New Car vs House Down Payment?

[MonkeyMama]

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]

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?

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]

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]

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]

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.

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.

[Stump1000]

Once you buy a new car and drive it for a week, it's a used car as well.

My dad bought a 2010 Ford truck and paid 35k for it. He sold it 4 months later for 22k. I guess that's an unreliable vehicle with 5k miles on it, since its "used". That's $13k saved just because someone else drove it off the lot.

The point is, there is cars out there that are very nice, pretty much like new for a huge savings.

Look the cars over good and look for low miles. If the car is obviously taken care of inside and out, most likely it was maintained well too.

I've bought a lot of used cars, and I've only bought one new car. That was about two years ago and I won't ever do it again.

[MonkeyMama]

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?

I don't know where to start with this.

As Disney said, cars do not depreciate in a linear matter. I've paid 60% the price of new for 2 one-year-old vehicles. I might get to drive them 14-19 years instead of 15-20. I only lose one year of use, but saved $10,000+ in the price.

Unexpected car repairs? We've driven several used cars, and I do not find that we have had more repairs than anyone I know with a new car. Honestly, I'd say we have had less. Maybe a little luck, but I don't find it hard to pick out a quality used car. I avoid shady sellers, and cars that don't look well maintained, etc. I personally think it's easy to weed out most the scammers. (Plus, we always have a trusted mechanic to help us choose a used car AND who does not scam us with ongoing repairs - which is one reason we have less car repairs than most people I know with NEW cars).

I laughed out loud about your comment on fuel efficiency. !! SORRY! But, my spouse's 2001 Ford Escort easily gets 35mpg. I haven't seen any comparable cars for most of the last decade. Gas efficiency took a big drop the last decade and is just starting to return to where it was in the late 90s. Only cars made in the last 2-3 years compared to the gas efficiency we are used to, yes. I agree with that.

I personally don't really care either way if you decide to drive new or used, but like steve, I am just tired about the myths out there about used cars. We have no doubt saved TONS of money buying used cars. I Can start running numbers if you want to see.

I mean, I think you mentioned smog checks? I've had my car 5 years and it has it's first smog check this year. So I pay $50 every other year for a smog check? But I saved $10,000 on the price of the car! This is the part that is frustrating to get across. Sure, repairs may tend to be more on average, but insurance and taxes will be less. NO one mentions that part. But again, repairs will never come close to the tens of thousands we have saved over the years buying used cars (AND keeping them for a LONG time).

I paid $1000 for my first car, and drove it 7 years. It was an old car and probably had more repairs more than any other I have owned. It was infinitely cheaper to maintain that car than to buy anything significantly newer. Every car I have owned has been extremely reliable. Like, I have only been stranded by flat tires (in 20 years driving?), and that can happen to a new car too. Maybe a dead battery here or there, but that happens to new cars too, once they get older. Plus, easy to just get a jump and move on, so I don't know if I would put that on the "stranded" category.

[jpg7n16]

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

Maybe we've been going about this the wrong way. Seems like we're trying to convince you how much you could save by using personal experience and examples, but maybe we could bring it a little closer to home.


What kind of truck are you interested in?
What area of California do you live in?
What color would you like?
Any special features you're looking for?
How long do you expect to own the truck?
How many miles do you expect to get out of it?


Why don't we do a quick experiment and see what the trucks you want are literally selling for in your area and give you some figures of what you could save. (I tried to do this with the Camry listings, but maybe that's not close enough to home for you)

[MonkeyMama]

Jpg - good post.

Actually, I am also well aware that if used cars were popular, they wouldn't be so inexpensive. So, sometimes you just have to shrug and enjoy that the majority will only buy new. That just means TONS of high quality used cars for the picking (because people tire of their cars quickly, buy up, etc.).

[disneysteve]

Jpg - good post.

Actually, I am also well aware that if used cars were popular, they wouldn't be so inexpensive. So, sometimes you just have to shrug and enjoy that the majority will only buy new. That just means TONS of high quality used cars for the picking (because people tire of their cars quickly, buy up, etc.).

Actually, that's why used car prices have gone up in the past couple of years. Between the recession and the credit crunch, more people who would normally have bought new were forced to buy used. That increased demand and prices on the used stock. Also, cash for clunkers took thousands of good quality cars off the road further increasing demand for the remaining stock. There were also issues after the tsunami with a serious drop in the supply of new cars from Japan. So a lot of factors combined to increase demand for use cars.

All of that is just a blip in the cycle, though. Normally you can save a lot more buying used but in recent years the situation has been exceptionally weird. I've seen many cases where 1-2 year old cars were selling for as much or even more than brand new models which is simply nuts.