Exotic Car Financing

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HardHitter
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Joined: Wed Jan 08, 2014 11:41 pm

Exotic Car Financing

Post by HardHitter » Thu Oct 25, 2018 7:47 am

My hobby is cars and I enjoy buying toys to play with for a few years and move to the next. As we know, cars are depreciating assets (majority of the time) so when I buy my toys, I am buying cars that have or are close to bottoming out on their depreciation curvve.

With that said, I typically buy cash but exploring potentially financing my next purchase to keep money invested. My math below is telling me that I can enjoy my next toy car for 3 years @ $53K. Obviously this is just cost of car and doesn't include cost of insurance/maintenance/etc, but I'm trying to make it simple. Does the logic below make sense?

Car
- Estimated Car Cost: $150K
- Estimated Tax/Fees: $15K (10%)
- Total Cost: $165K

Loan
- Estimated Down Payment: $65K
- Loan Amount: $100K
- Interest 3.99%
- Term: 60 months
- Monthly Payment: $1,841
- Total Loan Cost: $110,460
- Interest Paid: $10,460

3 Year Ownership Cost
- Downpayment: -$65K
- 3 years of loan payments: -$66K ($1.8K*36months)
- Remaining Loan Amount: -$42K
- Anticipated Sale of Car after Depreciation: $130K

Total Cost of Ownership: $43K
Last edited by HardHitter on Thu Oct 25, 2018 9:18 am, edited 1 time in total.

bh7785
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Re: Exotic Car Financing

Post by bh7785 » Thu Oct 25, 2018 7:51 am

I'd venture a guess that you are underestimating the depreciation, but without knowing the car and mileage it is really hard to say. Seems like you've got it all thought out, so why not just go for it if that's what you want to do?

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djpeteski
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Re: Exotic Car Financing

Post by djpeteski » Thu Oct 25, 2018 8:00 am

You are cool with a 1800/month car payment? That would totally freak me out and our household income is pretty darn high. Heck, I had a bit of a pucker factor when my mortgage was that high.

tim1999
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Re: Exotic Car Financing

Post by tim1999 » Thu Oct 25, 2018 8:04 am

What's your annual income and the total of your other non-car expenses?

HardHitter
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Re: Exotic Car Financing

Post by HardHitter » Thu Oct 25, 2018 8:14 am

bh7785 wrote:
Thu Oct 25, 2018 7:51 am
I'd venture a guess that you are underestimating the depreciation, but without knowing the car and mileage it is really hard to say. Seems like you've got it all thought out, so why not just go for it if that's what you want to do?
If I was buying a brand new car, then yes, depreciation hit would be significant, but I'm buying cars that I've analyzed to be at the bottom of the depreciation curve or close to it, so majority of the time I actually profit off ownership (when I say "profit" I mean that I can sell the car for more than what I bought it for, not overall cost of ownership (maintenance/gas/insurance/etc.) For example, this last toy sold for exactly what I bought it for so I got to enjoy it for 1.5 years without taking a depreciation hit.

HardHitter
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Re: Exotic Car Financing

Post by HardHitter » Thu Oct 25, 2018 8:18 am

djpeteski wrote:
Thu Oct 25, 2018 8:00 am
You are cool with a 1800/month car payment? That would totally freak me out and our household income is pretty darn high. Heck, I had a bit of a pucker factor when my mortgage was that high.
We save about $7-8K/mo after retirement and expenses have been funded. Spending $1.8K for a toy is a significant amount, but if times get tough, I sell the toy to get rid of the payment.

onourway
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Re: Exotic Car Financing

Post by onourway » Thu Oct 25, 2018 8:26 am

HardHitter wrote:
Thu Oct 25, 2018 8:18 am
djpeteski wrote:
Thu Oct 25, 2018 8:00 am
You are cool with a 1800/month car payment? That would totally freak me out and our household income is pretty darn high. Heck, I had a bit of a pucker factor when my mortgage was that high.
We save about $7-8K/mo after retirement and expenses have been funded. Spending $1.8K for a toy is a significant amount, but if times get tough, I sell the toy to get rid of the payment.
In that case why not save for a short period of time and pay for the vehicle in cash rather than forking over 5-digits worth of interest payments every 3 years?

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JupiterJones
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Location: Nashville, TN

Re: Exotic Car Financing

Post by JupiterJones » Thu Oct 25, 2018 8:38 am

onourway wrote:
Thu Oct 25, 2018 8:26 am
In that case why not save for a short period of time and pay for the vehicle in cash rather than forking over 5-digits worth of interest payments every 3 years?
This ^^^

I would never borrow money to buy an optional luxury item. Pay cash for toys... and if you don't have the cash, don't get the toy.

Oh, but what if you do have the money but think you can earn more by keeping it invested than you'd pay in interest on your toy loan? Well then may I present Jupe's rule of getting fancy-pants with loans:

If the amount of money you think you'd "make" by keeping your money in a comparatively low-risk investment while you borrow to buy your toy is enough to be actually worth the trouble for you, then you're buying too much toy.
Stay on target...

LarryAllen
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Re: Exotic Car Financing

Post by LarryAllen » Thu Oct 25, 2018 8:46 am

HardHitter wrote:
Thu Oct 25, 2018 7:47 am
Does the logic below make sense?
There is little "sense" in this type of purchase. It can work out but it's more "luck" than "sense" in my opinion.

smitcat
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Re: Exotic Car Financing

Post by smitcat » Thu Oct 25, 2018 8:50 am

HardHitter wrote:
Thu Oct 25, 2018 8:14 am
bh7785 wrote:
Thu Oct 25, 2018 7:51 am
I'd venture a guess that you are underestimating the depreciation, but without knowing the car and mileage it is really hard to say. Seems like you've got it all thought out, so why not just go for it if that's what you want to do?
If I was buying a brand new car, then yes, depreciation hit would be significant, but I'm buying cars that I've analyzed to be at the bottom of the depreciation curve or close to it, so majority of the time I actually profit off ownership (when I say "profit" I mean that I can sell the car for more than what I bought it for, not overall cost of ownership (maintenance/gas/insurance/etc.) For example, this last toy sold for exactly what I bought it for so I got to enjoy it for 1.5 years without taking a depreciation hit.
Hardhitter- yes , the way you present your figures is a reasonable assumption of costs given your exceptions noted (ins, repairs, etc).
We have done similar in the past and it has pretty much followed the pattern you have outlined.
Enjoy your new toy.

ResearchMed
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Re: Exotic Car Financing

Post by ResearchMed » Thu Oct 25, 2018 8:51 am

JupiterJones wrote:
Thu Oct 25, 2018 8:38 am
onourway wrote:
Thu Oct 25, 2018 8:26 am
In that case why not save for a short period of time and pay for the vehicle in cash rather than forking over 5-digits worth of interest payments every 3 years?
This ^^^

I would never borrow money to buy an optional luxury item. Pay cash for toys... and if you don't have the cash, don't get the toy.

Oh, but what if you do have the money but think you can earn more by keeping it invested that you'd pay in interest on your toy loan? Well then may I present Jupe's rule of getting fancy-pants with loans:

If the amount of money you think you'd "make" by keeping your money invested while you borrow to buy your toy is enough to be actually worth the trouble, based on your own time value of money, then you're buying too much toy.
Agree with above.

Expensive, exotic cars aren't our thing (or not at this time!?), but in a way, this is no different from our discretionary spending on travel, and we typically spend quite a bit.

But we do NOT incur any "interest". We pay by charge card to get those points (which go towards our premium international travel), but we pay it *all* off each month. We cash flow it all, and make sure that the expected amount will be there when, e.g., final/full payment for a cruise is due in advance, or perhaps for when we return from a land trip and the hotel/food/etc., bills show up shortly after we do.

Find a way to pay those car payments to yourself, let them add up, and then continue to do what you are doing, but without paying a lot of interest.
Now IF you are getting 0% car loans on those, that would be different. However, if you do it by having the money in hand (so your "next" car is a trade plus cash), then if interest rates do start going up, you can basically ignore that.

As for the comment about "too much toy", I don't necessarily agree. That would depend upon several factors, including your own priorities and - importantly - can you REALLY afford it without affecting your reasonable other needs/desires AND your planned savings (retirement, college, etc.).

RM
This signature is a placebo. You are in the control group.

Valuethinker
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Re: Exotic Car Financing

Post by Valuethinker » Thu Oct 25, 2018 8:52 am

HardHitter wrote:
Thu Oct 25, 2018 7:47 am
My hobby is cars and I enjoy buying toys to play with for a few years and move to the next. As we know, cars are depreciating assets (majority of the time) so when I buy my toys, I am buying cars that have or are close to bottoming out on their depreciation curvve.

With that said, I typically buy cash but exploring potentially financing my next purchase to keep money invested. My math below is telling me that I can enjoy my next toy car for 3 years @ $53K. Obviously this is just cost of car and doesn't include cost of insurance/maintenance/etc, but I'm trying to make it simple. Does the logic below make sense?

Car
- Estimated Car Cost: $150K
- Estimated Tax/Fees: $15K (10%)
- Total Cost: $165K

Loan
- Estimated Down Payment: $65K
- Loan Amount: $100K
- Interest 3.99%
- Term: 60 months
- Monthly Payment: $1,841
- Total Loan Cost: $110,460
- Interest Paid: $10,460

3 Year Ownership Cost
- Downpayment: -$65K
- 3 years of loan payments: -$66K ($1.8K*36months)
- Remaining Loan Amount: -$42K
- Anticipated Sale of Car after Depreciation: $130K

Total Cost of Ownership: $53K
Would you make this decision if stock markets had just fallen by 50%?

That's got to be a consideration. Where are you in a worst case (for you) financial position?

Note that if stock markets fall, your resale price may also fall?

If the car is already at the bottom of its depreciation cycle, that's some car. A Cobra? Pierce Arrow?

bloom2708
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Location: Fargo, ND

Re: Exotic Car Financing

Post by bloom2708 » Thu Oct 25, 2018 8:54 am

Pay cash for toys. If you can't or are not willing to, the toys are too expensive.

This sounds like a good hobby to outgrow. :wink:
"We are not here to please, but to provoke thoughtfulness." --Unknown Boglehead

Celtic
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Re: Exotic Car Financing

Post by Celtic » Thu Oct 25, 2018 8:58 am

HardHitter wrote:
Thu Oct 25, 2018 7:47 am


3 Year Ownership Cost
- Downpayment: -$65K
- 3 years of loan payments: -$66K ($1.8K*36months)
- Remaining Loan Amount: -$42K
- Anticipated Sale of Car after Depreciation: $130K

Total Cost of Ownership: $53K
Hello, a question and a couple of comments

Question; isn't your cost 43? IE the total of your equity and debt (P&I) over the three years is 65+66=131, and the value at the end of the holding period, net of debt is 130-42=88.

I recall from friends, or maybe reading somewhere that in many cases exotics are leased as opposed to financed with debt. Don't have experience in that area but it might be worth looking into.

Finally, if it were me I would decided if it's a hobby or an investment and rationalize accordingly. Cars are something that you enjoy. Most people have hobbies or other pursuits which bring great pleasure to their life. Not expected to make a profit or even break even on excel, but pay back in other ways.

HardHitter
Posts: 501
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Re: Exotic Car Financing

Post by HardHitter » Thu Oct 25, 2018 8:59 am

onourway wrote:
Thu Oct 25, 2018 8:26 am
HardHitter wrote:
Thu Oct 25, 2018 8:18 am
djpeteski wrote:
Thu Oct 25, 2018 8:00 am
You are cool with a 1800/month car payment? That would totally freak me out and our household income is pretty darn high. Heck, I had a bit of a pucker factor when my mortgage was that high.
We save about $7-8K/mo after retirement and expenses have been funded. Spending $1.8K for a toy is a significant amount, but if times get tough, I sell the toy to get rid of the payment.
In that case why not save for a short period of time and pay for the vehicle in cash rather than forking over 5-digits worth of interest payments every 3 years?
So you're saying just buy in full yea?

