You might be surprised. So many college kids are nerds now that they won't mess it up too bad... but I suppose those kind don't tend to go for off-campus housing. The meathead thing has scaled back significantly in the past 5-10 years. You might even have trouble renting it out by then since nerds favor the dorms and the Supermax buildings.

This post is hilarious because these "bad" tenants didn't really trash the place at all (complaining about dog poop in the backyard? Really?):

http://www.financialsamurai.com/being-a-landlord-tests-my-faith-in-humanity/

 

I just get the sense that this writer hasn't been around low-class people at all and that didn't prep him for the low-class behavior from these SF preppies.  When the time comes to rent out my house near UC to a bunch of 20 year-olds, I fully expect the thing to be trashed a year later.  Bong water stains in the carpet, holes in the wall, missing tile, broken hinges, etc. 

 

Hahaha he picked the tenants...did he not expect college kids to have parties and ignore lawn care?  Hilarious.

Crossovers are already dangerous resale-wise since only women want them and they don't like used cars over 5 years/100,000 miles. If the used market gets flooded with crossovers they might just be worth nothing.

 

It sounds like I should look for a crossover next.  I should be able to get one cheap.  I am unconcerned with resale value because I drive a car until there is no value left in it.

^ My point is that if I am looking to spend $8,000 on a car.  I will then stretch to like $10,000 because I'm financing anyway.  therefore I came out of pocket $2,000 more than I would have anyway.  Besides, If I have to make debt service payments, then that is less money i have to invest each month.  So it is likely a wash.

 

If you invested the $8K over your financing period (4 or 5 years?) you'd come out ahead of the $10K you referenced.  For financing to be a viable option you either have to actually invest the cash and beat the interest rate and/or have a consistent, steady income over the financing period, and also invest along the way.

 

If rates tick back up above 5-6%, you'll see a lot less borrowing.

I do not use investment money to purchase vehicle anyway. I use money from my rainy day fund that I keep in cash investments.  You also are ignoring the fact that no financing a vehicle gives me more personal cash flow each month that can be invested periodically.  I put it this way.  I would never borrow money to invest in the market.  That's exactly what I'd be doing be financing a vehicle to try to get positive arbitrage.

I do not use investment money to purchase vehicle anyway. I use money from my rainy day fund that I keep in cash investments.  You also are ignoring the fact that no financing a vehicle gives me more personal cash flow each month that can be invested periodically.  I put it this way.  I would never borrow money to invest in the market.  That's exactly what I'd be doing be financing a vehicle to try to get positive arbitrage.

 

In this scenario, you've just drained your emergency fund by $8k to buy a vehicle (probably not a smart move?) and so even though you have more cash flow that could be invested, you'll likely put most of it to building back up your emergency fund, no?

 

I would borrow money to invest in the market IF my interest rate on financing is below 5% (and I have a steady income to offset downturns in the market).  Obviously, in this case, there are other factors - total amount to purchase the vehicle, fuel efficiency, reliability of the car/brand, car history if its used, etc. etc.

 

Personally, I wouldn't finance a brand new $30K+ vehicle because if I lose my job, there goes my steady income for monthly payments and I wouldn't want to take that much out of my investments to cover my outstanding liability on the vehicle.  If it's an amount less than that and the interest rate is low, then yes that's a move I'd make, if only because I know I'd have the assets to cover $8-$12K should I lose my job/income stream.

I do not worry about moving a $8,000 out of an emergency fund because the likely of an emergency of that magnitude before i redirect $8,000 back into the fund is slim.  And I have credit available to me if need be.  I just do not support the financing of a depreciating asset under any circumstance.  This is a view shared by most of the popular early retirement or frugal experts.  Markets are volatile and gains are not steady.  You can easily endure periods of 3-5 years of losses on investments.  I wouldn't want to compound my losses by having debt service to retire.

 

One other item I forgot to mention is that since I drive very little and have a garage, I only carry liability insurance with high deductible.  A lender would not permit me to do this.  I do not insure anything I buy except my house for obvious reasons.  Since I can easily afford to replace my car, I see no reason to insure.  Self-insuring is a big cost savings as well. 

I do not worry about moving a $8,000 out of an emergency fund because the likely of an emergency of that magnitude before i redirect $8,000 back into the fund is slim.

 

Then why have $8k sitting in cash at all?

There is a less than slim possibility of needing the money in a longer time period than it takes to save it. 

Tires, brakes, the roof and the furnace force me to keep $10K around.

Oh, and teeth.

