Should I pay off my truck???
Real Estate Investor · Fort Myers, FL · Member since 2014 · 50 posts · 4 votes
Should I pay off my truck???
Most Popular Reply
Greg ScottPro Member
Rental Property Investor · SE Michigan · Member since 2014 · 4k+ posts · 6k+ votesDon't listen to Dave Ramsey.
So your owe $23K on your truck at 3.5%. By my calculations you are paying $805 in interest this year or an average of $67 per month.
With your $55K you have two options. 1) pay off that truck and save yourself $67 per month or 2) buy a rent property with a $23K down payment and generate $200 to $500 per month in cash flow. Which is better?
35 Replies
- 6yGreg ScottPro MemberRental Property Investor · SE Michigan · Member since 2014 · 4k+ posts · 6k+ votes
Don't listen to Dave Ramsey.
So your owe $23K on your truck at 3.5%. By my calculations you are paying $805 in interest this year or an average of $67 per month.
With your $55K you have two options. 1) pay off that truck and save yourself $67 per month or 2) buy a rent property with a $23K down payment and generate $200 to $500 per month in cash flow. Which is better?
- 6yCalvin OzanickBusiness MemberProperty Manager · Janesville, WI · Member since 2017 · 707 posts · 297 votes
I would say you should pay off the vehicle first. This is because the less debt you have and better credit you have the more likely a bank will give you a friendly loan. I have run into this situation in the past and I would highly recommend clearing as much debt as possible before investing. Good luck!
Wisconsin Property Managers4.7412 Reviews - Accountant · Atlanta · Member since 2020 · 71 posts · 38 votes6y
Hey Nick!
I love Dave Ramsey and a big fan of his, my with and I even took his course as part of our church. I agree that consumer dept should be avoided but dept has been an always will be a useful tool to invest.
I had the same conversation with my mortgage representative. She stated the following "If you pay off your car you will increase the amount of loan you qualify for."
I'm guessing the loan is 5 years. You will probably qualify for at least an 50k more on a home loan. I would ask the loan provider if you have one to give you the scenario of either case. I hope this helps let me know if you have any other questions.
Thanks.
- 6yTheresa HarrisPro MemberMember since 2019 · 15k+ posts · 11k+ votes
If the debt from the truck doesn't restrict your buying a property, I would buy the property. When looking for a property, put the minimum down for the down payment and after you have enough savings to cover the unexpected use the 'extra' money from the rental to pay off your truck faster.
- Investor · St Louis, MO · Member since 2017 · 250 posts · 181 votes6y
This really depends on your goals, Nick. Do you want to be aggressive in your real estate career, take on more risk, and grow more quickly? Then don't pay off your truck, and start investing in real estate. On the other hand, if you would rather be conservative, take less risk, and grow more slowly, the I would pay your truck off. There's no right or wrong answer here, but I would say that financially it would make more sense for you to invest in real estate right away. That interest rate is awfully low and I doubt that it is really hurting you that much.
- Rental Property Investor · Durham, NC · Member since 2016 · 7k+ posts · 7k+ votes6y
@Nick Dillaha. Why do you have such a large amount of car debt?
- Financial Advisor · Salt Lake City, UT · Member since 2020 · 13 posts · 3 votes6y
Hey, Nick! I think it's great that you're in a position where you can and do ask these types of questions. On that note, 3.5% interest is a very great rate, and depending on your business structure with your career or rental property situation, you may be able to write off some of the expenses relating to the truck depending on if it has any business use (not a CPA, just my personal knowledge!).
With that said, since 3.5% is a really great rate, I would do one of two things - invest the money in the market in a risk that matches the time horizon you would need the money for (for example lower risk funds for shorter time periods and higher potential yields for longer time frames that you need the money) or use it to buy your property and get going on the next investment.
At the end of the day, debt is not a bad thing at all if you use it for the RIGHT THINGS. I believe that with the debt you have, the rates you are paying, and your demonstration of your ability to save properly are proof that this debt can actually be a benefit to you in having the liquidity to pursue other, higher-yielding projects. If you have any other questions just let me know. Good luck and God bless, Nick!!
- Lender · Clearwater Florida · Member since 2019 · 31 posts · 36 votes6y
I agree with @James G.. Personally I would sell the truck.
You also have to factor in the fact that vehicles depreciate very fast.
