up getting it for a great price (the only thing I've paid for it was the first monthly lease payment and no money down). The residual value they provided me with at the end of the term was way less than what similar 3-year old cars were going for at the time. I figured, if anything, I'd buy it at the end and re-sell at higher value. I ended up buying it after 2 years and selling it for more than what I owed on it. Just like with homes, you need to do some comps analysis on similar cars after x number of years. 

 That's actually a terrible lease, you paid for that lower residual. You want the residual to be really really high, like to the point it's artificially high (because it's set by the bank).  I have 2 cars that the monthly payment is "cheap" because of this, when I go to turn them back in they will be worth significantly less than my residual.

Really easy example:
38k MSRP, get it for 28k from dealer

Residual 20k (% of MSRP)

Payment: 8k spread over 39 months (you also have interest which is the money factor and tax in ca it's based off monthly payment). 
That example w/ a average money factor and like 9% tax rate would probably be about 250 mo. 

Originally posted by @Matt K. :
Originally posted by @Victor S.:

I leased a car once and had great experience with that process. It was a Subaru, not some other brand that would depreciate like hell, though. It was the last one on the lot, so I've also ended up getting it for a great price (the only thing I've paid for it was the first monthly lease payment and no money down). The residual value they provided me with at the end of the term was way less than what similar 3-year old cars were going for at the time. I figured, if anything, I'd buy it at the end and re-sell at higher value. I ended up buying it after 2 years and selling it for more than what I owed on it. Just like with homes, you need to do some comps analysis on similar cars after x number of years. 

 That's actually a terrible lease, you paid for that lower residual. You want the residual to be really really high, like to the point it's artificially high (because it's set by the bank).  I have 2 cars that the monthly payment is "cheap" because of this, when I go to turn them back in they will be worth significantly less than my residual.

Really easy example:
38k MSRP, get it for 28k from dealer

Residual 20k (% of MSRP)

Payment: 8k spread over 39 months (you also have interest which is the money factor and tax in ca it's based off monthly payment). 
That example w/ a average money factor and like 9% tax rate would probably be about 250 mo. 

Got a little excited there, Matt. Terrible? What's so terrible about getting thousands of $ in cash back on this deal? I've bought the car after roughly 2 years and sold it. My payment was around $200/mo on this lease. Sure, i did pay for use, there is no way around that. Your hypothetical example includes a very large discount (close to 30% off) that most people won't be able to get. I wanted to recoup some money back, so, again, I don't see what's so "terrible" about that. Besides, your example includes "cheap" payments that go nowhere (i.e., bank's pocket) at the end of the lease. Both examples could, at the end of the day, net out to zero, but that feeling of cash in my hand/account warms my heart a little bit more.

My hypothetical is actually my q50 and the discount was not really that hard to get and is common. Actually a lot of luxury cars are easy to get discounts on. The residual (what your car is worth at the end) is set by the banks, if its low (as in you can buy it cheaper than market value) you got a bad lease. You want your car to be worth more at turn in then the market because YOU are paying the depreciation over the course of the lease.

Simply put some cars don't lease well at all, in fact they make no sense at all. Some lease really well for no reason other then the mfg is propping up values by inflating the residual. 

Check this out as another example...

https://leasehackr.com/blog/2017/11/14/sibling-rivalry-all-new-2018-honda-accord-416month-vs-acura-tlx-291month

Make a real sacrifice. Sell the Truck and buy a 2k beater.

I did this starting out. Had a newer Vette and BMW, Vette was 50 percent paid for and BMW free and clear. Best decision ever, and got me started with plenty of capital.

Originally posted by @Matt K. :

My hypothetical is actually my q50 and the discount was not really that hard to get and is common. Actually a lot of luxury cars are easy to get discounts on. The residual (what your car is worth at the end) is set by the banks, if its low (as in you can buy it cheaper than market value) you got a bad lease. You want your car to be worth more at turn in then the market because YOU are paying the depreciation over the course of the lease.

Simply put some cars don't lease well at all, in fact they make no sense at all. Some lease really well for no reason other then the mfg is propping up values by inflating the residual. 