This post is hilarious because these "bad" tenants didn't really trash the place at all (complaining about dog poop in the backyard? Really?):

http://www.financialsamurai.com/being-a-landlord-tests-my-faith-in-humanity/

 

I just get the sense that this writer hasn't been around low-class people at all and that didn't prep him for the low-class behavior from these SF preppies.  When the time comes to rent out my house near UC to a bunch of 20 year-olds, I fully expect the thing to be trashed a year later.  Bong water stains in the carpet, holes in the wall, missing tile, broken hinges, etc.   

 

What I have learned through my rentals is that for every 5 great tenants there is another bonehead out there who thinks no one is paying attention. Just last night we had to get the police to one of our complexes at 1 AM because the brother of the tenant, who was staying there for 2 weeks while the tenant was out of town, choose to bring his drug dealing operation to our place and found out quickly that such behavior is not tolerated as they enjoyed a nice ride to their jail cell.

 

I had another one time who broke her own window and wanted to break her lease and get her money back so she cooked up a story to me about being robbed and raped by her ex boyfriend. She planned to meet me expecting to get her rent refunded and full security deposit back and was surprised when I gave her an eviction notice and copy of her 911 tape instead.

 

You may ask, o but it depends on the neighborhood these people live in. While certainly it is not San Francisco with the high end apartments, one of these examples was from someone who rented in Oakley. The other was a suburban working class setting.

 

So, nothing surprises me when it comes to knucklehead tenants.

^ i got out of the rental business a long time ago due to tenant issues.  Fortunately, I sold my rentals off before the great recession.  I couldn't have timed it better if I tried.

^ I still love the business. Just the cost of doing business and I absolutely love the returns. I find the tenant horror stories humorous in the grand scheme of things because it amazes me about people in general and how they could act like that.

 

On the college rental part, we once had a group of guys who threw a party one stormy evening and brought everyone inside. After hours of people spilling beer on the hardwood floors and people tramping in wet shoes, there were puddles on the floor. GIven that they left those puddles of stale beer and water, for 2 weeks, it caused the wood floor to warp in some spots. Instead of notifying us to have us try and remedy, they tore up the warped floor boards necessitating the entire floor to be replaced. The most appalling thing is that when we showed the results to mom and dad who were co-signers on the lease, instead of being angry at their kids, they were upset with us because we fostered an environment to let them party.

This post is hilarious because these "bad" tenants didn't really trash the place at all (complaining about dog poop in the backyard? Really?):

http://www.financialsamurai.com/being-a-landlord-tests-my-faith-in-humanity/

 

I just get the sense that this writer hasn't been around low-class people at all and that didn't prep him for the low-class behavior from these SF preppies.  When the time comes to rent out my house near UC to a bunch of 20 year-olds, I fully expect the thing to be trashed a year later.  Bong water stains in the carpet, holes in the wall, missing tile, broken hinges, etc. 

 

I read around some more on that site and all of his articles come across the same way.  There's even a post about how to "stay under the radar" and connect with the common folk.  I have a feeling he's some Silicon Valley millionaire and his target audience is people who have a net worth north of 7 figures.  At least, that's what I've gathered after reading a few articles and his follow-ups in the comments.  Probably why he's complaining about his tenants, while not entirely taking responsibility for letting them pay rent late 8 times in 24 months.

^Reading his article, he is a horrible property manager. There are a lot of things he does that just make me scratch my head and say, you are contributing to the problem. Owning rental property is not for him, that is for sure. 

^ He sounds like a person that should outsource the property management.

https://finance.yahoo.com/news/why-sec-shouldn-apos-t-201908770.html

 

Why the SEC Shouldn't Reject 4x Leveraged ETFs

^ he wants a 30%-40% ROI without having to do the work involved

^ he wants a 30%-40% ROI without having to do the work involved

 

He even notes how much money he made over the two-year period ($216,000 in rent payments!) but then complains because there was a little trash and some dog poop.  Dude...the cost to "clean" in between tenants is minimal compared to what you're making and you should have built that in to your financial model anyway.

^Also, he's just not a very good writer because he's not enough of a wise ass. 

 

 

I would never borrow money to invest in the market. 

 

 

In the late 90s I heard of two people maxing out their credit cards to buy early internet stocks.  At that time credit card limits were much lower ($2,000 at most for most college students) so nobody ended up $50k in debt, but the two people I knew who did it definitely learned a tough lesson.  Since so many first-time "investors" (they were speculating, of course) a lot money 1999-2001, they and people who heard their stories shied away from the stock market and especially tech stocks for the next decade. 

 

Benjamin Graham's Book The Intelligent Investor taught me a ton [https://www.amazon.com/Intelligent-Investor-Definitive-Investing-Essentials/dp/0060555661/ref=sr_1_1?ie=UTF8&qid=1495822937&sr=8-1&keywords=the+intelligent+investor].  I own the edition from around 1972 and he discusses at length the difference between investing and speculating.  He also sticks completely to stocks and makes no recommendations with regards to real estate, but pretty much everything discussed in the book does apply to real estate. 

