Payoff a Vehicle or buy another rental!?

Real Estate Agent · Houston, TX · Member since 2019 · 763 posts · 500 votes

About to close on a refi of our personal property. Saving $250/mo plus getting about $12k cash back in closing. Current vehicle payment is $398/mo with about 9000 left to pay (2.5% interest rate).

Initial thought is go use the cash to payoff the vehicle to increase our monthly cash coming in, and decrease our DTI (only debt besides the vehicle is our rental/pri res/boat) and use the next 6-9 months to see what happens with the election before picking up another door, however having the extra 12k on top of that 6-9 months is also a great boost for a down payment.

What are you doing in this scenario? Getting rid of debt, or keeping the payment because the interest rate is so low?

13 Reply

383 views

Most Popular Reply

Bill HamptonBusiness Member

Accredited Investment Fiduciary, AIF®, Financial Planner, Tax Strategist, Real Estate Investor · Atlanta, GA · Member since 2012 · 2k+ posts · 979 votes

Keep the payment and buy another rental.

Good luck.

404-482-3170

Hampton Tax and Financial Services LLC4.7106 Reviews

Website View Page

24 Reply

See this reply in the discussion

102 Replies

Jump to latestLatest

Sort by

Bill HamptonBusiness Member
Accredited Investment Fiduciary, AIF®, Financial Planner, Tax Strategist, Real Estate Investor · Atlanta, GA · Member since 2012 · 2k+ posts · 979 votes
6y
Keep the payment and buy another rental.
Good luck.
404-482-3170
Hampton Tax and Financial Services LLC4.7106 Reviews
Website View Page
24 Reply
Bonnie LowPro Member
Lender · Asheville, NC · Member since 2016 · 1k+ posts · 1k+ votes
6y
Buy another rental. The rental is an asset and presumably will appreciate whereas the car is only going to depreciate. The rental gives you write offs. The car payment is relatively low and so is your interest rate on it so let that ride (pardon the pun) leveraging the bank's money you borrowed for the car loan and put your $ to work for you in another rental.
[email protected]
15 Reply
Rudy Avila
Rental Property Investor · El Monte CA · Member since 2018 · 134 posts · 66 votes
6y
The way i do it is pay off debt which increases your cashflow, save up and make another stream of cashflow. So in this case send payments of a little under 3k a month to pay off vehicle in 4 months.
12 Reply
Theresa HarrisPro Member
Member since 2019 · 15k+ posts · 11k+ votes
6y
@Karl McGarvey Save the money for now, see how the election goes and them decide. It will be cheaper to buy in the winter. After you buy it, you can use the money from the new rental along with the cash flow from the current one to pay down the car....and then save for yet another rental.
7 Reply
Ganessan P.
Investor · Member since 2019 · 82 posts · 29 votes
6y
I would buy rental.. leverage, leverage, leverage.
3 Reply
Jon KellyPro Member
Investor · Bethlehem, PA · Member since 2016 · 929 posts · 951 votes
6y
@Karl McGarvey Use the money for a rental property.
1. The interest rate is so low. If you can buy a rental property >2.5% CoC return, that's a win.
2. What is an extra $400 in cash flow going to buy you? Nothing, except tempt you to spend it on something other than a rental property. It will take 2 years to save up $12k again ($12,000 breaks down to: $9,000 loan pay off = $400/mo for 23 months + $3,000).
18 Reply
Jonathan Feliciano
Accountant · Miami, FL · Member since 2020 · 89 posts · 57 votes
6y
I don't think there's a single right answer to your question @Karl McGarvey.
Whether you purchase another rental or pay off your car loan, you will be generating money regardless, either in the form of a savings or rental cash flow.
I feel like what would help you make your decision is to compare the savings you will get from paying off the loan versus your expected cash flow on a new rental property.
Personally, I would pay off the loan, mostly because I hate having debt and I wouldn't want to continue paying interest on it. Plus, paying off debt is instantaneous, whereas buying and renting out a property could take some time.
But again, if you feel like you'll generate more cash flow via another rental property---and there's no urgency to pay off the loan---then by all means, purchase the rental property.
Hope I was able to give you some insight into your decision. Good luck!

