What would you do and why? [HELOC to buy used Porsche]

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coffeeblack
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What would you do and why? [HELOC to buy used Porsche]

Post by coffeeblack »

So I am considering purchasing a used Porsche. Value of 150K. I plan on keeping it for 3 years.

A colleague likes to purchase cars such as this by using his home equity.

After doing the math and keeping depreciation the same for a pay cash option vs. a 15 year home equity option where he pays the loan off after he sells the car, the interest paid comes out more for the 15 year equity loan by about 4 to 5 grand. The five year loan option has very high payments but still comes out ahead in interest payments. The payments for the home equity are significantly lower and he gets to tap into his home equity. His investments don't have to be used and he does not have to sell stock and pay taxes on them. So he saves there as well as possibly writing off the mortgage interest. To be clear I didn't have a long conversation of the pro's and cons.

What would you do and why?

OK, I didn't post in here to get judgement statements or personal choice statements. I set specific facts and wanted serious answers. If you don't have constructive comments. Then keep it to yourself. I'm not interested. You are being rude and not helping.
Last edited by coffeeblack on Sat Jun 12, 2021 3:49 pm, edited 1 time in total.
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Raybo
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Re: What would you do and why?

Post by Raybo »

What is the 5 year option? I see a 15 year HELOC or cash.

Where is the cash coming from? What are the associated taxes?

What would I do? Not buy a used Porsche :wink: .
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coffeeblack
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Re: What would you do and why?

Post by coffeeblack »

Raybo wrote: Sat Jun 12, 2021 3:33 pm What is the 5 year option? I see a 15 year HELOC or cash.

Where is the cash coming from? What are the associated taxes?

What would I do? Not buy a used Porsche :wink:
Your answer needs to be based on buying a used porsche. Otherwise why answer.

The 5 year loan option would end up paying less interest than the 15 year heloc.

The cash is coming from selling stock.
7eight9
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Re: What would you do and why?

Post by 7eight9 »

You might want to look into taking out a margin loan. Rates can be very attractive.
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Re: What would you do and why?

Post by 123 »

If an individual can't pay cash for a toy they likely don't deserve the toy.

A HELOC is not deductible if it is not used to "buy, build, or substantially improve". Purchasing a vehicle to place in the driveway or the garage would not be allowed as an "improvement".
Last edited by 123 on Sat Jun 12, 2021 3:53 pm, edited 1 time in total.
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coffeeblack
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Re: What would you do and why?

Post by coffeeblack »

123 wrote: Sat Jun 12, 2021 3:46 pm If an individual can't pay cash for a toy they likely don't deserve the toy.
I can pay cash. Did you read the post? If you don't have a constructive answer, then don't answer. What one deserves was not the question.
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Re: What would you do and why? [HELOC to buy used Porsche]

Post by Gill »

coffeeblack wrote: Sat Jun 12, 2021 3:01 pm
OK, I didn't post in here to get judgement statements or personal choice statements. I set specific facts and wanted serious answers. If you don't have constructive comments. Then keep it to yourself. I'm not interested. You are being rude and not helping.
I was about to give you a serious answer until I read this. Was it really necessary to make such a preemptive strike?
Gill
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Re: What would you do and why? [HELOC to buy used Porsche]

Post by simplextableau »

If you don't actually use cash to make the purchase, you can't really afford the Porsche even though you have the cash available. The HELOC is just an emotional crutch to attempt to optimize a purchase - it makes purchases that ought to be uncomfortable appear comfortable because you don't have to actually part with that much cash at once (gulp!). But if you don't want to spend that much cash all at once on a Porsche, it's a strong sign that you truly can't afford the Porsche. When someone can really afford a luxury item like a Porsche, they drop the cash and don't blink twice or think about a HELOC.

You wouldn't mess around with a HELOC if you were buying a $1000 luxury item because the hassle wouldn't be worth it and any hypothetical savings by keeping the money invested wouldn't be significant. If the hypothetical savings from keeping the funds for the Porsche invested and taking out a HELOC are significant, then it means the Porsche is too expensive for your current level of wealth. Same principle. When you have enough wealth that you can buy the Porsche in cash and the HELOC savings are so insignificant that you wouldn't ever mess with a HELOC, then you can REALLY afford the Porsche.
Last edited by simplextableau on Sat Jun 12, 2021 3:59 pm, edited 2 times in total.
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coffeeblack
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Re: What would you do and why? [HELOC to buy used Porsche]

Post by coffeeblack »

Gill wrote: Sat Jun 12, 2021 3:53 pm
coffeeblack wrote: Sat Jun 12, 2021 3:01 pm
OK, I didn't post in here to get judgement statements or personal choice statements. I set specific facts and wanted serious answers. If you don't have constructive comments. Then keep it to yourself. I'm not interested. You are being rude and not helping.
I was about to give you a serious answer until I read this. Was it really necessary to make such a preemptive strike?
Gill

Yes. The it was not preemptive. It was done due to the two answers before yours.
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Re: What would you do and why? [HELOC to buy used Porsche]

Post by Sandtrap »

An old friend of mine has done this for decades when buying new cars. Using the HELOC.for similar reasons as you.
It has worked well for him though I don’t know the financing details.

