Purchase vs. Lease Preowned - Tell me how you finance
#31
I usually put down an amount that I think the car will depreciate when I drive it off the lot, and finance the rest 4-5 yrs. It does make sense to me align the cash outflow with the consumption, if you think of the car as an expense. As you own, drive and enjoy it, you pay for it. At any given point in time, you don't want it anymore, you could sell it and pay it down. No harm done.
I do work in the finance industry, admittedly in a quite different role than a financial advisor and nothing I say should be construed as financial advice, but I do agree, with interest rates at all time lows and negative real rates, they're literally paying you to borrow this money. Makes no sense not to finance these large purchases, especially with loans secured with the asset you buy with no prepayment penalties, ie car loans and mortgages.
You don't need to go turbo long the equity market w that extra cash like some suggested. Just keeping it around for liquidity would be worth it for me. You never know what financial opportunity or need may arise in the future.
If you're buying something that'll depreciate like a rock, by all means put more down upfront. But it's just suboptimal to not finance it when rates are where they are.
Financing a purchase of anything, is completely unrelated / orthogonal to whether you can afford it or whether you should be making that purchase. That's something you need to assess for yourself, not the bank or some shady dealer.
I do work in the finance industry, admittedly in a quite different role than a financial advisor and nothing I say should be construed as financial advice, but I do agree, with interest rates at all time lows and negative real rates, they're literally paying you to borrow this money. Makes no sense not to finance these large purchases, especially with loans secured with the asset you buy with no prepayment penalties, ie car loans and mortgages.
You don't need to go turbo long the equity market w that extra cash like some suggested. Just keeping it around for liquidity would be worth it for me. You never know what financial opportunity or need may arise in the future.
If you're buying something that'll depreciate like a rock, by all means put more down upfront. But it's just suboptimal to not finance it when rates are where they are.
Financing a purchase of anything, is completely unrelated / orthogonal to whether you can afford it or whether you should be making that purchase. That's something you need to assess for yourself, not the bank or some shady dealer.
#32
Rennlist Member
Agreed
By the way, I hold a PhD in finance and am the chief investment officer for a private investment firm
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#33
https://www.theglobeandmail.com/investing/markets/inside-the-market/article-real-assets-vs-stocks-which-is-the-right-investment-for-you/
Real assets vs. stocks: which is the right investment for you?
One sure sign inflation is back in the spotlight is the flurry of new pitches for investing in “real” assets ranging from vacation homes to vintage cars.It is easy to see why so many people find this strategy compelling. Bonds and stocks are boring things. Beach houses, vintage cars, fine wine, diamonds and art are not.
Real assets can look particularly attractive right now, when payoffs from more typical investments are low and many people are fretting about a possible return of inflationary pressures. If you can earn as much buying a vintage Bugatti as you can investing in a Government of Canada bond – which is to say, next to nothing – why not go for the classic sports car?
Maybe because things are rarely as simple as they look. When you receive an invitation to invest in real assets – and you will – read it with skeptical eyes.
Consider a new Bank of America report that lists five reasons to diversify into real assets. Those reasons, put forward by chief investment strategist Michael Hartnett, are: 1) real assets are unusually cheap in comparison with financial assets; 2) real assets act as an inflation hedge; 3) real assets diversify portfolios; 4) real assets are “underowned”; and 5) real assets are scarce and more valuable in the coming digital-currency era.
All these rationales sound somewhat credible. To his credit, Mr. Hartnett has compiled a library of fascinating charts, especially when it comes to his first point. By his reckoning, the long-run price of real assets (real estate, commodities and collectibles) is at its lowest point relative to financial assets (stocks and bonds) since 1925.
But is his argument quite as strong as it appears? Another way to say the same thing is that financial assets have performed better than real assets for nearly a century. That is the major reason why real assets now look so cheap compared with stocks and bonds.
Maybe this long-run trend will now reverse. Investors, though, should be aware of the risks that go along with betting against a long-term trend. You may be lucky enough to catch a turning point. Chances are you won’t.
Investors who are tempted by Mr. Hartnett’s logic should also consult a 2018 analysis by Elroy Dimson and fellow researchers in the annual Global Investment Returns Yearbook published by Credit Suisse. Prof. Dimson, of the London Business School, and his associates looked at the long-run performance of “passion investments” such as rare books, classic cars, jewellery, violins, art, wine and stamps.
Their conclusion? Over 118 years, “the average collectible rose 30-fold in terms of purchasing power.” That sounds encouraging. But hold on: “This is equivalent to an annualized price appreciation of 2.9 per cent.”
How attractive that is depends on your baseline for comparison. The returns on passion investments fell far short of the return on a global stock portfolio (5.2 per cent a year) over the same period. They also varied. Art, for instance, went up in value by only 1.9 per cent a year while wine enjoyed annualized price gains of 3.7 per cent.
Real estate suffers from some of the same issues, according to Prof. Dimson’s team. Its after-inflation returns in a range of developed countries from 1900 to 2017 look surprisingly mundane. Moreover, the real returns varied hugely among countries, ranging from a low of 0.3 per cent a year in the United States to 2.2 per cent in Australia. The returns within each country also spanned a wide spectrum, with prices in some cities booming while others withered.