 

Choosing individual stocks without researching and following the company for years is basically just speculation.  For Graham, Buffet, and Munger, value investing has always come very easy because they have the discipline to simply not buy anything at retail.  They buy low and sell high, every time.  With real estate, it is almost impossible to get a deal on a single-family house that is brokered through a realtor.  They're not going to let it sell for much less than what it's worth.  You're only going to get deals at sheriff's auctions or on less-popular real estate types. 

 

One of the big reasons why unimproved land can be a great investment is because nobody pays attention to it.  The parcels often stay on the market for a year or more.  Also, you can contact the owners of land that isn't for sale and make an offer to purchase.  This year I bought two vacant city lots from different entities who didn't even know they owned the lots and had never laid eyes on them.  One was a commercial electrician who acquired his lot when he bought out another company. The other lot was owned by an outfit that owns and rents over 100 single-family homes...they got this lot as part of a package they bought from another investor.  I'm working on a third lot right now owned by a church that according to public record is not properly registered anymore, so I'm going to get another deal. 

 

 

 

^ even managing himself, it is not too hard to hire cleaners and the like to clean and do minor maint repairs on the move out. All it takes is knowing how to dial a phone.

You might be surprised. So many college kids are nerds now that they won't mess it up too bad... but I suppose those kind don't tend to go for off-campus housing. The meathead thing has scaled back significantly in the past 5-10 years. You might even have trouble renting it out by then since nerds favor the dorms and the Supermax buildings.

 

I can't imagine being in college without the epic parties and nasty houses and apartments in Cedar Falls, IA.  I did sort of a see a slow down on this from when I first got there to when I left which was a 3 year period.  I always thought it was because I wasn't in the mix as much as I was when I was a sophomore and junior, but later on I learned things were turning "lame", though some of the younger guys knew how to have a good time. But everything I'm hearing on here sounds like it's really slowed down nation wide and it must be happening quick.  I wouldn't change my college experience for any except the time I got a public intoxication walking back to my buddies place, that was no fun

^Also, he's just not a very good writer because he's not enough of a wise a$$. 

 

 

I would never borrow money to invest in the market. 

 

 

In the late 90s I heard of two people maxing out their credit cards to buy early internet stocks.  At that time credit card limits were much lower ($2,000 at most for most college students) so nobody ended up $50k in debt, but the two people I knew who did it definitely learned a tough lesson.  Since so many first-time "investors" (they were speculating, of course) a lot money 1999-2001, they and people who heard their stories shied away from the stock market and especially tech stocks for the next decade. 

 

Benjamin Graham's Book The Intelligent Investor taught me a ton [https://www.amazon.com/Intelligent-Investor-Definitive-Investing-Essentials/dp/0060555661/ref=sr_1_1?ie=UTF8&qid=1495822937&sr=8-1&keywords=the+intelligent+investor].  I own the edition from around 1972 and he discusses at length the difference between investing and speculating.  He also sticks completely to stocks and makes no recommendations with regards to real estate, but pretty much everything discussed in the book does apply to real estate. 

 

Choosing individual stocks without researching and following the company for years is basically just speculation.  For Graham, Buffet, and Munger, value investing has always come very easy because they have the discipline to simply not buy anything at retail.  They buy low and sell high, every time.  With real estate, it is almost impossible to get a deal on a single-family house that is brokered through a realtor.  They're not going to let it sell for much less than what it's worth.  You're only going to get deals at sheriff's auctions or on less-popular real estate types. 

 

One of the big reasons why unimproved land can be a great investment is because nobody pays attention to it.  The parcels often stay on the market for a year or more.  Also, you can contact the owners of land that isn't for sale and make an offer to purchase.  This year I bought two vacant city lots from different entities who didn't even know they owned the lots and had never laid eyes on them.  One was a commercial electrician who acquired his lot when he bought out another company. The other lot was owned by an outfit that owns and rents over 100 single-family homes...they got this lot as part of a package they bought from another investor.  I'm working on a third lot right now owned by a church that according to public record is not properly registered anymore, so I'm going to get another deal. 

 

 

Jake - What are your plans for these lots once you acquire them? Do you plan to develop them or sell them?

 

As a caveat, you can find good investment grade property through a broker. You may not get a single family home because the market is priced differently, but investment property which is valued by income vs comps can be found through a broker.