14 Reply
Kris L.
San Antonio, TX · Member since 2019 · 930 posts · 836 votes
6y
@Karl McGarvey
2.5% interest? Another rental all day at that rate.
6 Reply
Karl McGarvey
OP
Real Estate Agent · Houston, TX · Member since 2019 · 763 posts · 500 votes
6y
Thanks all. Basically the answers I expected with some great insight behind them! Appreciate you all!
0 Reply
Karl McGarvey
OP
Real Estate Agent · Houston, TX · Member since 2019 · 763 posts · 500 votes
6y
@Jonathan Feliciano my thoughts are trending to paying it off now, knowing our next purchase wont be until around January and in that 5 month time frame I can save at least another 10k from my W-2 job recouping what I spent to pay the truck down - plus the $2000 ill be saving extra from no truck payment. Hopefully allowing me to do both.
3 Reply
Steve Vaughan
Rental Property Investor · East Wenatchee, WA · Member since 2014 · 10k+ posts · 16k+ votes
6y
Originally posted by @Karl McGarvey:
About to close on a refi of our personal property. Saving $250/mo plus getting about $12k cash back in closing. Current vehicle payment is $398/mo with about 9000 left to pay (2.5% interest rate).
Initial thought is go use the cash to payoff the vehicle to increase our monthly cash coming in, and decrease our DTI (only debt besides the vehicle is our rental/pri res/boat) and use the next 6-9 months to see what happens with the election before picking up another door, however having the extra 12k on top of that 6-9 months is also a great boost for a down payment.
What are you doing in this scenario? Getting rid of debt, or keeping the payment because the interest rate is so low?

Mindset is important. So is sacrificing for big things. I'd pay it off, organically with my own savings.

It is more than ROI not owing on a car. It is more than ROI proving to yourself you can prioritize spending.

Numbers-wise, you already took the financial beating when you bought it. I get at least a 20% discount to KBB when I buy privately with cash. Dealers have brain washed us into thinking low rates are a good deal. Meanwhile most pay way too much on sticker.

