Car Ownership Question...

[woodman650]

I posted this over on Car & Driver, but I thought it might be advantageous to post in the actual community as well, since you're all familiar with the car.


Here goes...
In my lifetime I have owned only 2 cars: a 2001 Jeep GC Limited, and a 2008 BMW 135i.

I sold the Jeep about a year ago when maintenance and fuel costs started adding up, and frankly, I wanted something fun to drive. So I ended up with a brand new BMW 135i. Granted it's a fun car to drive and I love it, but with time I'm finding that my needs are evolving and am trying to decide what, if anything, to do with the 1er.

My fiance needs a new car and we were thinking of getting her something with a bit more cargo space which I could utilize and make the BMW more practical to keep, but here's the problem... we've decided we really want to buy a house in the next 6 months. The cash from something like the BMW could go a long way towards that. I wasn't thinking about a house over a year ago when I bought the car, nor was I thinking about marriage, haha.

So my question is, having seen the BMW depreciate almost 30% last year alone, and owning it out-right, can anyone lend some advice as to what some smart options might be? I could part with the little racing machine and go for 1 practical car with the fiance and save some money too, but I'm not entirely sure that's the best route to go. Maybe someone can help me feel this all out?

[wmo168]

How much you have down on your BMW, it is just to keep it since you need a car to drive anyways. Buy a used cheaper car or truck for your fiance so you can afford the house down the road.

[woodman650]

Oh, I own it completely.

[jeremyc74]

I'd keep the 135i, and make the fiance's car last a little long while you save for the house. You're going to take a big hit selling the 1 (even though you own it, you're still losing a significant amount of money). Once you're in the house you're probably going to turn right around and want a nice car again, and then you've thrown that money away for nothing.

[woodman650]

Good points Jeremy... I think selling any time soon, especially after losing so much value on depreciation, would really be a kick in the teeth.

[jeremyc74]

No problem. If you're able to save enough to completely pay for your car, you obviously know how to hang on to a dollar, so I'm assuming you're just in a little bit of a hurry to buy a home, and it's making you look for extra down payment money. It's completely understandable, but with the current state of the housing market, you shouldn't be a in huge rush. There's a lot of variability in local markets right now, but I'd be willing to bet there's still another 6 months of price drops in store for Portland, even if they're not huge percentages like we've been seeing for the past year. The unemployment rate is still too high to support a significant recoverly in most places, so take your time. If you're in a position to buy in a year, you're probably going to be right on the bottom of the downward trend, or very close to it.

Of course, the government is throwing $8k at first time homebuyers right now if you close this year (maybe before November, I can't remember), so that's something to consider as well. It's entirely possible that program will get extendended into next year though, as it hasn't really had a huge effect so far.

[wa128]

Allow me to throw some numbers at you. Let's say as an example you bought your car for $42k nicely optioned. If the car has now depreciated 30% that means you could reasonably expect to get maybe around $29,400. If you could survive the both of you commuting in one car without buying a replacement you could put the $29k as an additional down towards the house. The $29k down on a 30yr fixed mortgage at 5.5% would save you $166 per month over 30 years. That's $30,360 in interest cost alone over 30 yrs assuming you stay in the house that long.

The options are:
1. Sell 135i, keep fiance's current car, put $29k down on house and save $166 in mortgage payments.
2. Keep 135i, keep fiance's current car only if you can afford to pay an add'l $166 in monthly mortgage payments.
3. Sell 135i, upgrade fiance's current car and use leftover proceeds for down payment on house ONLY if you really do not need a second car. You will still have some mortgage savings. Plus, the utility of an SUV comes in really handy especially when you have a new house.

It would not be a good move if you were to sell 135i, upgrade fiance's car with part of the $29k then find out you needed a second car. I do not think you will be happy with what you can get using whatever money is left from the $29k plus you'll lose out on any potential mortgage savings.

All of the above assumes that any current funds you both have now are not to be touched in your car buying/selling decisions as they should be reserved for your future.

Choose one, only you know your true situation. Good luck!

[woodman650]

Very thorough analysis, thank you. You've both thrown some good information my way and I'm quite appreciative of that. I'll think it over...

[tbird]

Both Jeremy and Wa128 bring up good info, and I know that if I were in your position, I would have to beat myself repeatedly in the head with a hammer to get me to part with my 1. But, it really comes down to numbers, and only you can do the math on your personal finances.

Depreciation on the 1, yes, encourages you to keep it. But, has Portland bottomed out yet on the real estate market? Also, the obvious point, foreclosures, how is that market doing up there? Down here in SoFL, we have tons and the deals abound. A friend just picked up a nice place, good condition, 3/2, for only $99K, where 2 years ago it was going for $400K. If you found something like that, you would then really want to keep the 1.

Also, as Wa128 put it, if you were only saving $166 a month, that also leans towards keeping the 1 instead of selling. Also, yes, if you had to end up getting a second car anyways, you would then have sold the 1 in vain.