This post is hilarious because these "bad" tenants didn't really trash the place at all (complaining about dog poop in the backyard? Really?):

http://www.financialsamurai.com/being-a-landlord-tests-my-faith-in-humanity/

 

I just get the sense that this writer hasn't been around low-class people at all and that didn't prep him for the low-class behavior from these SF preppies.  When the time comes to rent out my house near UC to a bunch of 20 year-olds, I fully expect the thing to be trashed a year later.  Bong water stains in the carpet, holes in the wall, missing tile, broken hinges, etc.   

 

I read around some more on that site and all of his articles come across the same way.  There's even a post about how to "stay under the radar" and connect with the common folk.  I have a feeling he's some Silicon Valley millionaire and his target audience is people who have a net worth north of 7 figures.  At least, that's what I've gathered after reading a few articles and his follow-ups in the comments.  Probably why he's complaining about his tenants, while not entirely taking responsibility for letting them pay rent late 8 times in 24 months.

 

He is a San Francisco millionaire and that is his target audience.

 

Keep in mind that place he rented in SF's Marina District was $9,000 a month. Even for the Marina, that's a little bit expensive (five bros in that lackluster rental should be more like $7500-$8500 a month). He's likely making money hand over fist on that property so his "woe is me" attitude is hilarious. None of those pictures are remotely bad. Tenants in SF are remarkably good compared to most cities since everyone lives in fear of eviction and becoming homeless or moving to Oakland. With that said, of course tenants in the Marina are going to party hard. It's fraternity/sorority central, but luckily for landlords, roughly 60% of the neighborhood under 35 is female. The north side of San Francisco has the nicest flats and rentals, and the single women up there generally keep them clean. And most of those renters are rich enough to hire maids too. That's pretty common in neighborhoods like the Marina and Pacific Heights. I'm not saying all frat bros are dirtier tenants, but in San Francisco, the cleanest neighborhoods are the female-dominated ones. Pacific Heights is spotless. The heavily male-dominated neighborhoods are filthy (with the exception of the Castro). SOMA and the Tenderloin are disgusting (though at least the TL is fun!). It's pretty shocking to look at the gender disparities among young singles in San Francisco, but if you live in the Bay, you see it and feel it. Most of these singles are of course renters:

 

http://visualizing.nyc/bay-area-zip-codes-singles-map/

 

If Financial Samurai wanted spotless tenants, he shouldn't have picked a bunch of frat bros likely fresh out of college from out of town. I've had a few dirty female roommates, but only in Oakland. Generally speaking (these are broad strokes), the kind of wealthy sorority girls who dominate the Marina and North Side SF are quite high-maintenance and clean. They have big advantages when renting in a cut-throat market like San Francisco. It's illegal to discriminate on gender, but when 500 people apply for an apartment, landlords can get away with discriminating on all sorts of trivial matters ("They eat processed food! No way am I renting to them!"). The two sorority girls I lived with in San Francisco were remarkably clean (way cleaner than any girls I lived with in Ohio). One was a borderline clean freak, but she was an awesome roommate (one of my all-time favorites). We had keg parties too, but we always deep cleaned the flat right afterwards to make it spotless. Again, nobody wants to risk losing their flat in San Francisco! The consequences are grave. Financial Samurai would have a massive heart attack if he ever set foot inside any rental property in Athens, Ohio...lol, that dude needs to visit real America!

 

*Now Oakland tenants can be real nightmares. Burning Man houses and illegal warehouses can get disgusting beyond belief. Hipster flats can get unbelievably disgusting too. Oakland landlords have way bigger problems than San Francisco landlords. Even San Jose landlords do too (San Jose can get a lot grimier than you'd expect). Hell, even when I lived with USF undergrads in The City, they were spotless compared to anyone I lived with in Ohio. These were some of the few college kids in the Bay who actually did know how to party, but they always cleaned up after themselves (though of course students everywhere in the Bay are lightweights compared to Midwestern party school kids at legendary places like Ohio U). Even the fraternity houses at Berkeley and Stanford are pretty clean. Students in the Bay are very serious about their careers at an early age. It seems like they miss out on some of the fun of college, but most of them walk into extremely high-paying jobs at 23, so who can blame them? Being a landlord of a student rental in the Bay is low-risk compared to places like Ohio. If San Francisco ever had tenants as bad as in Athens, Ohio, half of the buildings would be condemned after one semester!

