biophase
Legendary Contributor
FASTLANE INSIDER
EPIC CONTRIBUTOR
Read Unscripted!
Summit Attendee
Speedway Pass
I just bought an R8 last month and I actually got a loan to pay for the car. Yes, blasphemy! Getting a loan for a car? I guess that means you could not afford it!
Well, I did the math and here is why I got a loan.
In 2011 I paid cash for a Ferrari 360. Looking back, I wish I had gotten a loan instead. You see, back in 2011 I was debating between purchasing an investment property or getting my dream car. Ultimately, the dream car won. But in hindsight, this is what I wished I had done.
I wished I would have bought the property cash and taken out a loan on the car
In 2011, we were in a real estate downturn and properties were selling at very low prices. The condo that I had my eye on was an $80,000 short sale that required all cash to buy. In fact, there were 3 of these condos available. The Ferrari was also $80,000.
If I purchased the condo for cash, it would have cashflowed $500/mo. If I would have gotten a $80,000 car loan, my car payments would have been $1500/mo. So the whole thing together would have been -$1000/mo. Obviously, if I couldn't swing that, I have no business buying a Ferrari.
In 2013 I sold my Ferrari for $65,000. So it cost me $15,000 in 2 years. My car's net for this period was -$15,000. (I have left out maintenance, insurance, etc... because they are irrelevant. It would have been the same if I went with a loan or paid cash)
If I would have bought the condo and the Ferrari, this is how 2013 would have ended up.
The Ferrari would have cost:
$15,000 (sales price difference)
$36,000 in payments
-$30,000 in loan pay down
----------------
$21,000 in total costs
The condo would have produced:
$12,000 total cash flow
$35,000 in appreciation
----------------
$47,000 in income
In this scenario, I would have made $26,000 and had a Ferrari for 2 years! But instead, I was -$15,000 after 2 years. Ok, but what if the condo does not appreciate? Then I would be at -$9,000 after 2 years. I still would have been ahead.
Earlier this year I had the same nagging decision, R8 or condo
This time I went ahead and did both. Let's look at R8 numbers.
I actually bought one of the same condos that I was looking at in 2011, but I paid $122,000 for it. It has been rented out at $900/mo, cashflowing $600/mo. I put down $20,000 and got a $60,000 loan on my R8 at 3.3%. I have paid $142,000 out of pocket.
My return on the condo is 5.9% and my interest rate is 3.34%.
So if I keep my R8 for 2 years this is what the numbers would end up as:
$X (sales price difference)
$26,000 in payments
-$22,800 in loan pay down
----------------
$3,200 + X in total costs
The condo would have gained:
$14,400 total cash flow
$0 in appreciation
----------------
$14,400 in income
$3,200 + X = $14,400
X = $11,200
This means that if I can sell the R8 in two years for $68,800 I would have broken even assuming no appreciation in the condo. Hooray for car loans!
Well, I did the math and here is why I got a loan.
In 2011 I paid cash for a Ferrari 360. Looking back, I wish I had gotten a loan instead. You see, back in 2011 I was debating between purchasing an investment property or getting my dream car. Ultimately, the dream car won. But in hindsight, this is what I wished I had done.
I wished I would have bought the property cash and taken out a loan on the car
In 2011, we were in a real estate downturn and properties were selling at very low prices. The condo that I had my eye on was an $80,000 short sale that required all cash to buy. In fact, there were 3 of these condos available. The Ferrari was also $80,000.
If I purchased the condo for cash, it would have cashflowed $500/mo. If I would have gotten a $80,000 car loan, my car payments would have been $1500/mo. So the whole thing together would have been -$1000/mo. Obviously, if I couldn't swing that, I have no business buying a Ferrari.
In 2013 I sold my Ferrari for $65,000. So it cost me $15,000 in 2 years. My car's net for this period was -$15,000. (I have left out maintenance, insurance, etc... because they are irrelevant. It would have been the same if I went with a loan or paid cash)
If I would have bought the condo and the Ferrari, this is how 2013 would have ended up.
The Ferrari would have cost:
$15,000 (sales price difference)
$36,000 in payments
-$30,000 in loan pay down
----------------
$21,000 in total costs
The condo would have produced:
$12,000 total cash flow
$35,000 in appreciation
----------------
$47,000 in income
In this scenario, I would have made $26,000 and had a Ferrari for 2 years! But instead, I was -$15,000 after 2 years. Ok, but what if the condo does not appreciate? Then I would be at -$9,000 after 2 years. I still would have been ahead.
Earlier this year I had the same nagging decision, R8 or condo
This time I went ahead and did both. Let's look at R8 numbers.
I actually bought one of the same condos that I was looking at in 2011, but I paid $122,000 for it. It has been rented out at $900/mo, cashflowing $600/mo. I put down $20,000 and got a $60,000 loan on my R8 at 3.3%. I have paid $142,000 out of pocket.
My return on the condo is 5.9% and my interest rate is 3.34%.
So if I keep my R8 for 2 years this is what the numbers would end up as:
$X (sales price difference)
$26,000 in payments
-$22,800 in loan pay down
----------------
$3,200 + X in total costs
The condo would have gained:
$14,400 total cash flow
$0 in appreciation
----------------
$14,400 in income
$3,200 + X = $14,400
X = $11,200
This means that if I can sell the R8 in two years for $68,800 I would have broken even assuming no appreciation in the condo. Hooray for car loans!
Dislike ads? Remove them and support the forum:
Subscribe to Fastlane Insiders.
Last edited: