New Car vs House Down Payment?

[mojave1]

I'm 28 years old, single, no kids. Looking for advice on what to do with the $47,000 put away in savings.

New Car Needed
My current vehicle is going on 16 years old and needs to be replaced. Reliability is beginning to suffer and I'm positive it wont pass the next smog check 6 months from now. Dumping money into it makes no sense.

Normally, I might just settle for a newer but used vehicle. But there's a good chance I may be starting a new job that requires me to respond on call 24/7. I would need a dependable vehicle, if for no other reason to avoid losing my job.

Looking to buy a house
I'd like to buy a house in the next few years and I realize the higher the down payment, the better. So this poses a conflict if I buy a new car instead.

~~~~~~~~~~~~~~~~~~~~~~~~~~

Other info:
-- I'm a frugal guy who doesn't spend much on myself. I pay off my credit cards every month without fail. Last time I checked, my credit score was 807.

-- If purchasing a new car, it would likely be a truck. So figure $25,000 plus tax and licensing. My preference for a truck comes from the fact my job (and potential future job) require travel and possible transfer to another state. Moving my stuff around would be far easier with a truck. Plus, I just like trucks. =)

-- Obviously whatever I do here will affect the other. What would you recommend in my situation?

[jpg7n16]

In my view - transportation is a need, a $25k car is a want. Housing is a need, a house is a want.

Moving is a one-time event. But you'll have to drive to work every day for years. Why are you making a decision that will affect you for years, based on a one day event?

Uhaul has rental trucks for a couple hundred. I think you just want a truck

I would look at a much cheaper car/truck too. You can find one for $10-15k thats actually a good car with low/no maintenance needed. If you spend $25k, what are you getting for that extra $10k?


You can easily use $10-15k of your $47k to take care of your transportation need, and still be in a good position to save for a downpayment for your house want.

[mojave1]

Originally Posted by jpg7n16

In my view - transportation is a need, a $25k car is a want. Housing is a need, a house is a want.

I hear what you're saying. Just like you, I need transportation and I need housing. In a lot of cases though, used cars are problematic money pits, like my current vehicle. Renting an apartment or house the rest of my life isn't the greatest option unless I had no other choice.

Originally Posted by jpg7n16

Moving is a one-time event. But you'll have to drive to work every day for years. Why are you making a decision that will affect you for years, based on a one day event?

Uhaul has rental trucks for a couple hundred. I think you just want a truck

Not for me. The job I spoke of is with the railroad. They move lower-level managers around the country every 1-2 years in the beginning of their careers. I could go Chicago to Seattle to Los Angeles to Houston for all I know. At this point, I don't know how well employees are compensated for moving expenses. A truck may lessen the blow.

The railroad is also very militaristic. Show up five minutes late and they want to threaten you with discipline. Driving an unreliable car could put my career at risk.

[disneysteve]

Originally Posted by mojave1

used cars are problematic money pits

Driving an unreliable car could put my career at risk.

The persistence of this myth amazes me. The fact that people insist on using this fantasy to rationalize their purchase of a 25K or more vehicle never fails to amuse me. Do you really think that the millions of people buying used cars each year are all ending up with unreliable money pits?

You drive a 16 year old car. Surely it hasn't been a money pit that whole time or you would have replaced it a long time ago. So if your car was okay 5 or 10 or 12 years ago, what would be wrong with looking at something 4 or 5 years old? You certainly don't need to buy new or spend 25K in order to get a reliable vehicle. And don't get a truck if you don't need a truck.

I'm wondering about the house issue too. First you say you want to buy in the next few years but then you say you may get moved every year or two. You shouldn't consider buying until you know you'll be in one place for 5-10 years.

[mojave1]

Originally Posted by disneysteve

The persistence of this myth amazes me. The fact that people insist on using this fantasy to rationalize their purchase of a 25K or more vehicle never fails to amuse me. Do you really think that the millions of people buying used cars each year are all ending up with unreliable money pits?

Since you said it, what percentage of used cars sold annually are not money pits? I'm not being facetious here, I'd really like to know the answer.