For myself, I’ve always paid cash for things so it depends on your overall financial strategy.

Another senior friend just bought a Porche Turbo.
Wow!
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coffeeblack
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Re: What would you do and why? [HELOC to buy used Porsche]

Post by coffeeblack »

Sandtrap wrote: Sat Jun 12, 2021 4:01 pm An old friend of mine has done this for decades when buying new cars. Using the HELOC.for similar reasons as you.
It has worked well for him though I don’t know the financing details.

For myself, I’ve always paid cash for things so it depends on your overall financial strategy.

Another senior friend just bought a Porche Turbo.
Wow!
j🌺
Thank you.
When I heard about this strategy I found it an interesting way to access home equity and not have to sell stock (and extra taxes) to pay for the car. It keep my basic WR lower.
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Re: What would you do and why? [HELOC to buy used Porsche]

Post by Jack FFR1846 »

Get a DCU used car loan at 1.49%

https://www.dcu.org/search-redirects/au ... loans.html

vs a HELOC at 4.49%

https://www.dcu.org/borrow/mortgage-loa ... loans.html

You don't put your house at risk and you pay way less interest. I can't see any reason why anyone would pay an extra 3% for nothing.
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Watty
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Re: What would you do and why? [HELOC to buy used Porsche]

Post by Watty »

I don't know what it would cost for such an expensive car but you can get a normal used car loan at just over 2%

I just looked at one place and a HELOC was just below 4%, and the rate is variable and will go up if(when ?) interest rates go up.

I would not do it.
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Re: What would you do and why? [HELOC to buy used Porsche]

Post by galawdawg »

coffeeblack wrote: Sat Jun 12, 2021 3:01 pm OK, I didn't post in here to get judgement statements or personal choice statements. I set specific facts and wanted serious answers. If you don't have constructive comments. Then keep it to yourself. I'm not interested. You are being rude and not helping.
coffeeblack wrote: Sat Jun 12, 2021 3:50 pm
123 wrote: Sat Jun 12, 2021 3:46 pm If an individual can't pay cash for a toy they likely don't deserve the toy.
I can pay cash. Did you read the post? If you don't have a constructive answer, then don't answer. What one deserves was not the question.
coffeeblack wrote: Sat Jun 12, 2021 4:06 pm When I heard about this strategy I found it an interesting way to access home equity and not have to sell stock (and extra taxes) to pay for the car. It keep my basic WR lower.

It seems like your question is really "sell stock with tax hit or get HELOC for used $150K Porsche." If you don't have free cashflow and either have to sell stock or get a loan, it sounds as though you didn't plan for this purchase. Save enough cash for it and then pay cash. Seriously. And relax. If you don't like a response, just ignore it and move on. 8-)
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Re: What would you do and why? [HELOC to buy used Porsche]

Post by Normchad »

There are different ways to look at it.

The HELOC might be the mathematically optimal way to do it, of the two choices you presented.

For me though, I never want to owe more money for my house. I’ve seen too many people use HELOCS for things, and eventually lose their homes. In essence what they did, was buy a 400K house which they could afford, and slowly but surely turned it into an 800K mortgage which they could barely make the payments on. Then as soon as a hiccup happens in their life, they lose the house, lose the spouse, etc etc.

That’s a mental burden I just don’t want I bear, even though I have enough other assets I could liquidate to cover it if I really had too. I guess what I’m saying is, I would never take out a HELOC for ANY REASON. Other obviously do that though. Not having to worry about where I will live is too valuable to me.

If it were me, I’d take the 5 year loan…..
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Re: What would you do and why? [HELOC to buy used Porsche]

Post by jjunk »

What type of Porsche are you looking at? In the 150K used range I'm assuming you're looking at either a gently used late model 911 or an older GT car. The GT cars hold their value really well so I'd tell you to pick whichever leaves you paying the lowest amount of interest overall. If its anything other than a GT, I'd probably give the same advice but lean towards the HELOC simply because it wont impact your savings rate as much.

Enjoy the car! Porsche's are amazing vehicles.
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Re: What would you do and why? [HELOC to buy used Porsche]

Post by DrDubious »

How can anyone comment on the cost of the “cash” option without knowing the amount of capital gains you would rack up by selling the stock and the tax rate you be paying on it?

Or is that plan not truly under consideration?
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Re: What would you do and why? [HELOC to buy used Porsche]

Post by TheDDC »

What would I do? Because you clearly asked.

If you can “afford it” because you have the money in your savings, then pay for it. There’s a difference. I would pay cash for TOYS such as a $150k (seriously???) Porsche.