This raises an important caveat: While historical returns on some real estate and some classes of collectibles may look appealing, most investors don’t hold a diversified portfolio of those assets. Rather than betting on real estate, vintage cars, art or wine in general, they typically invest in one house, one car, a few artists, or a limited selection of the world’s great wineries.
There is no guarantee the return on those focused collections will match the return on the overall asset class. Right now, for instance, it is difficult to argue that Canadian real estate looks cheap.
On top of that, most indexes that track the selling prices of passion investments don’t include holding costs or transaction costs. Those range from insurance and storage fees for collectibles such as cars and wine to selling commissions on art.
Many high-end art galleries, for instance, charge a 40-per-cent commission. Buy a painting for $10,000 and you have a work of art that is now worth $6,000 to a new buyer. In time, its value may grow past its purchase price, but it has to grow by a lot to offset transaction fees.
Perhaps the strongest part of Mr. Hartnett’s thesis is his contention that the yields on real estate investment trusts (REITs) and some infrastructure (think pipelines) now look attractive compared with those on stocks in general. By all means, that is a discrepancy worth exploring. But don’t see it as a reason to load up on real assets in general.
#34
Rennlist Member
I think that is the opposite of what you should do with leverage, leave borrowed cash lying around, specially in an inflationary environment (even with low rates). Better off not using leverage at that point - liquidity can be had with lines of credit etc, vs. expensive equity that has real opportunity cost and option value.
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#35
I couldn’t fathom buying a 200k car and making payments on it. I waited until I had the money set aside and bought it outright because life is short and why not. I love cars and I think the gt3rs .2 is the best drivers car you can buy right now for any price. But not a normal investment. I feel like the stock market is like playing the lotto, loath it actually and I don’t partake. I own 5 healthy business’, buy commercial buildings also for cash typically and use them for my business purposes. Someday I will rent them out when I’m done with them. I started from the ground up and if I have extra cash on hand I invest in my business’ in which I have 100% creative control. I don’t understand financing an outrageous toy car while instead pump cash into other peoples business/ideas of which you have 0 control? For the record I don’t go to the casinos either
Last edited by exit87; 04-10-2021 at 11:38 PM.
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#36
Rennlist Member
I paid $65k in cash and $100k in a low interest loan. We're sitting cash heavier than normal waiting to see how the Biden economy shakes out, so depending on how things go I may let the loan run for a while or just write a check for the balance.
We're 9-5'ers, so our situation may be different from the SMB owners and independently wealthy.
We're 9-5'ers, so our situation may be different from the SMB owners and independently wealthy.
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#37
Burning Brakes
I would fire any financial advisor that only got me 2-3% on investments. You can throw 10 dart at the stock market and likely beat that over 10 years. But yea, 10 years on a car loan, ikes. I go over how long I plan on keeping the car. Fees great paying for 50%+ of your next car with the current car.
#38
I could pay off my mortgage and my car loan but they're at 2 percent and 2.5 percent respectfully. Both are near historic lows in interest rates. If you're expecting inflation due to monetary policy, it would be stupid to pay it off. Since inflation is positive for currently held fixed interest debts.
Last edited by konaforever; 04-12-2021 at 04:11 PM.
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#39
Instructor
If the excess return of $175K over the cost of financing in a 5 year period is that material to you, then maybe you shouldn't be buying a $175K car. I personally prefer to pay cash for toys even though it is sub-optimal economically simply because I like sleeping at night not worrying about the debt load I am carrying.
By the way, I hold a PhD in finance and am the chief investment officer for a private investment firm
By the way, I hold a PhD in finance and am the chief investment officer for a private investment firm
#40
Intermediate
Thread Starter
The purpose of finance is so that you do not have to take money from other business investments. Also you can take the payment as an expense against the business. Premier Financial does not report the loan to credit agencies. The lease will let you purchase the car at any time and at the end. These are not your typical leases.
#41
Intermediate
Thread Starter
Quick update - here are my options
I didn't intend for this to be a why to invest in the stock market or should I pay cash thread.
I didn't intend for this to be a why to invest in the stock market or should I pay cash thread.
- Porsche Financial is 2.99 for 72 months
- Woodside Credit Union does 180 simple interest month loans around 6% depending on a few factors and 20% down
- Premier Financial will structure whatever you want (Lease or Loan) and does not report the loan to credit agencies
- Residual is based on published guides (i can't find them)
#42
every scenario is different. I like to live as close to debt free as possible. I have 3 cars and only allow myself a loan on 1, and thats usually the weekend supercar.
#43
One thing is for sure, you're losing money not investing in this market. I'm willing to invest 50k now to maybe have a brand new GT3RS in 5 years. Either you lose 25-50% if there's a market crash during that time or you come up way ahead with inflation and growth.
#44
Three Wheelin'
check out dcu, my past experience with them have been silky smooth, 1.99%/65mon after direct deposit setup.