If you decide to sell it now and buy something from craigslist or even a dealer all cash then you will be making a big step forward in creating money to invest in real estate.
There are a ton of reliable cars and trucks on craigslist for a lot cheaper than the 23k you're about to pay for the next couple years. All you have to do is get an inspection on it which could be around $100. For 10k you could find a very nice vehicle.
You have to ask yourself; whats the point of owning this truck? Do you just need a vehicle to get from point A-B? Do you have a family? Do you need 4 wheel drive?
A reliable car with low miles and gas efficiency would do you the best in the long run.
Hope that helps!
- Rental Property Investor · Hartford, CT · Member since 2017 · 168 posts · 163 votes6y
@Nick Dillaha
I love Dave Ramsey! I sold my 2018 Prius and bought a 2014 Prius all cash. It was like Christmas eliminating 20k in debt in one day! I put the $450/month toward my student loan and am paying that off aggressively. Once I’m done, I’ll invest in rentals. Yes, it might take another year or two before I invest more, but I would rather invest from a point of financial strength rather than worrying about all the payments that need to be made. If I have vacancy and need to carry the cost, or large repairs, etc, it will all come from my paycheck, and if all of my paycheck is tied up with other expenses, it creates a lot of risk. I’ve been there when I was between jobs and couldn’t get my house rented. It was stressful, and I don’t want to go back to that type of stress!
Pay off your car and other debts, then start to build significant wealth with real estate. I believe Dave when he says it’s the fastest way to wealth. :)
- 6yTheresa HarrisPro MemberMember since 2019 · 15k+ posts · 11k+ votes
Originally posted by @Heidi Kenefick:
@Nick Dillaha
I love Dave Ramsey! I sold my 2018 Prius and bought a 2014 Prius all cash. It was like Christmas eliminating 20k in debt in one day! I put the $450/month toward my student loan and am paying that off aggressively. Once I’m done, I’ll invest in rentals. Yes, it might take another year or two before I invest more, but I would rather invest from a point of financial strength rather than worrying about all the payments that need to be made. If I have vacancy and need to carry the cost, or large repairs, etc, it will all come from my paycheck, and if all of my paycheck is tied up with other expenses, it creates a lot of risk. I’ve been there when I was between jobs and couldn’t get my house rented. It was stressful, and I don’t want to go back to that type of stress!
Pay off your car and other debts, then start to build significant wealth with real estate. I believe Dave when he says it’s the fastest way to wealth. :)
Smart move. Cars are a big expense and you can get a good used one that does the same thing as a brand new one. Same thing applies with not trading in your car every few years.
- Investor · OH · Member since 2019 · 23 posts · 19 votes6y
@Nick Dillaha
I agree with some of the others here that selling the truck and buying something you can pay cash for is the optimally efficient way. It solves both problems. I see so many people stunt there financial growth because they want to have nice vehicles, but in the end that payments just holding you back. In 5 years that truck will be worth how much less and the house you bought with the payment will be worth how much more? Dave Ramsey strategy is about avoiding/eliminating debt not growing wealth. Which one is more important to you?
BTW, I own 2 rental properties in Fort Myers. Lived in Lee County for my 1st 27 years in the cape, NFM, and FM.
- 6yReggie ReardenPro MemberRental Property Investor · Aiken, SC · Member since 2019 · 129 posts · 44 votes
Although i know the post is about paying a truck off, i would say sell it if your a new investor. I was faced with the same option a few months ago. I did not have to sell my truck but I sold it to free up the cash of monthly payments, insurance, fuel, and upkeep. By making that decision, I have saved enough to purchase a small 2 bedroom house with cash saved from selling the truck. Now I own a home free and clear and are currently renovating it as a buy and hold. In my situation, i will have $25K...yes i said $25K as a total investment, including purchase price! I did this while also under contract for a multi family unit as well. Sell the truck, get something cheaper, buy an asset that cash flows enough to eventually purchase you another truck. At that time you may be able to purchase a vehicle in a company name. Just my $0.02 worth.
- Rental Property Investor · East Wenatchee, WA · Member since 2014 · 10k+ posts · 16k+ votes6y
I don't think we should own 'assets' this large that go the wrong way in value until it doesn't matter. We need to be able to afford/absorb the butt kicking in depreciation this will be.
I get that having a nice vehicle is fun and all, but I'd be selling it after thinking about why I even bought it. A reliable used vehicle will provide the same function without the anchor depreciation and a payment is.
- Rental Property Investor · Cape Coral, FL · Member since 2012 · 427 posts · 186 votes6y
@Nick Dillaha to me it depends on the situation. As the market seems closer to a top then a bottom, in general I think it makes sense to pay off consumer debt, refinance long term debt to low fixed rates, and raise cash.
BUT it comes down to the deal. A truly good deal is low risk and can double/triple your capital etc. If you are disciplined and waiting for a deal like that... then I would do the deal. If not, then I would pay down/off the truck and then sit in cash (dry powder) and wait for the right deal
- Investor · Milwaukee - Mequon, WI · Member since 2010 · 5k+ posts · 7k+ votes6y
Originally posted by @Nick Dillaha:
Hi! Trying to set my investing career off right. I always had the opportunity cost mindset and kept low interest debt to save for another rental property.
The 3rd option (you don't want to consider of course) is to sell your truck. I totally understand why; I have always been a car guy and have been down that road, quite a bit in younger years when I still had more time than money...
You could sell the truck and buy something for less. Provided you have equity in the car that's your budget. If you don't have equity you really have something to contemplate...
And driving a lower priced vehicle does not mean a rust bucket!
I bought my daily driver, an Audi Q5 3.0TDI 6 years ago cash. It has now 120.000 miles on it and it's great, because I can show up in front of tenants and contractors and don't have to feel bad. I am also not "under-dressed" with my car when I pull up at an expensive listing. I think the value is down to under 15k by now... I could buy a new one, but interior and exterior are great, no rattle etc, I don't feel compelled... (I will at some point).
Last time it was in the shop Audi gave me a new Q7 and I thought I might get new car envy, but somewhat to my surprise I was happy when I had my car bar. It seems like the Germans age better..
One of my tenants drives a late model Porsche Cayenne Turbo - some 130k sticker price. One of my friends owns a good size business and drives a Porsche Cayenne V6 he bought for 16k fully loaded with low miles.
A good book to read for you might be The Millionair Next Door - it is based on a large scale, decade long study on the behaviours and patters of millionairs - hint: most don't drive new cars
My vote is ditch the truck, buy something cool that someone else already depreciated for you and buy another rental property asap!
- Rental Property Investor · Durham, NC · Member since 2016 · 7k+ posts · 7k+ votes6y
Originally posted by @Matt M.:
@Caleb Heimsoth
Have you not shopped for a car lately? Cars and especially trucks are super expensive. Two years ago I paid $23k for a two year old Ram pickup with 15k miles. New was $34k.
I think a reliable car can be found for 10k or less. A truck would be higher. Newer ones with less miles will easily he north of 20k, but they aren’t all like that.
- Rental Property Investor · Ankeny, IA · Member since 2017 · 2k+ posts · 3k+ votes6y
@Nick Dillaha
Depends. Where is your $55k in savings? Is it earning any returns? I owe like $8k on a car loan. 2.55% interest. I often wonder if I should just pay that off. And then last year, my “reserves” returned 30.8% (Vanguard VTSAX). Now, should I take money earning 30% to pay off a loan at 2.55%. Nope.
- Real Estate Investor · Fort Myers, FL · Member since 2014 · 50 posts · 4 votes6y
Thank you @Greg Scott for your response. I know Ramsey is really conservative and speaks mainly towards the average Joe. I'm making roughly $84 in my Wealthfront account a month just on the money in there so it more than covers my interest on the loan. I just haven't found anything worth buying in my area so I've been toying with my "second" best option with my savings.
- Real Estate Investor · Fort Myers, FL · Member since 2014 · 50 posts · 4 votes6y
I'm really surprised that everyone considers $23k a lot for a vehicle. I bought a used Toyota truck with low mileage, they hold their value extremely well, run for several hundred thousand miles, and essentially require zero maintenance. But, apparently I could have done a lot better. Haha. I started shopping around again since reading all of your posts.
@Anthony Wick Congratulations on those numbers. Insane. If that was the case for me this wouldn't have been a discussion. Mine is just sitting earning 1.78% so saving I'm exploring options.
@Marcus Auerbach Thank you for your response!! I am definitely a car guy and my truck is the only "fun" expenditure I have. I've been shopping around since your reply. Thanks again.