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Re: What would you do and why? [HELOC to buy used Porsche]

Post by Tingting1013 »

Jack FFR1846 wrote: Sat Jun 12, 2021 4:11 pm Get a DCU used car loan at 1.49%

https://www.dcu.org/search-redirects/au ... loans.html

vs a HELOC at 4.49%

https://www.dcu.org/borrow/mortgage-loa ... loans.html

You don't put your house at risk and you pay way less interest. I can't see any reason why anyone would pay an extra 3% for nothing.
This is the correct answer.
coffeeblack wrote: Sat Jun 12, 2021 3:01 pm OK, I didn't post in here to get judgement statements or personal choice statements. I set specific facts and wanted serious answers. If you don't have constructive comments. Then keep it to yourself. I'm not interested. You are being rude and not helping.
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Re: What would you do and why? [HELOC to buy used Porsche]

Post by coffeeblack »

jjunk wrote: Sat Jun 12, 2021 6:39 pm What type of Porsche are you looking at? In the 150K used range I'm assuming you're looking at either a gently used late model 911 or an older GT car. The GT cars hold their value really well so I'd tell you to pick whichever leaves you paying the lowest amount of interest overall. If its anything other than a GT, I'd probably give the same advice but lean towards the HELOC simply because it wont impact your savings rate as much.

Enjoy the car! Porsche's are amazing vehicles.
Turbo S. I have found a few in good shape in the 150 range. About 4 to 5 years old in the 15 to 25000 miles range. 3 year old 911 s around 110, C4S around 130 or so.

The biggest issue is I have all this home equity just sitting there. So I feel it's getting wasted. My AA is 50/40 with a 10% cash cushion. So if I don't use the cash I would sell stock and pay for it that way. Cap gains won't be very much but still there. I figured I could carry a small mortgage on the house. Write off the interest and not have to pay the cap gains tax (even though small). I would pay off the home equity loan in 3 years after I sell the car and would make up the depreciation loss with cash.

That would lower my one year withdraw rate. Otherwise the year I do it in would have a high withdraw rate from investments but the other years it would be significantly lower. So I have to do the math to see if those years make up the difference and if making all of this complicated is worth it. That's why I was asking.
Last edited by coffeeblack on Sat Jun 12, 2021 7:53 pm, edited 4 times in total.
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Re: What would you do and why? [HELOC to buy used Porsche]

Post by coffeeblack »

DrDubious wrote: Sat Jun 12, 2021 6:43 pm How can anyone comment on the cost of the “cash” option without knowing the amount of capital gains you would rack up by selling the stock and the tax rate you be paying on it?

Or is that plan not truly under consideration?
15% plus state tax.
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Re: What would you do and why? [HELOC to buy used Porsche]

Post by raisinsaregrapes »

coffeeblack wrote: Sat Jun 12, 2021 7:28 pm
DrDubious wrote: Sat Jun 12, 2021 6:43 pm How can anyone comment on the cost of the “cash” option without knowing the amount of capital gains you would rack up by selling the stock and the tax rate you be paying on it?

Or is that plan not truly under consideration?
15% plus state tax.
Cost Basis 0$?
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Re: What would you do and why? [HELOC to buy used Porsche]

Post by bovineplane »

I it were me, I'd do the HELOC.

24%+ taxes < 4% interest.

The recent revelation of how the wealthy use a method of collateralized loans to avoid taxes points out that fact on a much larger scale.

We own several cars with one nearing 100k value. We also have a Porsche that is worth ~25% more now than when we bought it 10 years ago. When I bought my new vehicle in 2017 I could have paid cash. I took the 1.75% financing. The interest was less than I expected from inflation.

I dont like debt but when debt is cheap, employment is secure, cash flow is good and you have the assets to cover the debt in some cases it makes sense. Only the OP can determine if that is right for them.

Also, what car is it? GT3 RS? Older air cooled turbo?
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Re: What would you do and why? [HELOC to buy used Porsche]

Post by cchrissyy »

I figured I could carry a small mortgage on the house. Write off the interest and not have to pay the cap gains tax (even though small).
You can't write off HELOC interest if you use it for a consumer purchase like a car.
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Re: What would you do and why? [HELOC to buy used Porsche]

Post by Longdog »

coffeeblack wrote: Sat Jun 12, 2021 7:28 pm
jjunk wrote: Sat Jun 12, 2021 6:39 pm What type of Porsche are you looking at? In the 150K used range I'm assuming you're looking at either a gently used late model 911 or an older GT car. The GT cars hold their value really well so I'd tell you to pick whichever leaves you paying the lowest amount of interest overall. If its anything other than a GT, I'd probably give the same advice but lean towards the HELOC simply because it wont impact your savings rate as much.

Enjoy the car! Porsche's are amazing vehicles.
The biggest issue is I have all this home equity just sitting there. So I feel it's getting wasted. My AA is 50/40 with a 10% cash cushion. So if I don't use the cash I would sell stock and pay for it that way. Cap gains won't be very much but still there. I figured I could carry a small mortgage on the house. Write off the interest and not have to pay the cap gains tax (even though small). I would pay off the home equity loan in 3 years after I sell the car and would make up the depreciation loss with cash.
Interest on home equity debt is only tax-deductible if you use the funds to "buy, build, or substantially improve" the home on which the equity is the source of the loan.
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Re: What would you do and why? [HELOC to buy used Porsche]

Post by Xrayman69 »

Depends if the market goes up or down over the duration of the Heloc and the delta compared to the total interest during this period. I think I recall you stating that the terms for the Heloc would, be 15 years ( or I’ll assume)

Selling stocks at 0 capital gains tax and paying 150K cash vs Heloc saves you the interest but now out of the market by 150k. You would have to take the saved payments of not taking the Heloc and essentially DCA vs lump sum of keeping it in the market.