Originally Posted by disneysteve

You drive a 16 year old car. Surely it hasn't been a money pit that whole time or you would have replaced it a long time ago. So if your car was okay 5 or 10 or 12 years ago, what would be wrong with looking at something 4 or 5 years old? You certainly don't need to buy new or spend 25K in order to get a reliable vehicle. And don't get a truck if you don't need a truck.

My current car HAS been a money pit. The private seller I bought it from was a con man. While the title was not salvaged, it was in an accident that caused minor frame damage. This has prevented me from getting the wheels aligned properly. I burn through tires twice as fast. Since the car has been very reliable mechanically -- until recently -- I've held onto it.

Another reason I haven't replaced it comes from the fact the horrible state I live in (California) taxes the hell out of every vehicle purchase, new or used. They get their Use Tax of 7.75% every time a used car is purchased, plus all the nonsense licensing and smog fees.

Originally Posted by disneysteve

I'm wondering about the house issue too. First you say you want to buy in the next few years but then you say you may get moved every year or two. You shouldn't consider buying until you know you'll be in one place for 5-10 years.

The railroad will compensate you for moving expenses incurred, and (supposedly) will cover real estate losses to a certain extent. I don't know how much they will pay. The point being, you lose out on this benefit unless you own a home (otherwise they buy out your lease and the landlord benefits). I've also been told the railroad is less likely to kick you around the system multiple times if you own a home. The more times they do it, the more it costs them in moving costs.

Hope that helps.

[life500]

Ever consider leasing a car? I agree with the posts above, if a truck is not needed, just get a car with good gas mileage. When you lease a car, you won't have to worry about repairs to the car.

[Shewillbemine]

Originally Posted by life500

Ever consider leasing a car? I agree with the posts above, if a truck is not needed, just get a car with good gas mileage. When you lease a car, you won't have to worry about repairs to the car.

You can buy a dependable, used truck for $10,000 or even less. It's doubtful you'll be moving around residences as much as you'd think. If you're actually in a job that moves you every 12-24 months across the country, then you shouldn't be purchasing anything large enough that warrants a truck. A solid 4-door sedan or hatchback should do the trick.

You're asking a question regarding finances and [presumably] want the correct advice that'll save you money.

Here it is: wait until your 16 year old car breaks down or doesn't pass smog. If you truly have the $40,000 in liquid cash, you can buy a vehicle any time you want. You don't have to anticipate when your current vehicle will conk out. That's the power of cash flow.

[jpg7n16]

Originally Posted by mojave1

I hear what you're saying. Just like you, I need transportation and I need housing. In a lot of cases though, used cars are problematic money pits, like my current vehicle. Renting an apartment or house the rest of my life isn't the greatest option unless I had no other choice.

Not for me. The job I spoke of is with the railroad. They move lower-level managers around the country every 1-2 years in the beginning of their careers. I could go Chicago to Seattle to Los Angeles to Houston for all I know. At this point, I don't know how well employees are compensated for moving expenses. A truck may lessen the blow.

If that's true, then this is at odds with your goal of buying a home. Should you really buy a home (paying all sorts of closing costs + appraisals, etc.) every 1-2 years?

I find it odd that you're SUPER concerned about $200-500 of moving expenses every 2 years, but completely ignore $5-10k closing costs...

I think you've got two very strong wants in your mind: a nice new truck and a house. And you're believing some things that aren't true because your desire for these things is so strong.

A used truck will help you move just as well as a new truck will.

The railroad is also very militaristic. Show up five minutes late and they want to threaten you with discipline. Driving an unreliable car could put my career at risk.

Then driving ANY car may put your career at risk. Any car runs the risk of not starting (aka lemon) - which happens to new cars right out of the factory as well as used cars.

I've seen several ads talking about 5-year warranties. That tells me 2 things - #1, they expect most cars to work for at least the first 5 years without any mechanical issues, and therefore buying a 2-3 year old used car will run just as well as a brand new one; and #2 - they don't expect EVERY car to make it 5 years without any mechanical issues. Meaning you run the risk of having mechanical problems keep you from getting to work on time - no matter what car/truck you buy.