@Jordan Williamson Thanks, man. Prices in our area (Lee County) are really high so I'm reluctant to pull the trigger on much these days. Another reason I've been considering paying off this debt. Looking into other vehicles now that are a little less expensive and pay in cash. No deals in my immediate future.
@Reggie Rearden Love this post, man. Sounds like you made a great choice. Currently looking for a less expensive vehicle now.
Thanks, @Brad M. for your response! How has it been managing the rentals long distance? Lee County is booming everywhere these days!Thank you, @Theresa Harris. I feel I made a good choice buying a used Toyota. Maybe I can find an even better used Toyota. :)
Thanks, @Calvin Ozanick. Considering all my options. Thanks for taking the time out to respond. - 6yTheresa HarrisPro MemberMember since 2019 · 15k+ posts · 11k+ votes
@Nick Dillaha Toyotas are good and hold their value. I paid $21K for mine (not a truck) in 2005 and still have it.
- 6yGreg ScottPro MemberRental Property Investor · SE Michigan · Member since 2014 · 4k+ posts · 6k+ votes
@Kevin DeVargas Sounds like your mortgage rep mostly handles owner occupant properties. I would encourage you to reach out to an investor-friendly mortgage rep.
@Nick Dillaha I'm flipping Kevin's comment on its head because so many people are told incorrect information. The bank usually considers 75% of a rent property's rent towards against your mortgage debt payments. So, for example, if you have a rent property with a mortgage of $750, any rent above $1000/mo actually IMPROVES your ability to qualify for the next mortgage. If you buy them right, the 2nd rent property becomes even easier to qualify for. The 3rd easier still, and so on, and so on....
To twist a Dave Ramsey saying, it is an income growth snowball, which I consider to be much better than the debt-reduction snowball. One leaves you at zero. The other takes you as far as you want to go.
- Investor · OH · Member since 2019 · 23 posts · 19 votes6y
@Nick Dillaha
Managing long distance really isn’t bad. Just call people when things break. Between both houses I probably spend less than 30 hrs a year on actual work for them now that I’ve got my systems down.
I don’t feel like 23k is too much for a vehicle, It’s just given your situation of trying to buy a rental it will not help you. I’m also not at all against paying down debt if it’s good debt. Both my houses are paid for and I could buy a brand new car every year with the rental profits....but I still drive a 14 year old Toyota. I chose to spend that money on appreciating assets. At the end of the day a new vehicle doesn’t help accomplish my goals.
- Handyman · Pittsburgh, PA · Member since 2018 · 5k+ posts · 13k+ votes6y
Originally posted by @Nick Dillaha:
I'm really surprised that everyone considers $23k a lot for a vehicle.
@Anthony Wick Congratulations on those numbers. Insane. If that was the case for me this wouldn't have been a discussion. Mine is just sitting earning 1.78% so saving I'm exploring options.
@Marcus Auerbach Thank you for your response!! I am definitely a car guy and my truck is the only "fun" expenditure I have. I've been shopping around since your reply. Thanks again.
OK, here's my straight talk for the night. I'm not trying to put you down. I oncwe bought three new RAV4s in a six-year period. You are NOT as stupid as I was. But this is perhaps the second biggest money mistake the average American makes.
$23K of debt for anything that isn't putting $$$$$$ in your pocket and is instead dropping in value every year is A LOT OF MONEY. The fact that you don't think so is because you've been brainwashed into it, as I once was.Regarding Anthony's comment: You didn't earn that interest last year because you were driving your depreciating truck. I, too, make crazy bank on my reserves in index funds last year. Giving up that money so I could drive a particular truck is insane. Your money was sitting in a savings account and being belched out of the exhaust of your truck because you were more worried about your car than your money.
Have you ever stopped to wonder why you're a "car guy"? It's because the media and your peer group and probably your family has pressured you into it. How in the hell do so many people think it's so reasonable to be a "car guy"? Lots of us like a good poop, never heard anyone boast about being a "laxative guy" or an "enema guy." Lots of guys love an improved erection. Do you hear them bragging about being a "Viagra guy?"
But "car guys," no, somehow it's different for you.It's all a sham, Nick. Smoke and mirrors created by advertising, years on years of brainwashing since childhood. The truck isn't magic, isn't special, won't improve your relationships, won't make people who matter respect you. It's a sucker's game, and you're the sucker.
- Member since 2020 · 2 posts · 0 votes6y
@Caleb Heimsoth that’s not a helpful question.
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