 

**The dude who writes Financial Samurai lives in a bubble lol. Even by SF standards, he's loaded, and being able to own multiple rental properties in SF means you're filthy rich by any real world standard. He should be thanking his lucky stars he is so wealthy. He constantly posts nonsense about how he thinks SF is undervalued for what it is, which anybody who lives in the Bay knows is pure BS at this point. It's insane how expensive it has gotten here and no amount of hometown bias can justify the Bay being so much more expensive than Toronto, NYC, London, or other truly global metro areas (those other metros have truly global diversity, not just rich kid diversity like in the Bay today). And nothing can justify this housing shortage or people bidding hundreds of thousands of dollars over asking price for marginal properties just because it's in Silicon Bay. While recent buyers in San Francisco will be alright, Oakland and San Jose are likely in massive housing bubbles again. Even lower-tier neighborhoods in SF like the Sunset District and Bernal Heights could see a major correction...Financial Samurai needs to stop pouring so much money into real estate at the top of the market! That's like some 2007 crap right there...

 

The only people who should be investing in San Francisco real estate right now are people with inside connections, special deals, or those buying slightly below market rate in top tier neighborhoods with long-term stability (like Pacific Heights, Nob Hill, Noe Valley, Russian Hill, North Beach, Inner Richmond, Upper Haight, NOPA, etc.). In Oakland, the neighborhoods of Rockridge, Adams Point, Piedmont, and Eastlake/Cleveland Heights are just about the only sane places left to park a couple million dollars in real estate. There aren't many smart places left to buy anywhere in San Francisco and Oakland these days. Even buying in the hyper-gentrified, tech-obsessed Mission could be a gamble right now if there is a tech bubble...buying in SOMA right now could be a terrible idea for multiple reasons...

 

Financial Samurai is right to point out that crowdfunding real estate development looks like a nice way to invest in real estate without the headaches. I think that is quite promising in most American cities. Let the professional developers and landlords deal with the headaches while you still get some solid returns.

I do not use investment money to purchase vehicle anyway. I use money from my rainy day fund that I keep in cash investments.  You also are ignoring the fact that no financing a vehicle gives me more personal cash flow each month that can be invested periodically.  I put it this way.  I would never borrow money to invest in the market.  That's exactly what I'd be doing be financing a vehicle to try to get positive arbitrage.

 

So I finally ran a quick simulation of this.  Loan amount $18.6K over 60 months, at a 0.9% interest rate (this is a common offer from many of the dealerships on new vehicles, at least from what I've seen...some offer less if they're trying to move inventory).  That's 5 years of $317 monthly payments.

 

Now, in this scenario, I assume $500/month in left over income from one's job, typically invested in a conservative stock / bond mix which yields about 4% annually.

 

Let's cover paying in cash first.  Assuming you paid $18.6K in cash and kept the vehicle for 5 years, you don't pay $420 in interest.  I also assume you take that $500 and begin building back up your emergency fund (cash) which earns nothing - it takes you nearly 38 months to build your emergency fund back up $18.6K.  From there, you have 22 months to invest $500/month, and in a conservative mix earning 4% annually, you'd end up with ~$11,873 at month 60, as well as an asset in the car (worth, we'll call it $10K) - $21,873 in net worth, plus the original $18.6K in cash we built back up for a total of $40,473 of net worth (minus car maintenance costs, which would offset anyway with the next scenario).

 

In scenario 2, we opt to finance the entire vehicle purchase at the offered 0.9% interest rate.  We can keep that $18.6K in the emergency fund, earning the 4% annually - if we do that, the $18.6K becomes ~$22,800 at month 60 if we don't have to use it at any point.  We could also keep it in cash and have peace of mind that we're covered for any emergency up to $18.6K.  So back to the $500/month after tax discretionary income - if the $183 excess ($500 - $317 car payment) is continually invested for 60 months, that will become ~$12,200 at month 60.  Asset of the car is the same, of course.  So that's $22,200 in positive net worth, plus (potentially) $22,800 by keeping the initial cash invested.  Net worth potential is $45,000.

 

Financing CAN make sense if you are disciplined enough to keep investing and have a stable job/income stream over the next 60 months.  Obviously, it only makes sense if you get a really low interest rate and have excess monthly income to invest (and are disciplined enough to consistently do it).  The $45K potential also assumes you're comfortable putting your emergency fund in a conservative mix of stocks/bonds - the 4% is just a conservative average.  I'd probably consider something like VWINX from Vanguard (two-thirds bonds, one-third high-dividend stocks) - it's only had one five-year rolling returns average below 4% (2008: 3.36% annual 5-year return).  So the results could be even more pronounced if we assumed a ~7% annual return from that fund.

^ No offense but there are wayyyyyyyyyy to many assumptions in your post that I don't even know where to start.  But first of all, is I paid $18k for a new car, which I wouldn't, I would sure as heck keep it longer than 5 years.  You can easily find great quality used cars in the $6k - $8k range.  Your assumption of nearly 19k for a car begins with a premise that proves my assumptions accurate.

