When A New Car Can Save Money??

[disneysteve]

I've owned 21 cars in 26 years

I have some unique opportunities to invest the $20K in low-risk, high return

No wonder you're broke. 21 cars in 26 years. My wife and I have been together for just over 20 years. Counting the cars that we owned when we got together, we have owned 7 cars. The only reason the number is that high is because my wife had one van destroyed by a fire and one totaled in an accident. If not for that, our total would probably be 6. I've had my current car since August 1998 and I bought it used. We've had my wife's car since September 2002 and it was also used.

I made a suggestion earlier that you may have missed. What about leasing? That would get you a new car every 2-3 years and you wouldn't have to worry about depreciation or maintenance on older vehicles and you'd always have a shiny new car for entertaining clients. You could keep your money working for you rather than sinking 20K or 30K into a depreciating asset.

As for your opportunity, "low risk, high return" is an oxymoron.

How do you guarantee a 20% return on the $20k?

My question exactly.

[wincrasher]

Wow. This is a very interesting thread.

I'm a self employed person. I find it laughable that people would care about what kind of car I drive. Most of my clients drive rust-buckets or plain-jane company cars. If you have a super-duper business lunch or meeting, just rent a nice car for the day. It's a 100% write-off. I'm assuming you are also writing off, or have written off your personal car already? Do you expense the mileage?

I get taken out to lunch by contractors several times a month. I really don't appreciate being picked up in a $50,000 SUV or big super duty truck. Usually these guys have crappy equipment in the field, but super nice rides for themselves. Similarly, an equipment supplier who picks me up in his Lexus makes me wonder what kind of profit is in each sale. Most of my guys make a good salary and are struggling to pay the mortgage, feed the kids and make the payments on their Toyotas. This whole idea of appearances is what's caused this financial catastrophy we are in (but that really is another thread).

After reading all this, I think that your measure of risk/reward is all out of whack. You seem to be willing to risk everything you have, and add debt on top, to earn a few bucks. Yes, lots of companies use debt to create profit and opportunites. But as you see in the news, lots of them are folding up because their margin between revenue and debt was too narrow.

Any move that requires such elaborate calculation to show a slight profit, if everything goes as planned, sounds like alot of risk for meager reward. You need to set some criteria for your "investing". Would you risk everything you have for a 2% return? 5%? 10%? 50%???

[bjl584]

I would focus on getting out of debt. You can play with numbers all day long and move money from here to there, but at the end of the day you still have the debt and an obligation to repay it. BTW I don't consider a Volvo a middle of the road car. A middle of the road car in my mind would be something like a Toyota Camary.

[Like2Plan]

Wow. This is a very interesting thread

After reading all this, I think that your measure of risk/reward is all out of whack. You seem to be willing to risk everything you have, and add debt on top, to earn a few bucks. Yes, lots of companies use debt to create profit and opportunites. But as you see in the news, lots of them are folding up because their margin between revenue and debt was too narrow.

Any move that requires such elaborate calculation to show a slight profit, if everything goes as planned, sounds like alot of risk for meager reward. You need to set some criteria for your "investing". Would you risk everything you have for a 2% return? 5%? 10%? 50%???

wincrasher,
I'm glad you wrote this. I don't own my own business, so I might not understand all the dynamics--but the OP sounds to me just like someone who likes to bet on the ponies (for a sure thing!) ...

[Fizgig]

Back of the envelope calculations ahead for the three options you seem to be considering. I'll consider your current net worth to be zero (Car value = credit card debt) and look at what your costs and end value would be after two years.

1) Keep paying minimums on debt, and keep your 20k car.
2) Sell your current car, put 10k down on the credit card and use the other 10k to buy another car.
3) Pay minimums on the card, sell the car and invest 20k, finance a 30k car.

Assumptions:
Credit card $20k balance, 14%, assumed constant payments of $400/mo.
Both cars depreciate at 10%/year, around the national average.


Option 1)
After two years, you'll have spent $9600 on credit card payments and have a balance of -$15150. You'll have spent $6000 operating your current car, and it's end value is 16200.

Total spent: $15600
Net worth change: $1050

Option 2) BEST
$6000 to operate your new paid off $10k car, final value $8100. $10k put onto card, and $9600 in regular payments. Final balance -$1940.

Total spent: $15600
Net worth change: $6160

Option 3)
$9600 paid on card, end balance -$15150. Invest 20k at 10%, gain $4400. Borrow $30k on car, $650/mo to operate. ($525 payments + your assumption of $125 in gas/etc). Spend$15600 total. After two years the car is worth $24300 and you owe $17845 on it.

Total spent: $25200
Net worth change: -$4300

Now, you're pretty sure that you can get a rocking rate of return. Let's say you get a 20% return over two years. Now you've gained $9470 off of the investment. Total spent $25k, new worth ~$5200. So, you'll have spent $10k more but still have less gains than if you had just paid off your debt and bought a cheaper car.

--------------------------

I hope that this isn't too convoluted and that my reasoning and calculations are clear. I think that you're playing shell games with money - it's already starting to bite you but you're still trying to outsmart the system. You're clearly an intelligent and driven person, but I think that if you simplified your approach, you'd have better success.

In this thread and your other about consolidation, you've stated many times that even though you're heavily in debt, you're not some dumb schmuck who just mismanaged things. You blame it on the economy and income loss. However, if you had played things differently in the boom times by keeping your debt and expenses low, and saving the excess, you'd be in a much better position right now. Right?

[wincrasher]

Fiz,

Your calculations don't include any tax considerations for using these vehicles in business.

He could get significant write-offs for using his existing car or a new car in his business.

If he had the cash, the best move would be to sell his old car to his business. He could then write off the value of this transaction and any future operating and maintenance costs for the car. That cash from the sale could be used to pay off debt.

Since he has no money, then he could sell his car to someone else and use the money to pay down debt. Then he could lease a car in his business's name and write off the monthly cost plus the operating expenses.

[Fizgig]

You're right, I didn't consider the tax deductions. As a simple working stiff I don't have experience with self-employment issues. Is it possible for a deduction to outweigh the $10k in additional costs?

[disneysteve]

Since he has no money, then he could sell his car to someone else and use the money to pay down debt. Then he could lease a car in his business's name and write off the monthly cost plus the operating expenses.

Just what I suggested. He can lease a car using whatever money was previously going to the CC payments. He will have paid off the CCs with the proceeds from the car sale.

[wincrasher]

Fiz,

Yes. He could take 100% of the cost off his bottom line. So it would be a $20,000 reduction in his business income, plus any operating expenses and insurance. But that move requires some money to make it happen.

Also, he wouldn't owe personal taxes on the proceeds because he is selling the car for less than he paid and not more than it's book value.

He could also opt to depreciate it over several years if he didn't need the write-off this year. Too bad he couldn't have done this in December - he could apply it to his 2009 taxes and get a bigger refund pretty soon.

What Steve is suggesting about the lease would also be a 100% write-off, but his business would need to have it's credit approved. He may be able to personally co-sign, don't know, to get approved.

In my business, I just write off the standard mileage rate for my business use - for 2009 it was $.55 a mile. You have to keep a log and all that - but it's pretty straight forward. To put a vehicle in your business name would require you get a business vehicle insurance, which is something I really haven't had time to investigate, but suspect it's ALOT more expensive.

[LivingAlmostLarge]

I kinda agree with leasing, so I've heard from people that it's usually a tax deductibel expenses.

So what's the 20% return? I'm still waiting.

[disneysteve]

So what's the 20% return? I'm still waiting.

Honestly, I pretty regularly get that or more at the casino. The problem is those days when I don't and get a 100% loss instead.

Last 5 casino trips:

15% gain
103% gain
106% gain
100% loss
65% gain

If I could find a way to eliminate those 100% loss trips, I'd be all set.

[LivingAlmostLarge]

THat is not an investment strategy. If you can give me a 20% return in 3 months that's a very high ROI annually. And I'm too lazy to calculate what it really is. But I'd want it.

[disneysteve]

THat is not an investment strategy. If you can give me a 20% return in 3 months that's a very high ROI annually. And I'm too lazy to calculate what it really is. But I'd want it.

Me, too. I wasn't serious with the casino thing (though the numbers are real). I think any investment with a "sure-thing" 20% return, though, is akin to gambling.

[Fizgig]

My impression from a different thread is that he wants to use the cash to buy and sell collectibles.