Finance

[sawood12]

Surely with £86k cash in the bank you can make more % interest on your investment than the % you get charged if you were to borrow against, say for example your mortgage? As far as i'm aware dealers HP schemes have never been the cheapest way to borrow money.

 

[Sunil]

I'm in property so I'll give what I think is a valid example. I'm due a 997TT in March which will cost about £100k.

Let's say that I finance the car with £20k down. I'm left with £80k in the bank which I can leverage and buy a property for £320k leveraged at just 75% LTV. If that property appreciates at a rate of just 5% pa, I'm making back £16k pa in the first year and more in subsequent years. At 84% LTV the capital appreciation would be £25k in the first year. This capital appreciation can be used to finance further investments. This is on the assumption that the rent is paying for all the interest charges but, even if it doesn't cover all of it, the capital appreciation does so easily.

Or I can go out and write a cheque for £100k and just buy the car outright.

Obviously this is a matter of personal circumstances but, ultimately, it comes down to not whether you can afford it but whether you can be bothered to make your money work for you. I know which I would rather do but each to their own.

Having said all of this, I hope to buy a 'special' second car in the next couple of years and will pay cash for that because I plan never to sell it. I would rather write the money off in this way than think about the depreciation - too scary!

 

[Rodney Naghar]

Its not just about numbers anyway its about cashflow etc too, otherwise the only reason you would finance a car is if you could get higher risk-free returns elsewhere.(Property is not risk-free)

 

[Sunil]

ORIGINAL: Rodney Naghar

Its not just about numbers anyway its about cashflow etc too, otherwise the only reason you would finance a car is if you could get higher risk-free returns elsewhere.(Property is not risk-free)

Nothing is risk free, property included, but it's a matter of how you invest but that's a different discussion altogether. There's a big difference between investment and speculation and the two shouldn't be confused. Buying a property off plan in the hope that it will appreciate is speculation. Buying commercial premises, in a desirable location, with a number of years unexpired on a long lease is investment. There are any number of scenarios in between and, like I said, it's only because I'm in property myself that I was using it as an example.

On another note, it is guaranteed that a new car will depreciate unless it's something very special so it makes little sense to 'invest' the money in a depreciating asset when it can be invested in what is, potentially, an appreciating asset - unless you really don't need/want to of course! []

 

[oliver]

ORIGINAL: david_yorkshire
you use finance ?!
cash is king !

It's because 'cash is king' that the current finance deals are worth considering, i.e., if you've got the cash why tie it up in a depreciating asset, when it can be working elsewhere.

I've always bought outright, but the current finance rates are about 2.3% flat on large amounts, equivalent to less than 5% apr. This is cheap money and it doesn't take a lot of skill to beat these returns, particularly if there is no tax payable.

 

[timhum2002]

I'm not self employed so may be missing a trick or two but still a couple of questions. Sunil, the rent on the property pays the mortgage leaving you with possibly 5% per annum capital appreciation. Isn't this all eroded by the cost of the car loan at say 6% apr? Oliver, what can I invest in that doesn't require a lot of skill, will pay over 5% and doesn't incur any tax charge?

thanks for any advice chaps

Tim

 

[Sunil]

ORIGINAL: timhum2002

Sunil, the rent on the property pays the mortgage leaving you with possibly 5% per annum capital appreciation. Isn't this all eroded by the cost of the car loan at say 6% apr?

Tim,

In the above example, the cash (£80k) has been leveraged to purchase a property for £320k and the 5% capital appreciation is on the value of the property. The interest on the car is only on the financed amount which is £80k.

Sunil

 

[david_yorkshire]

Sunil - but to realise your asset you have to sell the properties - and thus incur CGT & sales costs ?
I'm not advocating either method, really; personally, I prefer to buy cars with cash.
Property, I buy on mortgages.

David

 

[marlin]

I have had Porsche's that I have paid for outright and some financed up to their tits, they all drive the same[]

 

[jason]

ORIGINAL: marlin

I have had Porsche's that I have paid for outright and some financed up to their tits, they all drive the same[]

Get what you are saying but then again if that was the case there would only be one model[]

Property also = stamp duty, solicitors costs, survey costs, CGT, estate agency fees and a whole heap of hassle unless you really have the time or it's your business....oh and that's while the market is still going in a certain direction