Finance a car to purchase property: creative or crazy?
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.