Check this out as another example...

https://leasehackr.com/blog/2017/11/14/sibling-rivalry-all-new-2018-honda-accord-416month-vs-acura-tlx-291month

 Did your example include a DP and tag/title/registration fees as well? (I had $0 down, as my primary objective was cash preservation) Again, I'm speaking directly to my scenario as well. It worked out well in the end, is all I'm saying. After that car was gone, I did what Dejan is suggesting - bought a $3k older luxury beater (also an Infiniti lol). 

Originally posted by @Victor S. :
Originally posted by @Matt K.:

My hypothetical is actually my q50 and the discount was not really that hard to get and is common. Actually a lot of luxury cars are easy to get discounts on. The residual (what your car is worth at the end) is set by the banks, if its low (as in you can buy it cheaper than market value) you got a bad lease. You want your car to be worth more at turn in then the market because YOU are paying the depreciation over the course of the lease.

Simply put some cars don't lease well at all, in fact they make no sense at all. Some lease really well for no reason other then the mfg is propping up values by inflating the residual. 

Check this out as another example...

https://leasehackr.com/blog/2017/11/14/sibling-riv...

 Did your example include a DP as well? (I had $0 down, as my primary objective was cash preservation) Again, I'm speaking directly to my scenario as well. It worked out well in the end, is all I'm saying. After that car was gone, I did what Dejan is suggesting - bought a $3k older luxury beater (also an Infiniti lol). 

This was a while ago, I think I put like 1500 down. I got called out on a bluff about shipping. So we can adjust my payment by 38 bucks. Good call on 0 down, you want to avoid doing high down payments as you don't get the money back if it's totaled. Some people pluck down like 15k to lease a BMW for 100 mo, when they should just keep 15k in a bank acct and and pay the higher payments.

I chose to lease because no car really struck me as something I'd want to own long term, I don't drive that far so mileage isn't a worry. But I do spend a LOT of time in my car stuck in traffic, so I wanted something nice.


Also, the target is 1% or lower of msrp ... it's def doable and you can get crazy deals with prior loaner cars. 

Originally posted by @Matt K. :
Originally posted by @Victor S.:
Originally posted by @Matt K.:

My hypothetical is actually my q50 and the discount was not really that hard to get and is common. Actually a lot of luxury cars are easy to get discounts on. The residual (what your car is worth at the end) is set by the banks, if its low (as in you can buy it cheaper than market value) you got a bad lease. You want your car to be worth more at turn in then the market because YOU are paying the depreciation over the course of the lease.

Simply put some cars don't lease well at all, in fact they make no sense at all. Some lease really well for no reason other then the mfg is propping up values by inflating the residual. 

Check this out as another example...

https://leasehackr.com/blog/2017/11/14/sibling-riv...

 Did your example include a DP as well? (I had $0 down, as my primary objective was cash preservation) Again, I'm speaking directly to my scenario as well. It worked out well in the end, is all I'm saying. After that car was gone, I did what Dejan is suggesting - bought a $3k older luxury beater (also an Infiniti lol). 

This was a while ago, I think I put like 1500 down. I got called out on a bluff about shipping. So we can adjust my payment by 38 bucks. Good call on 0 down, you want to avoid doing high down payments as you don't get the money back if it's totaled. Some people pluck down like 15k to lease a BMW for 100 mo, when they should just keep 15k in a bank acct and and pay the higher payments.

I chose to lease because no car really struck me as something I'd want to own long term, I don't drive that far so mileage isn't a worry. But I do spend a LOT of time in my car stuck in traffic, so I wanted something nice.


Also, the target is 1% or lower of msrp ... it's def doable and you can get crazy deals with prior loaner cars. 

All good points. I definitely see your point about trying to have the smallest monthly pmt possible for a car that you enjoy driving. Good debate and food for thought :)

A little off-topic: I love my G35, even if it is 14 years old at this point. Got pulled over by a cop once and he told me (not verbatim) "I see you got a nice car and like to drive it fast" lol Their styling is ageless.

@Victor S. used to also have a g35, loved it. Awesome power not so great mpg.... but it was a great car. I miss my clock... the q50 has a stupid top screen that looks the nav screen of the old g35s and a stupid clock as the display.

@Tyler Bierce too bad you missed this deal haha

https://leasehackr.com/blog/2016/3/1/sierra-denali-truck-yeah-415-month-0-down

Tyler, going to echo the sentiment here - seems like a sound and creative strategy, but no need to buy a brand new car. Why take the huge hit when you leave the lot when you could buy a 2yr old truck at a significant discount? Best of luck

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