The world of cars/trucks is not split into brand new cars and used clunkers. There is a huge middle portion on the spectrum that your mind is ignoring because it wants a new one so bad.

ETA: Besides, if you bought a brand new truck, how long do you plan on holding it? 1 year? 5 years? 10 years? Keep in mind that after 2-3 years, what used to be a new car is now one of those 2-3 year old used money pits.

[MonkeyMama]

Originally Posted by disneysteve

The persistence of this myth amazes me. The fact that people insist on using this fantasy to rationalize their purchase of a 25K or more vehicle never fails to amuse me. Do you really think that the millions of people buying used cars each year are all ending up with unreliable money pits?

& that new cars are NEVER money pits, right?

[disneysteve]

Originally Posted by mojave1

Since you said it, what percentage of used cars sold annually are not money pits? I'm not being facetious here, I'd really like to know the answer.

I have no idea but I'm sure it is quite low especially if you limit yourself to good quality cars with good service records and relatively low mileage.

My current car HAS been a money pit. The private seller I bought it from was a con man.

No offense to anyone intended but I would never buy from a private seller. I want to deal with someone who has a business and a reputation to uphold, even if it means paying more for the vehicle. Both of our current cars were bought as certified pre-owned vehicles from Toyota dealers and we've never had a moment's trouble with either - one is a 1998 and the other is a 2000.

The railroad will compensate you for moving expenses incurred, and (supposedly) will cover real estate losses to a certain extent. I don't know how much they will pay. The point being, you lose out on this benefit unless you own a home (otherwise they buy out your lease and the landlord benefits). I've also been told the railroad is less likely to kick you around the system multiple times if you own a home. The more times they do it, the more it costs them in moving costs.

That doesn't sound like a good reason to buy a house. You should not buy until you are reasonably sure you will be staying in the same place for 5-10 years. Sure they may cover some moving costs but what about all of the other expenses involved in owning vs. renting? You could spend hundreds on window treatments and other necessities when you first move in only to have to leave it all behind when you leave. You may do repairs that you never recoup the cost of. And you'll pay very little principal on the loan - just a bunch of interest. You'll also waste a ton of time house hunting and going through the whole buying process. It is so much easier to rent. I'd never consider buying if I might move in a year or two or three. We've been in our house for 17 years and have no intention of leaving.

[mojave1]

Originally Posted by Shewillbemine

Here it is: wait until your 16 year old car breaks down or doesn't pass smog. If you truly have the $40,000 in liquid cash, you can buy a vehicle any time you want. You don't have to anticipate when your current vehicle will conk out. That's the power of cash flow.

I'm 99% positive my car will fail smog next May. I've kept the smog test results over the past 8 years and emissions have been steadily increasing. I barely passed in 2010.

[mojave1]

Originally Posted by jpg7n16

If that's true, then this is at odds with your goal of buying a home. Should you really buy a home (paying all sorts of closing costs + appraisals, etc.) every 1-2 years?

I find it odd that you're SUPER concerned about $200-500 of moving expenses every 2 years, but completely ignore $5-10k closing costs...

I'm not ignoring closing costs by any means. I think the railroad covers this but I'm not 100% sure. The thing I don't know is whether all management being transferred get the same package, or if those with higher positions are better compensated. (One guy I know was written a check for $35,000 when he was force assigned to a different location.)

Originally Posted by jpg7n16

I think you've got two very strong wants in your mind: a nice new truck and a house. And you're believing some things that aren't true because your desire for these things is so strong.

A used truck will help you move just as well as a new truck will.

I don't have to have a nice, new truck. Earlier I acknowledged that a new vehicle + house are conflicting uses of money.

Originally Posted by jpg7n16

I've seen several ads talking about 5-year warranties. That tells me 2 things - #1, they expect most cars to work for at least the first 5 years without any mechanical issues, and therefore buying a 2-3 year old used car will run just as well as a brand new one; and #2 - they don't expect EVERY car to make it 5 years without any mechanical issues. Meaning you run the risk of having mechanical problems keep you from getting to work on time - no matter what car/truck you buy.

