My 2010 Z

dudafunk

My question from this - LOOKING BACK - do you feel you would have been going crazy in a house worth $200k instead of $220k - and thereby been in a position to afford an extra $20k on your car. I'd put my money on YES which is why I'm so into buying a 'better' car first. But I'm open to change my thinking and would love to understand why someone would say NO to this.

j.arnaldo

Great deal AND great car--nice color, too, jay'! Congrats'!

Micas

This will sound preachy, and it is, but I've been watching these types of threads and thought I'd relate my experience.

In my 20's, I drove a cheap car that cost $4000 for 7 years.. yes, that's 7 years. I paid cash for it with a bit of help from the parents. During those 7 years, I saved up money.. a lot of it, and every car I've bought since then (3 of them), I've paid cash. That puts me ahead of the game in that I'm never paying interest. I owe nothing on credit cards, and the only debt I carry is the mortgage on my house, and I could pay that off if I wanted to, but mortgage interest is deductable on taxes.

I know having a styling ride when you're in your 20's is a big deal to a lot of guys. Most think in terms of monthly payments that they think they can afford. When all is said and done, doing that costs a whole bunch of money. Having some discipline can pay big dividends down the road though. It doesn't work for some people, but it does for me. I'm 43 now, and even if I were to lose my job in a bad economy, I could last probably 5 years if I had to without living in my car.. down by the river. That peace of mind was worth always riding with my friends when we went out on the weekends because they had the hot cars.

Just food for thought.

dudafunk

^^^^^^^^ Would want to ask you, I've been giving this thought lately:

When buying a house, prices vary so much by the thousands. What if one were to pick a house that was '$20k cheaper' than what you'd pick 'otherwise'.

Do you get the thought process?... that if one wants to be picky and agrees to not be too picky with the house then there could be a balance achieved.

Do people think this way?

Micas

Honestly, I don't think you'd be any more likely to buy a house as you are to actually buy a car.

But I guesss.. to answer the question.. buying a house that costs 20k less in order to buy a car that costs 20k more is an incredibly bad idea that should be obvious. First, you live in your house.. you just drive a car. Second, a car is a depreciating asset and a house is generally an appreciating asset. Over the long term, a house will appreciate in value in proportion to it's cost. In other words, a 200k house might be worth 250k in 10 years. A 1 mill house might be worth 1.25 mil. The difference in appreciation is 200k.

Those are numbers I just pulled out of my arse, but you get the idea. A car is always a big money drain. In fact, it's probably the biggest money drain you'll ever have besides kids. This is espeically true if you keep buying a new car every 3 or 4 years.

I know it's exceptionally difficult to do, but as a general rule of thumb, if you start in your early 20's taking in more money than goes out, putting money in a retirement account (401k etc.).. never paying any interest on anything except a house, you'll find yourself in your 40's with several hundred thousand dollars in the bank. You don't have to earn 6 figures to make that happen. It just takes a willingness not to have to buy things that are out of your reach.

dudafunk

Sure but, doesn't answer my question.
Take a walk down the lane, house 1 will be $200,000 and house 2 will be $220,000. I'd "Live" in either. Whats wrong in living in the $200,000 one...

The debate I'm making is, if I DON'T buy the car, even THEN, how do I know I can spend $X on a house?... how much is X going to be? - Once I establish that based on what I can afford, how much credit I get etc., I then check, oh, I can buy a $220,000 house - now how bad is the $200,000 house?... hmmm not bad...

Thats the argument I'm making... hope to hear your reply now. Maybe I wasn't phrasing myself correctly.

Micas

This gets into the territory of off-topic home buying, but I guess I'll bite.

There's a lot of factors that are involved in buying a house. Sometimes it doesn't even make sense to buy a house. It depends on what your long-term goals are and your lifestyle. Sometimes renting a house, or simply living in an apartment makes sense if your life and work are more volatile. A standard rule of thumb is that you shouldn't buy a house if you don't plan to live in it at least 10 years. If you buy and sells houses at a more rapid pace, you start losing a lot of money in closing costs and such.

Maybe I'm still not getting you, but your asking why not buy a 200k house instead of the 220k house? Why stop there? Why not buy a 150k house, or a 100k house. It all depends on what you want. There are generally good reasons why one home may cost more than another. There may be location value differences, or ammenities that are worth more in one house than the other.

The way you know how much you can spend on a house is to get pre-qualified for a loan. Generally, real-estate people won't talk to you if you haven't got a pre-qual letter so they know you are serious and know how much you can actually buy. One of the problems that caused the recent housing bubble is that people were buying homes at the limit of their qualification. A bank will pre-qual you for your maximum amount, and since they get higher returns the more money you borrow, they'll pre-qual you to the point where you'd be just barely able to make the payments. It's always better to buy less home than you can afford for a lot of reasons.

When you get pre-qualified, there are variations in the amounts and terms of the loan. You can buy a more expensive house on a 30 year note than you can on a 15. You have to decide what's in your own best interest. A 15 year loan will have a lower interest rate than a longer term. My house is on a 15 year note at 5%. I will own it outright in a few years.

I think it's important that people think long-term in their spending, and a car is a huge financial out-lay. Consider it taking a big stack of 100 dollar bills and setting fire to it. Only the buyer can decide the "worth" of the driving experience, and the satisfaction they get from a car.

Again, I'm very preachy about this topic, but I continually see people buy cars that cost many thousands of dollars by looking at the "monthly payment". If they never break that mentality, they'll always be burning even more piles of 100 dollar bills in paying interest. My point is that if you start young and discipline yourself to never paying interest on anything but a home, you'll be so much ahead of the game.

It's all relative really. I paid 40k cash for my G35 in 2003. I've had it 6 years, and everything I've done over the last 20 years allows me to pick pretty much any car I want and just write a check for it. I could afford a turbo 997, a GTR, heck, I could buy pretty much any car south of a Veyron for cash, but I'm focusing on a car that will probably cost me ~$38k + TTL. I'm deliberately limiting myself in order to be even further ahead when I get to my 50's, because I eventually want to retire with zero worries.

Live well below your means, and profit in the long run.

dudafunk

Apologies to the OP for the sidetrack from my side as well, but this is a very interesting discussion for anyone aged 20+! I have tried to have this talk with many a one, and never been able to come to a conclusion so far. Micas sounds very informed so..

The question of paying interest on only a house and not on the car is irrelevant. In my opinion, 0% interest or 3.99% interest or anything is very abstract and borders on the line of marketing even. I'm looking at the fact that I'm buying some car, at some overall price vs. not buying it at all and saving that money for the house.

And so therefore the question is, how much will I benefit if I "save" $20-30k by not buying a car. I have been unable to find a good answer to this because buying a house is so 'fluid' and you talk in 100's of thousands and not in tens. So 10-20-30k more or less on a typical $200,000 first home budget might not make a big difference - is what my perception is.

Again, I'm arguing that if I qualify for $X, don't buy a car, buy a $(X-delta) house (delta off so I don't spend all income on monthly payment), why won't I be able to find a house I am comfortable with for $((X-delta)-$30k). My perception is that I would be able to find this. And that how much am I going to be wasting on interest by stretching to the 30 year instead of the 15 or even 5 year loan.

Tokugawa

Nice and congrats

Limeybastard

LOL

Im saying this before the haters come.. That post was over 5 years old.