Option A: Finance
3-year spend: $53K

Option B: Cash
3-year spend: $35K (Assuming $165K purchase and $130K sale after 3 years)

I would need to average around a 3% annual return for the 3 years on the $100K to break even between paying cash and financing.

smitcat
Posts: 2115
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Re: Exotic Car Financing

Post by smitcat » Thu Oct 25, 2018 9:02 am

bloom2708 wrote:
Thu Oct 25, 2018 8:54 am
Pay cash for toys. If you can't or are not willing to, the toys are too expensive.

This sounds like a good hobby to outgrow. :wink:

Did you happen to read this lime....
"We save about $7-8K/mo after retirement and expenses have been funded. Spending $1.8K for a toy is a significant amount, but if times get tough, I sell the toy to get rid of the payment."
I believe he knows what he can afford and is only asking about his calculations for a 3 year cost of ownership.

ResearchMed
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Re: Exotic Car Financing

Post by ResearchMed » Thu Oct 25, 2018 9:03 am

HardHitter wrote:
Thu Oct 25, 2018 8:59 am
onourway wrote:
Thu Oct 25, 2018 8:26 am
HardHitter wrote:
Thu Oct 25, 2018 8:18 am
djpeteski wrote:
Thu Oct 25, 2018 8:00 am
You are cool with a 1800/month car payment? That would totally freak me out and our household income is pretty darn high. Heck, I had a bit of a pucker factor when my mortgage was that high.
We save about $7-8K/mo after retirement and expenses have been funded. Spending $1.8K for a toy is a significant amount, but if times get tough, I sell the toy to get rid of the payment.
In that case why not save for a short period of time and pay for the vehicle in cash rather than forking over 5-digits worth of interest payments every 3 years?
So you're saying just buy in full yea?

Option A: Finance
3-year spend: $53K

Option B: Cash
3-year spend: $35K (Assuming $165K purchase and $130K sale after 3 years)

I would need to average around a 3% annual return for the 3 years on the $100K to break even between paying cash and financing.
You won't have to "pay in full" every time. Just the first time. After that, you'll be trading the car, right? So the residual value, which you think would be close to what you paid... just sell it privately and use the money towards the new one, or trade it in for the newer model or different "brand" toy.

RM
This signature is a placebo. You are in the control group.

bloom2708
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Location: Fargo, ND

Re: Exotic Car Financing

Post by bloom2708 » Thu Oct 25, 2018 9:06 am

smitcat wrote:
Thu Oct 25, 2018 9:02 am
bloom2708 wrote:
Thu Oct 25, 2018 8:54 am
Pay cash for toys. If you can't or are not willing to, the toys are too expensive.

This sounds like a good hobby to outgrow. :wink:

Did you happen to read this lime....
"We save about $7-8K/mo after retirement and expenses have been funded. Spending $1.8K for a toy is a significant amount, but if times get tough, I sell the toy to get rid of the payment."
I believe he knows what he can afford and is only asking about his calculations for a 3 year cost of ownership.
Yes, I happened to read that. Still doesn't make sense to borrow for a hobby and pay $10k interest. If all the replies were "go for it! sweet car!", this place would be no fun. :o
"We are not here to please, but to provoke thoughtfulness." --Unknown Boglehead

HardHitter
Posts: 501
Joined: Wed Jan 08, 2014 11:41 pm

Re: Exotic Car Financing

Post by HardHitter » Thu Oct 25, 2018 9:08 am

Bryan99 wrote:
Thu Oct 25, 2018 8:58 am
HardHitter wrote:
Thu Oct 25, 2018 7:47 am


3 Year Ownership Cost
- Downpayment: -$65K
- 3 years of loan payments: -$66K ($1.8K*36months)
- Remaining Loan Amount: -$42K
- Anticipated Sale of Car after Depreciation: $130K

Total Cost of Ownership: $53K
Hello, a question and a couple of comments

Question; isn't your cost 43? IE the total of your equity and debt (P&I) over the three years is 65+66=131, and the value at the end of the holding period, net of debt is 130-42=88.

I recall from friends, or maybe reading somewhere that in many cases exotics are leased as opposed to financed with debt. Don't have experience in that area but it might be worth looking into.