I see this as competition as much as anything. One manufacturer does it, so others follow suit.

What's frustrating is knowing why a used car is offered for sale to begin with. That information is often not available.

[disneysteve]

Originally Posted by mojave1

I see this as competition as much as anything. One manufacturer does it, so others follow suit.

I disagree. Warranties are always a money maker for the company offering them. If they are offering a warranty, they've determined that they will come out ahead in the deal, meaning most customers won't ever get their money's worth from the policy.

What's frustrating is knowing why a used car is offered for sale to begin with. That information is often not available.

That's a valid point but I wouldn't let that stop you from buying used. People sell cars for numerous reasons: their needs changed and they wanted more or less space, their finances changed and they could no longer afford what they had or they got a big raise and are upgrading, they routinely buy a brand new car every 2-3 years, or they bought something and simply didn't like it. My dad once bought a 6-month-old Oldsmobile for a huge discount for after someone traded it in because they didn't like it. My car was a dealer demo that I bought at the end of the model year when they were unloading them. I saved thousands buying a car that was less than a year old with less than 12,000 miles on it. And it was Toyota certified still with the warranty.

[mojave1]

Originally Posted by disneysteve

I have no idea but I'm sure it is quite low especially if you limit yourself to good quality cars with good service records and relatively low mileage.

No disrespect intended, but if you're going to make claims like that, shouldn't you have some hard facts to back it up...not just intuition?

A lot of good quality, dependable cars retain their value quite well. I was looking at some Toyota's today with 80-100K miles that were five or six years old. The asking prices were $5,000 to $8,000 less than current prices.

How do you rationalize that under the assumption the cars are probably 40-50% "used up" but only 20-30% cheaper than a brand new equivalent? The insurance and licensing fees would be cheaper since the car isn't new, but repairs could offset that.

Originally Posted by disneysteve

No offense to anyone intended but I would never buy from a private seller. I want to deal with someone who has a business and a reputation to uphold, even if it means paying more for the vehicle. Both of our current cars were bought as certified pre-owned vehicles from Toyota dealers and we've never had a moment's trouble with either - one is a 1998 and the other is a 2000.

That's good to know. Could you elaborate on your experience with certified pre-owned Toyotas?


[quote=disneysteve;305217]That doesn't sound like a good reason to buy a house. You should not buy until you are reasonably sure you will be staying in the same place for 5-10 years. Sure they may cover some moving costs but what about all of the other expenses involved in owning vs. renting?
[/QUOTE}

Doesn't this depend totally on how much compensation they offer?

Say my rent for an apartment costs $1000/month and I rent for a few years, even though I had enough in savings for a downpayment on a house. Not counting property taxes, closing costs, home improvements, house insurance, etc, etc, that's potentially $36,000-48,000 being thrown away.

Are you saying that throwing that kind of money away is preferable?

[jpg7n16]

Originally Posted by mojave1

No disrespect intended, but if you're going to make claims like that, shouldn't you have some hard facts to back it up...not just intuition?

A lot of good quality, dependable cars retain their value quite well. I was looking at some Toyota's today with 80-100K miles that were five or six years old. The asking prices were $5,000 to $8,000 less than current prices.

How do you rationalize that under the assumption the cars are probably 40-50% "used up" but only 20-30% cheaper than a brand new equivalent? The insurance and licensing fees would be cheaper since the car isn't new, but repairs could offset that.

New Camrys in Dallas/Fort Worth - starting $22k (to 200k = 11 cents/mile)
Find Your Car: New Toyota Camry Listings Near Dallas, TX 75206 - AutoTrader.com

Camrys under 30k mileage - starting $15,900 (to 200k = 9.35 cents/mile = 15% off new)
Find Your Car: Used Toyota Camry Listings Near Dallas, TX 75206 - AutoTrader.com

Camrys under 45k mileage - starting $13,900 (to 200k = 8.97 cents/mile = 18.5% off new)
Find Your Car: Used Toyota Camry Listings Near Dallas, TX 75206 - AutoTrader.com



Again, you don't always have to look at the ones that are close to junker territory. There are good deals out on cars that haven't been used for very long, and have tons of miles to go.