Also 0.9% is for those with FICO 820+. Young people can't have that kind of credit since their history is too short even if they have a great ratio from having tons of high-limit cards thrown at them and not using much of the available line.

Also 0.9% is for those with FICO 820+. Young people can't have that kind of credit since their history is too short even if they have a great ratio from having tons of high-limit cards thrown at them and not using much of the available line.

 

http://www.tanskysawmilltoyota.com/Toyota-Incentives-in-Dublin-OH-Serving-Columbus-and-Powell.html

 

This is just one example - Toyota is offering 0.9% or 0.0% on more than half a dozen vehicles right now (some 60 months, some 72 months).  (Full disclosure - I qualified with a credit score in the 750s)

^ These low rates are only for new cars.  And generally speaking when you finance through the dealer with their low rates they are less likely to negotiate the price of the car.  They wither make the money on the front end or back end, sometimes both.  I do not advocate a new car and wouldn't advocate it for anybody.  It is almost always a poor financial decision. 

Jake - What are your plans for these lots once you acquire them? Do you plan to develop them or sell them?

 

As a caveat, you can find good investment grade property through a broker. You may not get a single family home because the market is priced differently, but investment property which is valued by income vs comps can be found through a broker.

 

They're right by one of the proposed MLS soccer stadium sites in Cincinnati so if that comes to pass I can park cars on them.  I'll probably just sell though to get out while I'm ahead.  In theory you can make a lot more money selling spec houses in a hot city neighborhood rather then unimproved land, but I have zero construction experience and doubt I could qualify for a pair of $350k construction loans to build the $500k+ houses you need to build in order to double what you'd get selling the unimproved land.

 

The big problem with real estate speculation is that you need to time the market perfectly twice in order to maximize gains.  There's no way you actually nail it both times (if you do you're more lucky than good) and so while you might walk away with a lot of money in your pocket, you will always regret that you could have made a lot more.  I personally know a couple who bought about ten vacant lots and vacant buildings in Over-the-Rhine back in 2011-2012 when everything was dirt cheap.  They sold two of the lots for $30k apiece around 2014 but now they're worth $100k+. 

 

^ No offense but there are wayyyyyyyyyy to many assumptions in your post that I don't even know where to start.  But first of all, is I paid $18k for a new car, which I wouldn't, I would sure as heck keep it longer than 5 years.  You can easily find great quality used cars in the $6k - $8k range.  Your assumption of nearly 19k for a car begins with a premise that proves my assumptions accurate.

 

1) I looked at a 5 year-window because that is how long a typical finance loan takes to pay off.  At year 60, the loan is paid off, you have the same asset, etc. so you have the same exact scenario from year 60-end of useful life of the car.

 

2) I picked $18.6 because that's the cost of a new average car - certainly some cheaper options and then some "luxury" options above as well.

 

3) We can re-run using a $7k cost of a car.  On a used car, options are available for financing at 3%.  Over a 3-year period, that's a $204 monthly payment.  Let's also assume $400/month in discretionary spending, the remaining $196/month gets invested.  At 4% annual returns, that builds up to ~$7,518.  You're done paying the car off after 36 months, and end up with, call it a ~$5k asset.  In addition, the $7k purchase price you've kept in conservative investments over the 36 months, which has built up to ~$7,900.  So you started with $7k, and over 36 months have built up a net worth to $20,418.

 

If you, instead, paid the $7k in cash up front and then put the $400/month in discretionary spending back into your emergency fund until you built it back up, you wouldn't have the $400/month to invest until month 18.  $400/month from there in the same 4% fund would net you ~$7,650 in returns.  Assuming you invested the emergency fund contributions in the same 4% mix, you'd have built up ~$7200 plus your additional investments.  At the end of 36 months, you'd have about $20,100 in net worth.

 

It's really quite a wash.  Paying in cash, if you use an emergency fund, leaves you depleted until you build your fund back up.  So it's a personal preference - financing allows you to keep your emergency fund in tact, while paying in cash leaves you more of a monthly cash flow to invest or spend elsewhere.  If you stick with purely conservative investments across the board, you come out ahead a few hundred dollars ahead by financing.  If your non-emergency fund investments are more aggressive and average 7%, then you still come out slightly ahead by financing.

 

(Again, like I said, this is all dependent on the fact that you actually invest consistently and stay disciplined)

If you are averaging 7% returns then the investments have some volatility.  I would never borrow money to invest in a volatile return.  Used cars cannot usually be financed with super low interest financing either.  Vehicles with loans must also be fully insured which is an added expense.  I prefer to carry liability only and self insure against everything else.  I also drive less than 7,000 miles per year. 

In world economy, market beats you!