Finally, if it were me I would decided if it's a hobby or an investment and rationalize accordingly. Cars are something that you enjoy. Most people have hobbies or other pursuits which bring great pleasure to their life. Not expected to make a profit or even break even on excel, but pay back in other ways.
You are correct, there was an error in my spreadsheet. I had $120K as the sale of the car, where it should have been $130K

smitcat
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Re: Exotic Car Financing

Post by smitcat » Thu Oct 25, 2018 9:13 am

HardHitter wrote:
Thu Oct 25, 2018 9:08 am
Bryan99 wrote:
Thu Oct 25, 2018 8:58 am
HardHitter wrote:
Thu Oct 25, 2018 7:47 am


3 Year Ownership Cost
- Downpayment: -$65K
- 3 years of loan payments: -$66K ($1.8K*36months)
- Remaining Loan Amount: -$42K
- Anticipated Sale of Car after Depreciation: $130K

Total Cost of Ownership: $53K
Hello, a question and a couple of comments

Question; isn't your cost 43? IE the total of your equity and debt (P&I) over the three years is 65+66=131, and the value at the end of the holding period, net of debt is 130-42=88.

I recall from friends, or maybe reading somewhere that in many cases exotics are leased as opposed to financed with debt. Don't have experience in that area but it might be worth looking into.

Finally, if it were me I would decided if it's a hobby or an investment and rationalize accordingly. Cars are something that you enjoy. Most people have hobbies or other pursuits which bring great pleasure to their life. Not expected to make a profit or even break even on excel, but pay back in other ways.
You are correct, there was an error in my spreadsheet. I had $120K as the sale of the car, where it should have been $130K
I actually came out closer to your original number when I put in a value for the lost opportunity costs of your $65K down for 3 years.
That in no way affects my advice that it looks like you have the costs figured out so go for it.

smitcat
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Re: Exotic Car Financing

Post by smitcat » Thu Oct 25, 2018 9:18 am

bloom2708 wrote:
Thu Oct 25, 2018 9:06 am
smitcat wrote:
Thu Oct 25, 2018 9:02 am
bloom2708 wrote:
Thu Oct 25, 2018 8:54 am
Pay cash for toys. If you can't or are not willing to, the toys are too expensive.

This sounds like a good hobby to outgrow. :wink:

Did you happen to read this lime....
"We save about $7-8K/mo after retirement and expenses have been funded. Spending $1.8K for a toy is a significant amount, but if times get tough, I sell the toy to get rid of the payment."
I believe he knows what he can afford and is only asking about his calculations for a 3 year cost of ownership.
Yes, I happened to read that. Still doesn't make sense to borrow for a hobby and pay $10k interest. If all the replies were "go for it! sweet car!", this place would be no fun. :o
"Yes, I happened to read that. Still doesn't make sense to borrow for a hobby and pay $10k interest"
Because in this case $10K over 3 years in insignificant to the overall numbers.
"If all the replies were "go for it! sweet car!""
He did not ask if he should buy the car, he did not put the car brand and model up for opinion.

But again Hardhitter did not request we analyze his current or future portfolio but he did ask if his calculations of costs for this transaction were reasonably accurate.

HardHitter
Posts: 501
Joined: Wed Jan 08, 2014 11:41 pm

Re: Exotic Car Financing

Post by HardHitter » Thu Oct 25, 2018 9:18 am

ResearchMed wrote:
Thu Oct 25, 2018 9:03 am
HardHitter wrote:
Thu Oct 25, 2018 8:59 am
onourway wrote:
Thu Oct 25, 2018 8:26 am
HardHitter wrote:
Thu Oct 25, 2018 8:18 am
djpeteski wrote:
Thu Oct 25, 2018 8:00 am
You are cool with a 1800/month car payment? That would totally freak me out and our household income is pretty darn high. Heck, I had a bit of a pucker factor when my mortgage was that high.
We save about $7-8K/mo after retirement and expenses have been funded. Spending $1.8K for a toy is a significant amount, but if times get tough, I sell the toy to get rid of the payment.
In that case why not save for a short period of time and pay for the vehicle in cash rather than forking over 5-digits worth of interest payments every 3 years?
So you're saying just buy in full yea?

Option A: Finance
3-year spend: $53K

Option B: Cash
3-year spend: $35K (Assuming $165K purchase and $130K sale after 3 years)

I would need to average around a 3% annual return for the 3 years on the $100K to break even between paying cash and financing.
You won't have to "pay in full" every time. Just the first time. After that, you'll be trading the car, right? So the residual value, which you think would be close to what you paid... just sell it privately and use the money towards the new one, or trade it in for the newer model or different "brand" toy.

RM
Don't know if I'm following you.

So for example, my last toy I paid in full and owned it for about 1.5 years. Sold it for the same amount I bought it for. If I finance my next toy, I'm just using that money as the down payment so in my eyes, there is no impact to my financials because I am just shifting money from one asset to the other.

The only thing I need to ask myself is am I willing to pay/give up the calculated total cost of ownership for those 2-3 years to own one of my dream cars. It is a cost control before doing a purchase but I have flexibility in what I can do already knowing I'm "OK" with paying that amount. Perhaps I get the car and I decide I don't like it as much as I'd expect and I'm going to sell in 1-1.5 years. Ok, now what I was willing to pay, is even less. I can also get my money out if I decide I'm sick of the $1.8K payments. Pay the car in full if I like it, or sell and re-evaluate the next toy.

Also, it seems as though you think I deal with dealerships. I buy and sell all my cars privately because there are some "loopholes" you can take advantage of buying privately vs with a dealership. Additionally, dealership prices are automatically higher because they need to make a margin.
Lastly, by trading your car into a dealership, you are losing even more money because they will give you $10-$20K less than what you can make in the private market so they can make their margin when they resell.
Last edited by HardHitter on Thu Oct 25, 2018 9:29 am, edited 1 time in total.

ralph124cf
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Re: Exotic Car Financing

Post by ralph124cf » Thu Oct 25, 2018 9:24 am

HardHitter wrote:
Thu Oct 25, 2018 8:59 am
onourway wrote:
Thu Oct 25, 2018 8:26 am
HardHitter wrote:
Thu Oct 25, 2018 8:18 am
djpeteski wrote:
Thu Oct 25, 2018 8:00 am
You are cool with a 1800/month car payment? That would totally freak me out and our household income is pretty darn high. Heck, I had a bit of a pucker factor when my mortgage was that high.
We save about $7-8K/mo after retirement and expenses have been funded. Spending $1.8K for a toy is a significant amount, but if times get tough, I sell the toy to get rid of the payment.
In that case why not save for a short period of time and pay for the vehicle in cash rather than forking over 5-digits worth of interest payments every 3 years?
So you're saying just buy in full yea?

Option A: Finance
3-year spend: $53K

Option B: Cash
3-year spend: $35K (Assuming $165K purchase and $130K sale after 3 years)

I would need to average around a 3% annual return for the 3 years on the $100K to break even between paying cash and financing.
Importantly, that is 3% AFTER TAXES to break even. From your reported savings rate, I would assume that you are in the 32% federal tax bracket or above. State tax should also be taken into account. The comparison should be in a SAFE investment for reasonable comparison, not stocks alone or a balanced fund. There is no SAFE investment which will produce this level of return.

Ralph

Celtic
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Re: Exotic Car Financing

Post by Celtic » Thu Oct 25, 2018 9:44 am

One more comment Re: your original question about the calculation of cost of ownership.

Your should probably ensure you look at insurance and your comfort on the loan balance. If there is a catastrophic event and the car is a write off you need insurance to cover the fair market value(120), your load balance, or an another amount you are prepared to be exposed to as a residual risk.

kayli69
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Re: Exotic Car Financing

Post by kayli69 » Thu Oct 25, 2018 9:48 am

My opinion?
You shouldnt be buying a car of this cost unless you can pay in cash.

HardHitter
Posts: 501
Joined: Wed Jan 08, 2014 11:41 pm

Re: Exotic Car Financing

Post by HardHitter » Thu Oct 25, 2018 10:15 am

Bryan99 wrote:
Thu Oct 25, 2018 9:44 am
One more comment Re: your original question about the calculation of cost of ownership.

Your should probably ensure you look at insurance and your comfort on the loan balance. If there is a catastrophic event and the car is a write off you need insurance to cover the fair market value(120), your load balance, or an another amount you are prepared to be exposed to as a residual risk.
Yes, that is addressed. You should be insuring exotic cars with special insurance (not your AAA/Geico/etc.). Insurance plans are based upon pre-approved values so should the car be totaled, insurance pays that exact amount out of the car. Premium will be more, but you can just insure the full amount of the car to mitigate that risk entirely.
Last edited by HardHitter on Thu Oct 25, 2018 10:17 am, edited 1 time in total.

HardHitter
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Re: Exotic Car Financing

Post by HardHitter » Thu Oct 25, 2018 10:16 am

kayli69 wrote:
Thu Oct 25, 2018 9:48 am
My opinion?
You shouldnt be buying a car of this cost unless you can pay in cash.
That wasn't the question asked though.

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Chan_va
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Re: Exotic Car Financing

Post by Chan_va » Thu Oct 25, 2018 10:29 am

Insurance/Maintenance is a decent % of total cost, so I don't think you can exclude that in your calculation. Also, have you factored in the lost opportunity cost of investing the down payment? You should factor 65k*x*3, where x is your assumed after tax return rate on the investment.

Apart from that - YOLO, so if you have your bases covered, go for it.

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monkey_business
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Re: Exotic Car Financing

Post by monkey_business » Thu Oct 25, 2018 10:35 am

Are you buying a Ferrari 458?

runner3081
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Re: Exotic Car Financing

Post by runner3081 » Thu Oct 25, 2018 10:39 am

Chan_va wrote:
Thu Oct 25, 2018 10:29 am
Insurance/Maintenance is a decent % of total cost, so I don't think you can exclude that in your calculation.
Fully depreciated exotic car... Sounds like a heap of maintenance/work, even in a 3-year run.

Agreed, can not exclude.

HardHitter
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Re: Exotic Car Financing

Post by HardHitter » Thu Oct 25, 2018 10:48 am

monkey_business wrote:
Thu Oct 25, 2018 10:35 am
Are you buying a Ferrari 458?
Still early in the research process for the next toy. List of cars considering are Gallardo, 991 Turbo, R8 V10, MP4-12C. Not a big fan of Ferrari although I may consider a F430 in the list.

Most the cars are in the $115-$130K range depending on mileage/options/etc. Target model range is going to be 2014 for majority.

From my analysis:

- 991 Turbo still has probably 20-30K of depreciation left in the next 2-3 years. This is based upon prior generation (2010 - 2012 997.2 Turbos) still going for $90-$115K.

- The R8 V10 will likely depreciate a little more (+/- $5K) than the Turbo.

- The Gallardo has pretty much bottomed out depending on which generation. Anticipate $10K of depreciation and is the lowest risk of the group.

- The MP4-12C is the biggest risk. They have depreciated like a rock ($250K+ MSRP cars) but thinking they will stay above the $100K mark for the next 2-3 years.

I have no research done on Ferrari, so can't really speak to their market.
Last edited by HardHitter on Thu Oct 25, 2018 10:55 am, edited 1 time in total.

HardHitter
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Re: Exotic Car Financing

Post by HardHitter » Thu Oct 25, 2018 10:52 am

runner3081 wrote:
Thu Oct 25, 2018 10:39 am
Chan_va wrote:
Thu Oct 25, 2018 10:29 am
Insurance/Maintenance is a decent % of total cost, so I don't think you can exclude that in your calculation.
Fully depreciated exotic car... Sounds like a heap of maintenance/work, even in a 3-year run.

Agreed, can not exclude.
Definitely will include anticipated maintenance costs for each model based upon my research but when you get to these kind of specialty cars, if you are concerned about maintenance costs, you shouldn't be buying the car.

letaPAS037
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Re: Exotic Car Financing

Post by letaPAS037 » Thu Oct 25, 2018 11:03 am

I recently pulled the trigger on an exotic in a similar price range. I could have paid cash (and still can) but also decided to finance 100K for 36 months @ 2.75% as I felt it was a reasonable hedge against market returns. That being said, I don't like making payments so may just pay it off sometime next year.

Great to see other bogleheads making willing to make these anti-boglehead decisions as its very hard mentally to be a car guy and hardcore boglehead at once. You looking at a 458 I assume? Can't go wrong :wink:

carguyny
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Re: Exotic Car Financing

Post by carguyny » Thu Oct 25, 2018 11:07 am

Car market has been hot/over extended for a while now. I would assume more depreciation (double what you have) in whatever you buy, some cars are more resiliant - e.g. 458 Speciale, GT3 RS etc. But unless you're buying one of them assume you're going to have a very hard time finding a buyer in 3 years.

runner3081
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Re: Exotic Car Financing

Post by runner3081 » Thu Oct 25, 2018 11:15 am

HardHitter wrote:
Thu Oct 25, 2018 10:52 am
runner3081 wrote:
Thu Oct 25, 2018 10:39 am
Chan_va wrote:
Thu Oct 25, 2018 10:29 am
Insurance/Maintenance is a decent % of total cost, so I don't think you can exclude that in your calculation.
Fully depreciated exotic car... Sounds like a heap of maintenance/work, even in a 3-year run.

Agreed, can not exclude.
Definitely will include anticipated maintenance costs for each model based upon my research but when you get to these kind of specialty cars, if you are concerned about maintenance costs, you shouldn't be buying the car.
Completely agree, philosophically, but it is a fallacy to not include those ownership costs.

SQRT
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Re: Exotic Car Financing

Post by SQRT » Thu Oct 25, 2018 12:11 pm

JupiterJones wrote:
Thu Oct 25, 2018 8:38 am
onourway wrote:
Thu Oct 25, 2018 8:26 am
In that case why not save for a short period of time and pay for the vehicle in cash rather than forking over 5-digits worth of interest payments every 3 years?
This ^^^

I would never borrow money to buy an optional luxury item. Pay cash for toys... and if you don't have the cash, don't get the toy.

Oh, but what if you do have the money but think you can earn more by keeping it invested than you'd pay in interest on your toy loan? Well then may I present Jupe's rule of getting fancy-pants with loans:

If the amount of money you think you'd "make" by keeping your money in a comparatively low-risk investment while you borrow to buy your toy is enough to be actually worth the trouble for you, then you're buying too much toy.
This is my view as well. I think you should pay cash for toys.
Secondly, leave banking to the bankers (ie borrowing to invest, playing the yield curve, managing interest rate,credit and equity risk).

Zombies
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Re: Exotic Car Financing

Post by Zombies » Thu Oct 25, 2018 2:18 pm

The problem with the “depreciation bottoming out” analysis is it requires the car market to be the same in three years as it is now, since you’re looking at cars that have manufacturing dates a few years behind.

I did the same analysis initially and then decided that I was going to throw that out and just pay cash for an exotic and not care at all about the residual value.

If the economy turns, these cars will all sink like a rock because the number of buyers will decrease by a huge percentage. Cars will sit longer, and people will negotiate harder. In addition, there are now more accessible super cars than ever, which puts pricing pressure on all brands.

I suggest you run the analysis with depreciation causing the car to drop to $80k — if in that scenario you’re still okay with buying or financing, go for it, exotics are lots of fun. But don’t look at depreciation bottoming out as even likely, much less a sure thing.

BruDude
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Re: Exotic Car Financing

Post by BruDude » Thu Oct 25, 2018 2:24 pm

Not really an exotic, but have you looked at GT3's? They hold their value way better than turbos and the 2014-2016 cars have a 10-year 120k mile powertrain warranty which is huge when comparing to exotics with little to no warranty left and insanely expensive repairs when something does break. IMO the sweet spot is a 2014-2015 with $150-160k MSRP in the $115-120k range. You should be able to drive it for 3 years and sell it for $100-110k, and having that remaining warranty when you sell will be a massive advantage over trying to sell an exotic.

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