This is that middle part of the spectrum I was talking about.

Doesn't this depend totally on how much compensation they offer?

Say my rent for an apartment costs $1000/month and I rent for a few years, even though I had enough in savings for a downpayment on a house. Not counting property taxes, closing costs, home improvements, house insurance, etc, etc, that's potentially $36,000-48,000 being thrown away.

Are you saying that throwing that kind of money away is preferable?

That's a very poor comparison. You can't just remove all the factors that tilt the equation away from home ownership. That's like saying "let's say I sold this widget for $100 - and it cost $50 to buy materials; ignoring overhead expenses, salaries, utilities, upkeep, repairs, and lease payments - you're guaranteed to make money!"

Let's say you instead get a house, how much interest will you pay? taxes? repairs? insurance? Is the money you lose on these expenses less of a waste than the money you lose paying rent? At the end of the day, you have less money.

If your company pays closing costs, that's a huge benefit to you. You just expressed concern that they may not reimburse moving costs in an earlier post. I didn't expect a company that wouldn't reimburse moving costs to reimburse closing costs.

So obviously your calcs should not include items you will be reimbursed for. But you're prob on your own for interest, taxes, insurance, and repairs - so you must include those in your comparison. And none of those expenses build equity in the home - just like rent - so they are an equal 'waste.'

[MonkeyMama]

Originally Posted by mojave1

No disrespect intended, but if you're going to make claims like that, shouldn't you have some hard facts to back it up...not just intuition?

The only thing that qualifies a used car as "used" is that it has been owned before. It is a well known fact that cars depreciate significantly the second you drive them off of the lot. *Used* does not speak to anything about quality of car. If you are talking older and more abused cars, you will run more risks. The lower costs of said cars *usually* compensate for that risk.

Our family has driven several used cars with no issues. I also know several people who had issues with brand new cars.

At the end of the day, if you buy a brand new car and drive it for 10 years, for years 2-10 it will have little advantage over someone who bought the same car at 1-year-old. It's the same damn thing. To lump every used car in the old clunker category/unreliable is absolutley ridiculous.

I am not aware of any statistics about used cars - common sense seems to cover it.

[mojave1]

Originally Posted by jpg7n16

That's a very poor comparison. You can't just remove all the factors that tilt the equation away from home ownership. That's like saying "let's say I sold this widget for $100 - and it cost $50 to buy materials; ignoring overhead expenses, salaries, utilities, upkeep, repairs, and lease payments - you're guaranteed to make money!"

Let's say you instead get a house, how much interest will you pay? taxes? repairs? insurance? Is the money you lose on these expenses less of a waste than the money you lose paying rent? At the end of the day, you have less money.

Your second paragraph touches on points I've already mentioned. Of course interest payments are a factor, that's the primary reason for me starting this thread. Buying a new car would cut down on the money available for a downpayment and might play a role in the terms of the mortgage. I see the conflict of interest if purchasing a new vehicle.

Going back to the example I provided -- assuming rent of $1,000 per month for a few years time -- how do you figure interest, property taxes and insurance would exceed $36,000 to 48,000 over that same period for a modest house going for about $150,000? Were you thinking of a house much more expensive?

I'm in agreement that repairs, depending on severity, when combined with other expenses could exceed the cost of renting. But isn't that the point of doing your homework on a house's condition before buying?

Originally Posted by jpg7n16

If your company pays closing costs, that's a huge benefit to you. You just expressed concern that they may not reimburse moving costs in an earlier post. I didn't expect a company that wouldn't reimburse moving costs to reimburse closing costs.

I forget exactly what I said now, but the general consensus is that the railroad compensates employees well for moving expenses. The big question mark is whether all management employees are treated the same. I don't know if the guy who was given a check for $35,000 to move is the norm or the exception to the rule. My gut feeling tells me it's different for different employees.

[mojave1]

Originally Posted by MonkeyMama

The only thing that qualifies a used car as "used" is that it has been owned before. It is a well known fact that cars depreciate significantly the second you drive them off of the lot. *Used* does not speak to anything about quality of car. If you are talking older and more abused cars, you will run more risks. The lower costs of said cars *usually* compensate for that risk.