I personally feel comfortable that the market will be higher in 15 years from now.

Similar but not similar to OP we spent 150K cash over the past 24 months (before and during the pandemic) updating our home. We didn’t think about taking a Heloc or cash out refinance (just didn’t think of it, not because of any philosophical perspective about having a mortgage vs not having a mortgage).

We are very comfortable in this stage of our life and I’m also looking at getting a Porsche 911 Turbo or GTS (lightly used). I prefer to not sell equities and get hit with capital gains. Over the past 5-7 years we had made a concerted effort to minimize cash reserve and put most in taxable accounts. Keeping only about 2 years of expenses cash reserve on hand (spouse mandates this amount). We will likely tap into the equity of the home as well. Our home will never be sold as the capital gains would be too heavy to accept. We will plan on the kid to benefit from step up basis and sale upon our departure as opposed to excessive cash inheritance.

In short OP I’m comfortable with the concept you proposed. You sound more comfortable in having a small mortgage vs potential opportunity cost losses in exiting the market with the 150K
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Re: What would you do and why? [HELOC to buy used Porsche]

Post by Picasso »

Gill wrote: Sat Jun 12, 2021 3:53 pm
coffeeblack wrote: Sat Jun 12, 2021 3:01 pm
OK, I didn't post in here to get judgement statements or personal choice statements. I set specific facts and wanted serious answers. If you don't have constructive comments. Then keep it to yourself. I'm not interested. You are being rude and not helping.
I was about to give you a serious answer until I read this. Was it really necessary to make such a preemptive strike?
Gill
Agree
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Re: What would you do and why? [HELOC to buy used Porsche]

Post by Grifin »

I have been scheming a plan to buy a mid-sixties Corvette. Aside from paying cash, I am contemplating taking out a line of credit on my after-tax equities at E*TRADE. I previously set up a LOC to cover a down payment on a house before I sold the existing home. I was amazed how low the rates are, in my case ~2%. Way better than a HELOC. Also with the Equities LOC, you can choose to only pay interest indefinitely.

It’s an option. Not sure if it’s best for me but….
Last edited by Grifin on Sat Jun 12, 2021 9:18 pm, edited 1 time in total.
Tingting1013
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Re: What would you do and why? [HELOC to buy used Porsche]

Post by Tingting1013 »

If the Porsche depreciates so little, do you really save much money by buying lightly used vs new? Especially in this market?
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Re: What would you do and why? [HELOC to buy used Porsche]

Post by Freetime76 »

Picasso wrote: Sat Jun 12, 2021 8:28 pm
Gill wrote: Sat Jun 12, 2021 3:53 pm
coffeeblack wrote: Sat Jun 12, 2021 3:01 pm
OK, I didn't post in here to get judgement statements or personal choice statements. I set specific facts and wanted serious answers. If you don't have constructive comments. Then keep it to yourself. I'm not interested. You are being rude and not helping.
I was about to give you a serious answer until I read this. Was it really necessary to make such a preemptive strike?
Gill
Agree

To me, this is playing with money instead of enjoying it (either the money or the car). We’d just pay for it, for the simplicity. I say this because: You sound stressed - are you sure you’re excited and joyful about getting this sweet machine that will purr down the highway with you in it?

One of the wonders things about this forum is the diversity of knowledge (information coupled with experience) and ideas from different walks of life. It’s unhelpful in a constructive discussion to quash ideas that one does not want to hear. Often, those are he very best ideas.
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Re: What would you do and why? [HELOC to buy used Porsche]

Post by JackoC »

coffeeblack wrote: Sat Jun 12, 2021 7:28 pm
jjunk wrote: Sat Jun 12, 2021 6:39 pm What type of Porsche are you looking at? In the 150K used range I'm assuming you're looking at either a gently used late model 911 or an older GT car. The GT cars hold their value really well so I'd tell you to pick whichever leaves you paying the lowest amount of interest overall. If its anything other than a GT, I'd probably give the same advice but lean towards the HELOC simply because it wont impact your savings rate as much.

Enjoy the car! Porsche's are amazing vehicles.
Turbo S. I have found a few in good shape in the 150 range. About 4 to 5 years old in the 15 to 25000 miles range. 3 year old 911 s around 110, C4S around 130 or so.

The biggest issue is I have all this home equity just sitting there.
But the equity you have in the Porsche after buying it would just be sitting there. By which I refer back to Jack FFR1846's post which was IMO most on point. If you might borrow to buy the car, first determine how to get the lowest rate:
-offer your house as collateral (HELOC)
-offer the Porsche as collateral (used car loan)
-offer your stocks as collateral (margin loan)

Best margin loan rates (Interactive Brokers usually far lower than any other retail-oriented broker) are comparable to what Jack linked for used car loan, so you'd have to study that more carefully but either is very likely to beat a HELOC rate by a wide margin. The interest on any of the three isn't deductible in a straight forward transaction of simply borrowing the money and buying the car*. The ability of a margin lender to ask for additional collateral if the collateral value goes down (stock values drop), which car lenders can't do, would probably make the car loan the preferred choice if the rates are similar, unless $150k is a quite small % of your taxable stock portfolio in which case margin calls are very unlikely.