But then, there are always the points of gas mileage and car insurance and all of that junk. What do all those add up to in your budget?

Good luck in your decision. I hope you get to keep your 1.

[Monterra]

There's also an 8k first time homebuyer tax credit to weigh in here too if you qualify. If you must sell the 1er in order to get to 20% down to get into a house this year before that credit expires (Dec 1 2009 I think), it may be advantageous to give up the 1. The stock market is telling us that the economy is starting to recover and housing will too fairly soon (good existing home sales number today actually). If you're ready and you find the right home now through the next few months would be a great time to buy I think.

[135iUSN]

wow good points for the guy.. great forum right (: best of luck on any decision you make, and its a plus you are planning ahead and not doing a knee jerk reaction.

best of luck in your new home!

[jeremyc74]

Originally Posted by Monterra

There's also an 8k first time homebuyer tax credit to weigh in here too if you qualify. If you must sell the 1er in order to get to 20% down to get into a house this year before that credit expires (Dec 1 2009 I think), it may be advantageous to give up the 1. The stock market is telling us that the economy is starting to recover and housing will too fairly soon (good existing home sales number today actually). If you're ready and you find the right home now through the next few months would be a great time to buy I think.

If he's a first time buyer, he can probably secure and FHA loan with 3.5% down. Of course, there's the PMI to deal with on anything under 20%, but it still might make more sense than taking a huge hit selling a new car.

Housing is actually looking pretty good as of today's numbers (relatively speaking of course). I think many of the nation's markets are VERY near the bottom, and even if they don't turn positive for another year or so, people getting in in time to get the Tax Credit aren't going to take a significant hit on value, especially not if we look out to the end of next year. There's still no huge rush though. It's going to be a buyers market for at least the next 6-12 months.

http://finance.yahoo.com/news/Data-s...82036.html?x=0

WASHINGTON (AP) -- The U.S. housing market has started to recover from the most far-reaching crisis since the Great Depression, data released Thursday show.





Sales of previously occupied homes rose for the third month in a row in June, the National Association of Realtors reported. That hasn't happened since early 2004, during the boom.
"The turnaround in the housing market appears finally to be here and indeed may be gaining some speed," wrote Joel Naroff, president of Naroff Economic Advisors Inc.
Stocks jumped on the news, with the Dow Jones industrial average rising above 9,000 for the first time since early January.
Home sales rose 3.6 percent to a seasonally adjusted annual rate of 4.89 million last month, from a downwardly revised pace of 4.72 million in May. Sales were up in all four regions of the country.
It was the highest level of sales since last October and beat economists' expectations. Sales had been expected to rise to an annual pace of 4.84 million units, according to Thomson Reuters.
In another encouraging sign, the share of foreclosures on the market is shrinking. About one out of three homes sold in June was foreclosure-related, down from nearly half earlier this year.
And the glut of homes up for sale dwindled to 3.8 million. That's a 9.4-month supply at the current sales pace and another important sign of a recovery. When the market balances at a 7-month supply prices should begin to stabilize, the Realtors's group said.
That probably won't happen until next year because of a backlog of foreclosures that have yet to come on to the market. The median sales price was $181,800 in June, down 15 percent from year-ago levels but up slightly from $174,700 in May.
Nevertheless, prices have risen for three straight months in about half of the 55 major metropolitan areas tracked by the Associated Press-Re/Max Housing Report, also released Thursday.

[MOCKBA]

Life it isn't only saving money unless it is a fun factor. If you do not have much fun with 135, then sale it and get a good car for fiancé. Getting a new house is also huge fun factor and if you get not brand new house you will need to spend significant amount of $$ for remodeling, floor upgrades, appliances, furniture, and so on. Keep it in mind.

[JHZR2]

long-term, the question is if you can run the car into the ground. Cars are only good investments if you can truly extract LOTS of value from the vehicle...

I'd keep the BMW as it doesn't cost you anything really to own now. I'd then buy a second car with good utility, or just suck it up and rent/borrow/car share as needed for the other vehicle.

If you had enough money to buy the BMW outright, you ought to have a fair amount of savings and thus a decent credit record and overall standing. If that is the case, you can still get good financing deals on homes and cars. Get a deal on one and/or the other, and work through the deals.

Id bet that you can buy a resonable utilitarian vehicle, and a home, without issue. Even if you rack up a bit of debt AFTER you buy the car/home, this may not be a big deal, depending upon your income.

Your new car tax write-off and new homebuyer tax credits should add up to offset any other "steps" or interest paid on incurred debt if you need to get creative.