If you are averaging 7% returns then the investments have some volatility.  I would never borrow money to invest in a volatile return.  Used cars cannot usually be financed with super low interest financing either.  Vehicles with loans must also be fully insured which is an added expense.  I prefer to carry liability only and self insure against everything else.  I also drive less than 7,000 miles per year.

 

I just picked 7% if you prefer more aggressive investments.  It's not borrowing money to invest in a volatile return though - in these scenarios, I'm keeping the down payment you would have paid on the car in a very conservative fund.  Heck, the VWINX mutual fund referenced has only had one three-year rolling average below 2% - most of the three-year averages are 5-6% or more.  If you have $7k in cash, yet choose to finance, and then keep the $7k in a conservative portfolio, you're not "borrowing to invest" - you could pay off the balance of the loan at any time (this probably is not true for most people financing a $20K+ car).

 

https://www.capitalone.com/auto-financing/rates/ - Capital One, you can get rates ~4% or slightly less for used cars.

 

http://www.bankrate.com/auto.aspx - Various options here in the 3-4% range.

 

Like I've said, this is all dependent on a steady income over the life of the loan, actually investing your excess monthly income, and choosing a conservative portfolio wisely.  My personal preference would be to not deplete my emergency fund by $7K - I'd rather keep the $7K for actual emergencies, knowing full well if I lose my job tomorrow, I could pay off the loan if need be.

Would you take out a loan at 4% to invest in the market?  The answer to this question should be the same as whether you would borrow to buy a car. 

In sort-of related news, Bitcoin has come back from the dead and more than doubled in value during the month of April.  I wasn't paying attention and missed all of the excitement.  I don't know if it's related to the appearance of Etherium or not. 

 

It might not be Etherium but it or something similar really has the potential to lift all boats worldwide like early accounting software and UPC bar codes back in the 70s and early 80s.  Right now banks and everything else are weighed down by vast IT staffs working endlessly on ID theft and security.  Block chains could potentially make most of that a thing of the past.  If I understand it correctly, Etherium will enable apps to be integrated with blockchain billing and greatly simplify everything (no more verification steps, etc.). 

 

One dark side of this that if this really takes off and all sorts of speculation starts taking place with cryptocurrency outside the purview of the SEC (no settlement periods) or county auditors (land sales) we could see crazy spikes and crashes.  Real estate has always been slow and will always be slow as long as title research and county recorders keep properties from being flipped within 30 days.  The SEC requires a 3-day settlement for security sales.  This stuff happening out in block chain land will reduce or eliminate floats but enable spikes and crashes that last just seconds. 

 

 

 

Would you take out a loan at 4% to invest in the market?  The answer to this question should be the same as whether you would borrow to buy a car.

 

I just laid out a clear example of how it nets to basically the same thing.  Note that not all of the investments would go into "the market" - it would be a mix of stocks and bonds.  I even gave a real mutual fund you could invest in "conservatively" and its worst 3- and 5-year performance.  I also gave examples of new cars with interest rates at 0.0% or 0.9% over 48-72 month loans.

 

You would prefer to deplete your emergency fund by $6-$8k for something that isn't an emergency?  That was your suggested alternative, no?

 

Anyway, I already went through a couple examples...by the end of the loan, you come out in virtually the same position EXCEPT through financing you get to keep your emergency fund in tact.

Please show me where I can make a guaranteed 4% investment and I will change my mind. 

https://finance.yahoo.com/news/u-pending-home-sales-drop-140000871.html

 

U.S. pending home sales drop for second straight month

 

"Sales activity, however, remains constrained by tight inventories, which are driving up home prices. Housing inventory has dropped for 23 straight months on a year-on-year basis."

Please show me where I can make a guaranteed 4% investment and I will change my mind.

 

Good discussion.  Please see above posts for examples.

I asked for a guaranteed 4% return.  I'll wait for that mythical investment.

 

In other words, I can invest $8,000 in a guaranteed investment with a 4% return with no risk.  Or invest the same $8,000 in an investment that may gain or lose money but will possibly yield a 4% with no guarantee and some risk.

I asked for a guaranteed 4% return.  I'll wait for that mythical investment.

 

In other words, I can invest $8,000 in a guaranteed investment with a 4% return with no risk.  Or invest the same $8,000 in an investment that may gain or lose money but will possibly yield a 4% with no guarantee and some risk.

 

In the other scenario, you draw down your emergency fund for a non-emergency because you don't want to pay $200-$300 in interest.  I'll pay that little extra to keep my cash/emergency fund there for when I really need it.