*a margin loan might be made effectively deductible by selling assets for cash, then replacing the positions with assets purchased on margin: the margin loan generally has to be used to buy taxable assets for the interest to be deductible, and there are some other limitations. But that's back to the problem of recognizing unrealized gains as with a straight forward sell stocks (and reduce your stock position)/pay cash approach.
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Re: What would you do and why? [HELOC to buy used Porsche]

Post by Random Musings »

What interests me most about this thread is why the three year timeframe to hold the car - is the plan to continue rolling into various cars over future periods?

I would look into Interactive Brokers, as already suggested, as a potential option.

RM
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Re: What would you do and why? [HELOC to buy used Porsche]

Post by Northern Flicker »

coffeeblack wrote: Sat Jun 12, 2021 3:01 pm
What would you do and why?

OK, I didn't post in here to get judgement statements or personal choice statements. I set specific facts and wanted serious answers. If you don't have constructive comments. Then keep it to yourself. I'm not interested. You are being rude and not helping.
Sometimes you get what you pay for. The forum is described as:

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You could hire someone to do the analysis for you. Then you could direct them to do the analysis of your choice.
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Re: What would you do and why? [HELOC to buy used Porsche]

Post by jmw »

This is a constructive response because the transaction is a terrible idea. Almost all of the scenarios eventually lead to a lien on your house if you default. You don't have to like the answer. If you really can pay cash, then pay cash. If you have to pay taxes to get the car, it sounds like you can't afford this toy.

1) I don't buy the argument that this particular Porsche is or will remain to be a non-depreciating asset. It's also got operational expenses that are probably far higher than your typical car. So I'm not willing to treat this vehicle as an investment like you claim it is.

2) ANY form of borrowing has a good chance of eventually resulting in a lien on your house if you default. It doesn't have to be a HELOC.

If you use an auto loan, the repo man will get your car. The lender will auction the car for far less than what it's worth. Then you will be sued by the lender for the deficiency.

When you get a default judgment and don't pay, the lender will put a judgment lien on the house which will make it much harder to sell or refinance your house at a time when you are in desperate need of funds.

The margin loan could lead to the same result when the brokerage closes out your position against your will in a down market. It would be sad if your brokerage account is negative and you still have a judgment lien on your house.

We weren't talking about credit cards as a possible scenario, but credit cards can lead to a lien on the house too.

Just pay cash.
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Re: What would you do and why? [HELOC to buy used Porsche]

Post by Tingting1013 »

jmw wrote: Sat Jun 12, 2021 11:12 pm 2) ANY form of borrowing has a good chance of eventually resulting in a lien on your house if you default. It doesn't have to be a HELOC.

If you use an auto loan, the repo man will get your car. The lender will auction the car for far less than what it's worth. Then you will be sued by the lender for the deficiency.

When you get a default judgment and don't pay, the lender will put a judgment lien on the house which will make it much harder to sell or refinance your house at a time when you are in desperate need of funds.

The margin loan could lead to the same result when the brokerage closes out your position against your will in a down market. It would be sad if your brokerage account is negative and you still have a judgment lien on your house.

We weren't talking about credit cards as a possible scenario, but credit cards can lead to a lien on the house too.
This depends on state law. In CA, the first $600k of home equity is protected from unsecured creditors.
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Re: What would you do and why? [HELOC to buy used Porsche]

Post by desconhecido »

coffeeblack wrote: Sat Jun 12, 2021 7:28 pm
jjunk wrote: Sat Jun 12, 2021 6:39 pm What type of Porsche are you looking at? In the 150K used range I'm assuming you're looking at either a gently used late model 911 or an older GT car. The GT cars hold their value really well so I'd tell you to pick whichever leaves you paying the lowest amount of interest overall. If its anything other than a GT, I'd probably give the same advice but lean towards the HELOC simply because it wont impact your savings rate as much.

Enjoy the car! Porsche's are amazing vehicles.
. . . My AA is 50/40 with a 10% cash cushion. . . .
Let's see if I can get through this without being mischaracterized as being rude.

If you have 40% of your portfolio in bonds and 10% in cash, you might have $150k in low yielding stuff. Certainly, the cash is a low yield investment. Why don't you borrow from yourself? That is, pay for the Porsche from the cash and from liquidating very low yield "fixed income?" Treat it like a loan -- setup auto investment that would match the payment you would have to make on the HELOC. Run the numbers and see if you come out better by borrowing from yourself or from a professioinal lender. Clue: (please forgive me if you perceive my response as "rude") people who loan you money don't do so out of charity. They do so because it contributes to making them rich.

You asked "What would you do and why?" If I couldn't accept the additional risk I would incur by selling some low yielding bonds and using some non-yielding cash, I would find the risk of buying a $150k toy by putting my house up as collateral as unacceptable.
squirm
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Re: What would you do and why? [HELOC to buy used Porsche]

Post by squirm »

I remember lots of people throwing their SUV, Hummers and other toys onto a home equity loan over a dozen years ago, but then they got wiped out in the bear.
LeftCoastIV
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Re: What would you do and why? [HELOC to buy used Porsche]

Post by LeftCoastIV »

desconhecido wrote: Sat Jun 12, 2021 11:41 pm
coffeeblack wrote: Sat Jun 12, 2021 7:28 pm
jjunk wrote: Sat Jun 12, 2021 6:39 pm What type of Porsche are you looking at? In the 150K used range I'm assuming you're looking at either a gently used late model 911 or an older GT car. The GT cars hold their value really well so I'd tell you to pick whichever leaves you paying the lowest amount of interest overall. If its anything other than a GT, I'd probably give the same advice but lean towards the HELOC simply because it wont impact your savings rate as much.

Enjoy the car! Porsche's are amazing vehicles.
. . . My AA is 50/40 with a 10% cash cushion. . . .
If you have 40% of your portfolio in bonds and 10% in cash, you might have $150k in low yielding stuff. Certainly, the cash is a low yield investment. Why don't you borrow from yourself? That is, pay for the Porsche from the cash and from liquidating very low yield "fixed income?" Treat it like a loan -- setup auto investment that would match the payment you would have to make on the HELOC. Run the numbers and see if you come out better by borrowing from yourself or from a professioinal lender. Clue: (please forgive me if you perceive my response as "rude") people who loan you money don't do so out of charity. They do so because it contributes to making them rich.
This seems like a reasonable approach. It’s not like fixed income is earning much anyway right now.
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dziuniek
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Re: What would you do and why? [HELOC to buy used Porsche]

Post by dziuniek »

Margin Loan at m1 finance plus is currently 2%.

If your stocks are in taxable and you can transfer enough to get a big enough loan.... maybe that's one way.

I don't think you can deduct the heloc interest anymore either. (Post TCJA?) - subject to check.

- But you can still deduct margin interest. (assuming you itemize)
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Re: What would you do and why? [HELOC to buy used Porsche]

Post by Wellfleet »

squirm wrote: Sat Jun 12, 2021 11:55 pm I remember lots of people throwing their SUV, Hummers and other toys onto a home equity loan over a dozen years ago, but then they got wiped out in the bear.
This time is different (Tm.) I’d do JackFFRs approach with a car loan. I know someone who did the HELOC approach and I think it was pre-2017 tax law change. Now it makes less sense. The colleague may or may not be aware of that change.
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Re: What would you do and why? [HELOC to buy used Porsche]

Post by whodidntante »

I will tell you what I did when faced with a similar situation. When I bought my current vehicle I used a cheap car loan at 1.89% for 5 years from a local credit union. I had the ability to write the check many times over but like you, I did not want to realize capital gains.

The only issue with a HELOC is it is too expensive. I would use a car loan or a margin loan at IB.

Some people get emotional about debt but it does not seem you have that issue. So do what is best for you.
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Re: What would you do and why? [HELOC to buy used Porsche]

Post by BruDude »

Porsche guy here. Is this for something like a GT3 that will hold its value incredibly well or something like a 991 turbo or 992 that will still have another $50-70k of future depreciation? I think that makes a huge difference.

I’ve owned 4 911’s, a 997.2S, two 991.1S and a 991.1 GT3. I made pretty good money on all of them except the GT3 which I bought for $101k and sold a little over a year later for $100k (probably worth $115k in current market). To say the least, I have been incredibly happy with being able to drive these cars for literally no money. If you know what you are doing, it is very possible to drive a $150k 911 for free, close to it, or make a profit. Do A LOT of research. Know the market and the desirable options and color combos. Rennlist is your friend if you aren’t on it already.

Having said all of that, I just did exactly what you described and bought my favorite “obtainable” car of all time, a Ferrari FF. My bank gave me 1.99% interest only HELOC for the first year then 3.49% variable after that. Purchase price $108k. Interest cost = $179/month in year 1, $314/month year 2+ (less if I pay down the principal). These cars are going back up in value and as one of the last NA V12’s are unlikely to ever fall below $90-100k regardless of mileage.

Is the car expensive to service and repair? Absolutely. Is it worth it to me anyway? Absolutely. Every single drive is an experience and the sound with an aftermarket exhaust is just unbelievable. To me, the cost of admission is worth every single penny.

My LTV is under 40% and I’m single with no kids so I have no worries about a market downtown. This is my fun money and the HELOC was by far the cheapest way to utilize it. I could pay cash but why do that when I can keep my money in the market earning way more than 1.99% or 3.49%?

I expect the car to be worth somewhere between $100-125k by the time I’m ready to sell it. When I sell I will eat the difference between the loan balance and sale price if it’s worth less and I haven’t paid down the principal yet. Another reason the HELOC offers more flexibility is you’ll have the title in hand. Buyers of cars in this price range expect you to have the title, not a lien from a bank that you’d have with a traditional auto loan.

Most BH people are not “car people” and don’t get it. That’s fine. I get it and know where you’re coming from. If the interest rate is attractive and you have the cash I think a HELOC offers you the most flexibility. You can always refi into a regular car loan if you need to.
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coffeeblack
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Re: What would you do and why? [HELOC to buy used Porsche]

Post by coffeeblack »

BruDude wrote: Sun Jun 13, 2021 7:26 pm Porsche guy here. Is this for something like a GT3 that will hold its value incredibly well or something like a 991 turbo or 992 that will still have another $50-70k of future depreciation? I think that makes a huge difference.

I’ve owned 4 911’s, a 997.2S, two 991.1S and a 991.1 GT3. I made pretty good money on all of them except the GT3 which I bought for $101k and sold a little over a year later for $100k (probably worth $115k in current market). To say the least, I have been incredibly happy with being able to drive these cars for literally no money. If you know what you are doing, it is very possible to drive a $150k 911 for free, close to it, or make a profit. Do A LOT of research. Know the market and the desirable options and color combos. Rennlist is your friend if you aren’t on it already.

Having said all of that, I just did exactly what you described and bought my favorite “obtainable” car of all time, a Ferrari FF. My bank gave me 1.99% interest only HELOC for the first year then 3.49% variable after that. Purchase price $108k. Interest cost = $179/month in year 1, $314/month year 2+ (less if I pay down the principal). These cars are going back up in value and as one of the last NA V12’s are unlikely to ever fall below $90-100k regardless of mileage.

Is the car expensive to service and repair? Absolutely. Is it worth it to me anyway? Absolutely. Every single drive is an experience and the sound with an aftermarket exhaust is just unbelievable. To me, the cost of admission is worth every single penny.

My LTV is under 40% and I’m single with no kids so I have no worries about a market downtown. This is my fun money and the HELOC was by far the cheapest way to utilize it. I could pay cash but why do that when I can keep my money in the market earning way more than 1.99% or 3.49%?

I expect the car to be worth somewhere between $100-125k by the time I’m ready to sell it. When I sell I will eat the difference between the loan balance and sale price if it’s worth less and I haven’t paid down the principal yet. Another reason the HELOC offers more flexibility is you’ll have the title in hand. Buyers of cars in this price range expect you to have the title, not a lien from a bank that you’d have with a traditional auto loan.

Most BH people are not “car people” and don’t get it. That’s fine. I get it and know where you’re coming from. If the interest rate is attractive and you have the cash I think a HELOC offers you the most flexibility. You can always refi into a regular car loan if you need to.
Thanks for the post. I was thinking a turbo S but it seems they depreciate too much. I will have to research a GT3. Or perhaps a 911 S or 4S. I was thinking a 2016 or so.

I have all this equity sitting in my house doing nothing so when my colleague said thats what he does I thought I'd see if there is something to it.
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Re: What would you do and why? [HELOC to buy used Porsche]

Post by BruDude »

coffeeblack wrote: Sun Jun 13, 2021 8:48 pm
Thanks for the post. I was thinking a turbo S but it seems they depreciate too much. I will have to research a GT3. Or perhaps a 911 S or 4S. I was thinking a 2016 or so.

I have all this equity sitting in my house doing nothing so when my colleague said thats what he does I thought I'd see if there is something to it.
The turbo S is an incredible car but will definitely depreciate much more than a GT car. Have you driven any/all of them? An S/4S, GT3, and turbo S are all VERY different cars despite all being 911s. I would very highly recommend going to LA or Atlanta to the Porsche experience center for a couple of cars to really get a feel for them. Costs $500-1000 per car but a very cool experience that you won’t find anywhere else.

The GT3 is one of the best cars I’ve ever driven, but it’s not for everyone and not as usable daily as a turbo S would be. Hell of a lot of fun. A big selling point for a 991.1 GT3 is they all have a 10 year 120k mile engine warranty. A turbo S in your price range will be out of warranty unless you buy CPO from a dealer.
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coffeeblack
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Re: What would you do and why? [HELOC to buy used Porsche]

Post by coffeeblack »

BruDude wrote: Sun Jun 13, 2021 9:06 pm
coffeeblack wrote: Sun Jun 13, 2021 8:48 pm
Thanks for the post. I was thinking a turbo S but it seems they depreciate too much. I will have to research a GT3. Or perhaps a 911 S or 4S. I was thinking a 2016 or so.

I have all this equity sitting in my house doing nothing so when my colleague said thats what he does I thought I'd see if there is something to it.
The turbo S is an incredible car but will definitely depreciate much more than a GT car. Have you driven any/all of them? An S/4S, GT3, and turbo S are all VERY different cars despite all being 911s. I would very highly recommend going to LA or Atlanta to the Porsche experience center for a couple of cars to really get a feel for them. Costs $500-1000 per car but a very cool experience that you won’t find anywhere else.