[wa128]

Woody,
I view the loss of value on a car in a different way. Since you don't have a car loan whatever amount you can get on a car sale is pure equity. Whatever value you lost is your cost of "renting" that car for a certain period of time...it's gone and will be hard to recover. If you are serious about buying a house and it's you and your fiance's greatest dream at the moment and there are circumstances that allow you to say you want to buy in 6 months, then to me the car becomes expendable. Only if you can survive with one car. In my example above if you keep the car can you really save $29k in 6 months to put as a down when you are ready? Keep the car longer and your potential equity diminishes year after year after year. However, transfer that equity now into a home IF the right opportunity presents itself and this is what you get:

1. Monthly mortgage savings with that equity injection which you can use to upgrade your fiance's car or use to fix up or decorate your new house, for example.
2. You will have that much more equity in the house that may open up additional opportunities later on. For example, kids' college education. People refinance and borrow on their equity to finance college. Home improvement - need a new roof, central air conditioning; borrow on the equity. This is unless of course if you fall into some major inheritance.
3. Want to move into a bigger house later? You'll have that much more equity to apply and therefore less debt to do so.

Trying to project the bottom of the housing market is like trying to project the bottom of the stock market before investing. You might be missing hidden opportunities especially if you are financially ready to do so now. See that house on the corner lot with a view that catches your eye? Wait and come back later when you think the market has bottomed. Somebody new might just be cooking BBQ in what you thought would be your backyard.

It would be fabulous to keep the 1er. But it boils down to what is important to the both of you...an ego boost from a great car or a shelter for your family.

Have we given you enough ideas to drive you crazy yet?

[JimD]

I looked at the 8K briefly because my daughter was thinking of buying her first house. I was disappointed that the way it works you can't use it on the down payment, you get the 8k back on your taxes. So it does essentially nothing to help somebody buy a house. At least that was my read.

I told Donnie at the Performance Center that my 128i vert was the first impractical car I've purchased and I meant it. I have always just gotten a little nicer than my last one and that would do what I needed done. I don't think cars are an asset like a house is. I think they are more of an expense and typically you want to minimize expenses. But you have to have a little fun too.

Most couples "need" 2 vehicles. My son and I have 5 between us right now. I will get rid of one soon but I intend to keep two, a 3 year old SUV and my 128i. Both have their purposes. So I am not exactly minimizing my expenses but it's money I can afford.

I think looking at what you can afford in house payment is a good factor and meeting the minimum down payment to get a good interest rate is another. If you do not bump up against either of these factors, I would keep the 135. I also would consider letting your new bride drive it, however. If her commute is longer it might make sense (at least after you are married).

Jim

[Monterra]

How do you figure an 8k tax credit does nothing to help? It doesn't help unqualified buyers become qualified but it absolutely helps. 3.5% down on a house is lunacy IMO and its that kind of leverage that contributed to the mess we're in and people walking away from their homes because they have very little skin in the game.

[singular]

You should also factor a cushion into your purchase plans. Home ownership comes with added expenses (repairs, maintenance, furniture, lawn mower, etc.) and you should plan on having that on top of your down payment. IMO 5% of the house price in additional savings at a minimum.

Don't go ARM, interest rates will only go higher when the economy improves. Make sure you have NO other debts, especially credit card balances.

[jeremyc74]

Originally Posted by JimD

I looked at the 8K briefly because my daughter was thinking of buying her first house. I was disappointed that the way it works you can't use it on the down payment, you get the 8k back on your taxes. So it does essentially nothing to help somebody buy a house. At least that was my read.

Sure it helps. Before someone should be able to buy a house, they should have to save up at least a little money to prove they're responsible enough to loan to. If the government were running around just handing out down payments (above and beyond the loan backing they already do that allows a 3.5% down) it would just make matters worse.

You can file an amendment to last year's taxes as soon as you close on a home, and have the $8k in hand within a few months (probably sooner). You don't have to wait to file for 2009. That would allow people to furnish the new home, or put some money back into savings that they've depleated with the down payment.

More importantly for me, it's $8k worth of price insulation. If the place I just bought looses some value, I'm not really all that worried about it, because the government has covered it, or at least a portion of it. It's a pretty good incentive IMO.

[woodman650]

Wow, you guys are all over this topic I really do appreciate the analyses. I attended the Puget Sound Concours yesterday (with wa128, no less!) and I'll tell ya, selling the 1er would be VERY hard to do. And I think you're right Jim... the 1er is definitely an expense. Especially when you start taking into consideration the desire to put aftermarket work into the car. It's very hard not to when it's sitting right there in front of you!

And yes, my fiance LOVES the car. She's driven it a few times, and was quite upset she couldn't come out to the car show yesterday to view more 1ers.

Well, although we're still a few months away from making a decision, I'll let you guys know what plays out. I'm hoping we can find a reasonably priced starter home that isn't going to break the bank or necessitate sale of the 1er. What's the point of buying a place with a garage if you've got nothing special to put in it, right?

Thanks again. Extremely helpful insights.

[jeremyc74]

Home sales are up last month. Prices are still falling because of all the foreclosures, but the market is starting to turn. I'd say you've got about 6 months before you have to start worrying about any significant increases in price, but that depends on your local market.

http://news.yahoo.com/s/ap/20090727/...new_home_sales

[imported_mega]

you dont want to do any new loans if your gonna buy a house, keep everything as is until the house deal closes