Karl911

I have payed cash for many boats threw out my life. My last boat burned 5 gallons/ mile @ cruise, 400 qts of oil for an oil change. Trust me depreciation on TTS is nothing compare to boat ownership.

GTsilber

So basically, never finance anything other than a home...Must be nice. Money is cheap these days why fork over $200k in cash when you can get financing at 2%. Taking that $200k and sticking it in a 5 year fund will probably give you a return of 5%, what's wrong with that equation?

Overdraft

+1

Mike Murphy

As long as it's not applied to everything you own, and you're liquid enough to pay it all off at a moments notice. That said, a lot of folks aren't. Which means they have to pick and choose which items to finance and which ones not to finance. And toys should be at the bottom of the list.

KM1959

Why would you ever need to pay everything you own off at a moments notice?

Mike Murphy

Because that's how it works. I'll let those with a financial background chime in, but there's a certain amount of liquidity that folks should have to meet their needs. But basic transaction fundamentals say that if someone is selling something, you pay for it when the transaction occurs. Even when financing it, the payment is made, usually in totality (doesn't have to be) by the financier. Just because you are paying incrementally, doesn't mean the seller didn't get paid in full. In that case, you are using someone else's money because:

1) You don't have the money, or,
2) You are going to use leverage/investing to get a greater return.

If 1, then you should just save up instead. Especially on a toy
If 2, then you want to be careful about not being over extended. Leverage is a tool, not without risk. Taking on risk can be good, but not too much. It's a balance. Generally speaking, risking investments, stocks, real estate, is at the top of the list of priorities, whereas businesses are next, followed by other assets. Toys are usually at the bottom of the list, which means that if you're already so illiquid (is that a word), it doesn't make sense to finance a toy.

unkiemotorhead

Yup, I agree.

I am by no means a large dollar player. But the evidence to date says I have a clue.

We know some personally, and have read about many others, who were over-leveraged such that when they had unexpected cash/liquidity needs (lost employment, cash needed to cover calamities, economy contraction, whatever) they had to liquidate leveraged assets at lower prices, often resulting in COMPLETE loss of equity or even negative equity. Some have lost EVERYTHING. oops.

Low-cost debt is fine for leverage investing, as long as the downside risk is understood. And as we know, humans are not at all wired to comprehend down side financial (or other) risks very well, hence the problem with debt levels and down side......we don't always access that correctly.

I have taken a somewhat conservative road by buying toys with cash. Always. Debt went to assets likely to appreciate over the long run, and the debt was at levels that I could cover with assets or cash flow in the event of unexpected down side events. Which means I had lower-cost toys for a portion of my life until I got to a point where the opportunity cost of money for the toy price was no long relevant, and I could afford a partial or total loss as a measure of affordability (yeah, I know, I have insurance too).

For illustrative sake, the S&P500 rolling decade average returns are sort of in the 10%/year range +/-. Use whatever numbers you have for whatever assets you enjoy. So the long-term (decades) opportunity cost of my $200k TS is $20k/yr sort of ignoring taxes. And I accept that cost as well as depreciation and excess operating costs (I like wearing out tires and brakes), because my debt level is where I want it, and because the debt is not against toys, and because net worth + cash flow has sufficient cushion such that if I had to walk away from the $200k it would have no impact on my standard of living for the rest of my life. Or something like that. If a financial hit that size is a concern, perhaps a lower cost toy might be more appropriate for a bit of time yet. I'm just sayin.....

rk-d

We have all have different tolerance levels for risk and debt. Some pay all cash, some take advantage or low interest rates to optimize cash flow, time value, etc.

I suspect a sensible recommendation is somewhere in between. I plan to pay down 60% and finance the rest at ~2%.

If the world turned upside down, I would be able to pay everything off - house, cars, etc - and be ok. I wouldn't be happy about it, but I'd be ok.

Whatever lets you sleep at night, I guess.

TampaTurbo

Great conversation.
And I'm impressed at how respectful and thoughtful everyone here has been.
As for me, the purchased pained me because of how financially conservative I am. I did the same calculation as others. How much will it cost me every year to drive this (factoring everything). How much would it cost me with a conservative car. How much do I enjoy it. Will it really make a big dent given my income, debt and assets. In the end, it made sense in the quality of life/cost x risk ratio. I smile every time I drive to work. And I know life is short.

RennOracle

Most cars are better bought almost new, 6 months to 1 year low miles, warranty will exist, most Car companies offer warranty extension aka depreciation slower, Deposit 40->60% finance the rest, change around 1 to 2 years or when a good deal appears.

Case in point, a friend of mine got a 350k spec Bentayga for 180k with 6000 km. How isn't this a deal for a car like that? Still has 2 years of warranty, still a brand new car.

GTSwest

So the Bentley Bentayga was bought for basically 50% of msrp after a mere 6,ooo km?

Doubtful, as that kind of depreciation on a new model would be stratospheric...and kill the brand.

I don't believe there are any high-end vehicles taking 50% baths in the first year.

Dane17

I'm surprised no one mentioned the potentially tax friendly consequences of leasing one in the US then buying at the residual.

KenTO

Unless there was some serious damage to the car.

Lawsofpower

I'm assuming you're being sarcastic.

Mumbles

I'd lease a used CPO 911 turbo s