The GT3 is one of the best cars I’ve ever driven, but it’s not for everyone and not as usable daily as a turbo S would be. Hell of a lot of fun. A big selling point for a 991.1 GT3 is they all have a 10 year 120k mile engine warranty. A turbo S in your price range will be out of warranty unless you buy CPO from a dealer.
Perhaps a CPO 911 s. I would want to drive it. I will not be my daily driver but I would still want to drive it on a regular basis. It would be significantly less money. But do 911's hold their value well?
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Re: What would you do and why? [HELOC to buy used Porsche]

Post by HyperCat »

BruDude wrote: Sun Jun 13, 2021 7:26 pm Most BH people are not “car people” and don’t get it.
I'd say that's a mischaracterization. My impression is there are a lot of car people here (including myself). However, someone who purely appreciates cars and their driving experience can be happy with a $5-10k car. All that the extra $140k buys is performance that can't be practically used and the status symbol of a rare badge. It shouldn't be surprising that most Bogleheads would say to avoid that ego trap, buy a Miata/944/MGB/350Z instead, and invest the remainder.
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Re: What would you do and why? [HELOC to buy used Porsche]

Post by BruDude »

coffeeblack wrote: Sun Jun 13, 2021 9:32 pm
Perhaps a CPO 911 s. I would want to drive it. I will not be my daily driver but I would still want to drive it on a regular basis. It would be significantly less money. But do 911's hold their value well?
You should definitely get some seat time in the different models before making a decision, they all drive very differently. All 911's hold their value well after the initial depreciation hit, but the Turbo and Turbo S have the biggest depreciation in terms of total dollars since they are the highest priced (aside from limited/special edition cars). GTS models tend to hold their value the best for the "regular" cars outside of the GT3/GT3RS/GT2RS/etc category.

I bought two 991.1 S and sold one for $25k more than I paid (Carmax way underpriced it) and one for $8k more than I paid after driving it for two years and putting 8k miles on it. You really need to know the ins and outs of the market and what to look for to maximize resale though. Read everything there is to read on Rennlist for the models you're interested in, you will gain a lot of valuable info.

997's are going for $10-40k more than they were a few years ago, especially the GTS with manual transmission which has seen some crazy price appreciation in the current market. You could get one with low miles a couple years ago for $65k and now they are like $90k minimum and some have sold for $110-130k recently. 991 prices have mostly stayed the same for the last few years. 992's are selling for over sticker since they have had very limited production so far.
HyperCat wrote: Sun Jun 13, 2021 10:00 pm
BruDude wrote: Sun Jun 13, 2021 7:26 pm Most BH people are not “car people” and don’t get it.
I'd say that's a mischaracterization. My impression is there are a lot of car people here (including myself). However, someone who purely appreciates cars and their driving experience can be happy with a $5-10k car. All that the extra $140k buys is performance that can't be practically used and the status symbol of a rare badge. It shouldn't be surprising that most Bogleheads would say to avoid that ego trap, buy a Miata/944/MGB/350Z instead, and invest the remainder.
There are a few enthusiasts here but the vast majority are in the "I can't understand why anyone would pay that much for a car" camp because they just see it as a way to get from point A to point B. A Miata or 350Z will never give you the experience that a 911 will. I can't speak for others but the feel of the car and how it drives is worlds away from any of those cars you mentioned, has nothing to do with being a status symbol. IMO it is by far the best combination of luxury and driving experience short of the exotics and definitely a step above Audi/Mercedes/BMW. There is no substitute. :sharebeer
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Re: What would you do and why? [HELOC to buy used Porsche]

Post by sureshoe »

Depending on your age and how much equity we're talking, if you really want your hands on this money, I would do a straight up cash out refi and lock in these interest rates long term.
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Re: What would you do and why? [HELOC to buy used Porsche]

Post by jhsu802701 »

If you have to get a home equity loan to buy a used Porsche, that means you cannot afford one.

Nobody needs a Porsche. This is a hobby car, not a daily driver. Parts are difficult to come by, and only a few mechanics know their way around a Porsche. Thus, the maintenance and repairs will be prohibitively expensive even if all goes well. If there are problems, that's quite a money pit. If you thought that maintenance and repairs were expensive on your Honda, Toyota, Ford, or Chevrolet, they will be several times more expensive on the Porsche.

If you really want a hobby car, get a Japanese or American brand car. Parts will be MUCH easier and cheaper to obtain, and you can easily find mechanics who can work on your car. If your car turns out to be a lemon, at least it will waste FAR less of your money.
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Re: What would you do and why? [HELOC to buy used Porsche]

Post by alfaspider »

jhsu802701 wrote: Mon Jun 14, 2021 12:25 pm If you have to get a home equity loan to buy a used Porsche, that means you cannot afford one.

Nobody needs a Porsche. This is a hobby car, not a daily driver. Parts are difficult to come by, and only a few mechanics know their way around a Porsche. Thus, the maintenance and repairs will be prohibitively expensive even if all goes well. If there are problems, that's quite a money pit. If you thought that maintenance and repairs were expensive on your Honda, Toyota, Ford, or Chevrolet, they will be several times more expensive on the Porsche.

If you really want a hobby car, get a Japanese or American brand car. Parts will be MUCH easier and cheaper to obtain, and you can easily find mechanics who can work on your car. If your car turns out to be a lemon, at least it will waste FAR less of your money.
It's not 1965 anymore. Any major city will have multiple independent Porsche specialists, and parts are available from all manner of online retailer. Only exception would be something crazy rare like a 959, which is not available in OP's price range anyways.
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