 

You're not guaranteed 7% for retirement, so why do it?  There's risk in all investments.  I've mentioned VWINX, which isn't guaranteed, but it's only had one five-year rolling return below 4% annual returns (2008 - 5 year return was 3.36%).  This is just one example, but one out of 30+ years below 4% annual returns...that's a risk I'm willing to take.

 

It's just a personal preference and how much risk you're willing to assume.  If you can get greater than 4% over the life of your loan, you've lost out.  If you get less than 4% annual returns, then buying in cash upfront was right.

S&P 500 and NASDAQ hit new all-time highs.  Again.

Same with NYSE. DOW about 50 points from intraday high.

 

Good private payroll/job numbers.

I asked for a guaranteed 4% return.  I'll wait for that mythical investment.

 

In other words, I can invest $8,000 in a guaranteed investment with a 4% return with no risk.  Or invest the same $8,000 in an investment that may gain or lose money but will possibly yield a 4% with no guarantee and some risk.

 

$8,000 is generally the maximum I'd spend on a car which is a tiny fraction of my net worth.  (that is not intended as a brag just a fact) If someone had a CD paying 4% per year for 3 years i would definitely put that money there.  By not taking out a loan at 4% (actually closer to 5% for used cars) it is the same thing.  The last car i bought was very low mileage with no rust but 8 years old.  Most lenders will not lend with favorable terms on cars this old. Further, I do not favor collision and comprehensive coverage but assume that risk myself.  I cannot do this with a loan on the vehicle.  Having that level of coverage is IMO an unnecessary expense.  But different strokes for different folks.  we will agree to disagree.

In the other scenario, you draw down your emergency fund for a non-emergency because you don't want to pay $200-$300 in interest.  I'll pay that little extra to keep my cash/emergency fund there for when I really need it.

 

You're not guaranteed 7% for retirement, so why do it?  There's risk in all investments.  I've mentioned VWINX, which isn't guaranteed, but it's only had one five-year rolling return below 4% annual returns (2008 - 5 year return was 3.36%).  This is just one example, but one out of 30+ years below 4% annual returns...that's a risk I'm willing to take.

 

It's just a personal preference and how much risk you're willing to assume.  If you can get greater than 4% over the life of your loan, you've lost out.  If you get less than 4% annual returns, then buying in cash upfront was right.

Jake - What are your plans for these lots once you acquire them? Do you plan to develop them or sell them?

 

As a caveat, you can find good investment grade property through a broker. You may not get a single family home because the market is priced differently, but investment property which is valued by income vs comps can be found through a broker.

 

They're right by one of the proposed MLS soccer stadium sites in Cincinnati so if that comes to pass I can park cars on them.  I'll probably just sell though to get out while I'm ahead.  In theory you can make a lot more money selling spec houses in a hot city neighborhood rather then unimproved land, but I have zero construction experience and doubt I could qualify for a pair of $350k construction loans to build the $500k+ houses you need to build in order to double what you'd get selling the unimproved land.

 

The big problem with real estate speculation is that you need to time the market perfectly twice in order to maximize gains.  There's no way you actually nail it both times (if you do you're more lucky than good) and so while you might walk away with a lot of money in your pocket, you will always regret that you could have made a lot more.  I personally know a couple who bought about ten vacant lots and vacant buildings in Over-the-Rhine back in 2011-2012 when everything was dirt cheap.  They sold two of the lots for $30k apiece around 2014 but now they're worth $100k+. 

 

 

Jake, if you are looking to develop those properties, I may know of a few developers who may be able to help you, depending on the type of product they build.

Jake, if you are looking to develop those properties, I may know of a few developers who may be able to help you, depending on the type of product they build.

 

Yeah I'll seek out advice from everyone I know if things start heating up in that area.  Condos are happening and the soccer stadium might happen but no new single-family homes are happening there yet.  The horrors of the 2008-09 collapse are still fresh in my mind so I'm pretty risk-averse. 

https://www.cnbc.com/2017/10/30/congressional-scrooges-want-to-cut-401k-contribution-limit.html

 

This may be more appropriate in Current Events, but part of the tax reform plan proposed by Republicans has them reducing the 401(k) contribution limit down to $2,400.  Or not touching it at all.  Or upping it.  No one knows for sure, but it's clear that the 401(k) plan has been considered in the tax reform process.

 

https://www.cnbc.com/2017/10/24/suze-orman-says-70-is-the-new-retirement-age.html

 

Suze Orman says 70 (and not a day before) is the new retirement age.  I guess if you're a habitual spender?

 

https://finance.yahoo.com/news/wall-street-set-open-higher-earnings-strong-jobs-131106709--finance.html

 

Stocks heading to new all-time highs.  Again.

^ wont happen. This is just a negotiating tactic being floated around. Too many people, especially GOP voters would not be in favor of this.