Our family has driven several used cars with no issues. I also know several people who had issues with brand new cars.

In a theoretical sense I think we could agree that as a car ages, it's reliability must decrease. It's definitely not the other way around. No car is more reliable at 200,000 miles than it was brand new.

So let's say you buy a car that has reached 50% of its useful life for 50% of the price of a brand new equivalent. If you continued to do that, you would need to purchase "new" used vehicles twice as often, subjecting yourself to additional registration fees and smog checks compared to a new purchase that lasts as long as two or three used vehicles. Even a very reliable car is going to need more major (i.e. expensive) preventative maintenance done as the miles are racked up. Things like timing belt replacement are not cheap. Again, if you continue to buy used vehicles, you will be stuck paying these costs more often.

Unexpected repair costs are a whole different unknown, especially not knowing the car's history when you purchase it.

Remember, this is assuming 50% useful life for 50% of the price of a new car. Given the costs of buying cars more often and the maintenance/repair associated with older cars, are you really better off buying used? A lot of cars produced in the last 2-3 years are increasingly more fuel efficient than the predecessors in years prior. How do you factor that in?

I'm warming up to the idea of buying used instead, but I'm also trying to be methodical about it. Your thoughts?

[disneysteve]

Originally Posted by mojave1

let's say you buy a car that has reached 50% of its useful life for 50% of the price of a brand new equivalent.

Your thoughts?

Your hypothetical is flawed. Cars do not depreciate in a linear manner. They depreciate at a faster rate early on.. New cars lose 10-20% of their value the instant you drive off the dealer's lot. So the 50% value for 50% life is very unlikely.

[jpg7n16]

Originally Posted by mojave1

Going back to the example I provided -- assuming rent of $1,000 per month for a few years time -- how do you figure interest, property taxes and insurance would exceed $36,000 to 48,000 over that same period for a modest house going for about $150,000? Were you thinking of a house much more expensive?

Nope. Same house. But you're using a 3-4 year timeframe, when earlier you said you'd have to move every 1-2 years.

2 year period, $150k mortgage 5% interest = 24 payments of $805.23 = 19,325.58
Also pays 2 years of property tax (2250/year) and 2 years of insurance ($481/year) = 5,462 (data from Mortgage Payment Calculator - CNNMoney)
Total paid out = $24,787.58

Equity built up = 4,539.32

So you have lost 20,248.26 to interest, taxes and insurance. (If you had to consider closing costs, you could easily lose another 4-5k+ - which is why it's important to find out if that's covered). Plus maintenance and repairs (mowing lawns, painting, etc.). Plus/minus the change in home value - hopefully up, but we've seen in recent markets that's not a guarantee.

Renting you would have lost $24k - if you rented at $1000/month. Is that a reasonable rent rate for an equivalent home? If so, then there's not really much difference in the two. Renting is easy and straightforward, buying a home isn't.

For such a short timeframe, I'm not sure I see any benefit of owning even in this very favorable situation. If you gave this scenario a long time to play out, the homeowner would likely win - but you don't have a long time.

I'm in agreement that repairs, depending on severity, when combined with other expenses could exceed the cost of renting. But isn't that the point of doing your homework on a house's condition before buying?

That's true. And brings up that I forgot about the cost of getting home inspections done. And appraisals.

I forget exactly what I said now, but the general consensus is that the railroad compensates employees well for moving expenses. The big question mark is whether all management employees are treated the same. I don't know if the guy who was given a check for $35,000 to move is the norm or the exception to the rule. My gut feeling tells me it's different for different employees.

Originally Posted by mojave1

Not for me. The job I spoke of is with the railroad. They move lower-level managers around the country every 1-2 years in the beginning of their careers. I could go Chicago to Seattle to Los Angeles to Houston for all I know. At this point, I don't know how well employees are compensated for moving expenses. A truck may lessen the blow.

The emphasis was your's.

Didn't seem very confident, or strong enough to say that 'actually they reimburse all closing costs if moving.' If they do that, it's a huge bonus.