The investor asks how much. The normies ask how much a month. Don't be normal.
10 Reply
Paul Shannon
Rental Property Investor · Fishers, IN · Member since 2016 · 337 posts · 470 votes
6y
Sell the car and buy another cheaper one in cash to eliminate your payment. A $400 car payment is holding you back from growing your wealth and is bad debt....oh and buy a rental with leverage...that's good debt.
6 Reply
Alek Foy
Rental Property Investor · Hickory, NC · Member since 2019 · 5 posts · 3 votes
6y
Pay off the car! I’m 25 and over the last 6 years since I stopped having a car payment was my best choice. Left me with some much more money and I worked my way up to having a 30k dollar truck with no payment, while buying and fixing up rental property’s!
3 Reply
JD MartinBusiness Member
Moderator
Rock Star Extraordinaire · Northeast, TN · Member since 2015 · 10k+ posts · 16k+ votes
6y
I am with @Steve Vaughan. I would pay off the car. Yes, it's basically "free" money. But more important is the mindset. Right now, you have:
1. Debt on primary residence:
2. Debt on rental property;
3. Debt on Vehicle;
4. Debt on Boat.
75% of your debt makes you zero money and reduces your balance sheet (most primary homes do well to break even after you figure your repairs, maintenance, upgrades and fluff). That's the wrong mindset for investing. So I would pay off the vehicle, and then pay off the boat. Investing in RE involves pretty good sums of money and risk, even if it is controlled. Unlike stocks, which can just wipe you out to zero, RE investing can put you into the negative. You need to have reserves for that, and the best way to have reserves is to live prudently.
Podcast Guest on Show #243
Skyline Properties
View Page
9 Reply
Julio Garcia
Rental Property Investor · Modesto/Stockton/Merced, CA · Member since 2020 · 456 posts · 214 votes
6y
Pay off the vehicle for sure. that's instant $ in your pocket.
2 Reply
Scott Robinson
Los Alamitos, CA · Member since 2017 · 25 posts · 17 votes
6y
@Karl McGarvey There is no question here that you should do anything but buy another rental. Cash flow from a rental is for life and grows over time. A car/house/boat payment goes away by itself over time. Buy as much rentals as you can and let the debt take care of itself. 30 years from now you will be swimming in money like Scrooge McDuck. Trust in the system.
Also it is good to note that besides my above reasons, you should also recognize that due to inflation money becomes less valuable over time. Cash flow and property value is all inflation adjusted so you never lose money over time due to inflation with rentals. This is not the case for loans. A loan is paying for something tiday with tomorrows money (which is worth less). Both of these reasons also suoport buy rentals over paying loans. The only reason to pay down loans first is if your DTI doesnt allow you to purchase until more debt is paid off.
8 Reply
Karl McGarvey
OP
Real Estate Agent · Houston, TX · Member since 2019 · 763 posts · 500 votes
6y
@Scott Robinson great insight, thanks!
0 Reply
Aaron Gordy
Real Estate Broker · Austin, TX · Member since 2012 · 1k+ posts · 1k+ votes
6y
Buy rental and use the cash flow to pay the vehicle note.
2 Reply
JD MartinBusiness Member
Moderator
Rock Star Extraordinaire · Northeast, TN · Member since 2015 · 10k+ posts · 16k+ votes
6y
PS: The reason I say pay off the note, aside from my previous comments, is that it appears to me - maybe I'm wrong - that your reserves are fairly weak/non-existent. If they were strong, then you probably have $9k just sitting around doing nothing that you could pay the vehicle off any time rather than wondering if you should use cash harvested from your primary's refinance to pay off the vehicle. You're also noting that the $12k is a nice boost for a down payment on another rental, which means you aren't buying all cash and you also aren't in a super-healthy spot for a down payment without it.
I could be wrong - you might have $200k just sitting around in a cash account - but I suspect that if you did, you wouldn't need to ask a question about whether to pay off $9k or keep the money.
Podcast Guest on Show #243
Skyline Properties
View Page
6 Reply
J. Mitchell Bernier
Lender · Southwest Georgia · Member since 2017 · 315 posts · 278 votes
6y
@Karl McGarvey Do Both!
Go talk to a local lender about paying off your vehicle and then using the vehicle title as the down payment. The value of the vehicle will work as extra collateral which makes their LTV still look good. Your monthly free cash flow will be lower, because you didn't put any money down, but as long as you are still getting good positive cash flow you are in good shape.
Plus now that interest on that car is deductible too! I have done this multiple times.
2 Reply
Karl McGarvey
OP
Real Estate Agent · Houston, TX · Member since 2019 · 763 posts · 500 votes
6y
@J. Mitchell Bernier what kind of financing are you using where a lender allows the Title instead of Down payment?
0 Reply
Karl McGarvey
OP
Real Estate Agent · Houston, TX · Member since 2019 · 763 posts · 500 votes
6y
@JD Martin we do have TONS of reserves, for both our personal property/lifestyle and our rental, but I like seeing what others have to say to see if I am missing anything in my thought process for making a decision
0 Reply
J. Mitchell Bernier
Lender · Southwest Georgia · Member since 2017 · 315 posts · 278 votes
6y
@Karl McGarvey I use small local banks. So they are 3yr Terms with a 15yr amortizations. So their is a balloon. The interest is higher because it is more risky, but again It’s a way to get a property with no money down. So as long as I’m getting 125 a month I’m happy.
These loans are commercial loans in the eyes of the local community banks
0 Reply
Paul De Luca
Real Estate Agent · Chicago, IL · Member since 2018 · 1k+ posts · 1k+ votes
6y
@Karl McGarvey
Buy another rental. That will put money in your pocket, while paying off your vehicle will not.
0 Reply
Kevin DeMaio
Rental Property Investor · Tempe, AZ · Member since 2020 · 8 posts · 0 votes
6y
I think it depends on how well you can budget your income. If you "splurge" or "treat yo self" often you might want to keep the payment, not pay off the vehicle and get another rental.
0 Reply

Join the conversationCreate a free account to reply, vote on answers and follow this thread.