Am I getting ahead of myself? Pls read

[ggnykk]

Alright, I need some help here...I would like to know if I am going ahead of myself by considering to buy the Model X (say a $100K tag car). I could buy it with cash if I like, tomorrow, but what % of your worth would you put into a car? Knowing that in about 8yrs, it would be all gone.

Sorry if this Q is quite odd in this forum. Likely the members here are the self-selected and already filtered. But I am hoping to catch some in the fence who don't have that $1M+ cash sitting gathering dust not knowing what to do...

My main objective behind why Model X (vs. a X5 or XC90 e.g.) is that:
* I need to replace two cars I have today (a BMW 5 series sedan and a minivan) into one single car that can be fun to drive, be a commuter, and a family hauler and is next generation/futuristic/uses alternative fuel etc. Wife has a separate electric car already for her commute. And we have solar.
* I am now in the market for a $50K-$60K car and Model X is double that. I know it is worth it. But, what % of your cash would you be willing to burn for a car like this? Is 25% worth it? Quite likely in about 8yrs, you would burn through all of it....so, would I? Should I? How did you convince your wife?

thanks so much for reading through...
PN

Just wait couple of months when the non-performance 100D comes out. It will be the longest range EV. Not that u need the 100D, but i am sure the 90D will be on discount coz the 100D is out.

 

[bradnabors]

I could buy it with cash if I like, tomorrow, but what % of your worth would you put into a car? Knowing that in about 8yrs, it would be all gone.

But I am hoping to catch some in the fence who don't have that $1M+ cash sitting gathering dust not knowing what to do...

My main objective behind why Model X (vs. a X5 or XC90 e.g.) is that:
* I need to replace two cars I have today (a BMW 5 series sedan and a minivan) into one single car that can be fun to drive, be a commuter, and a family hauler and is next generation/futuristic/uses alternative fuel etc. Wife has a separate electric car already for her commute. And we have solar.
* I am now in the market for a $50K-$60K car and Model X is double that. I know it is worth it. But, what % of your cash would you be willing to burn for a car like this? Is 25% worth it? Quite likely in about 8yrs, you would burn through all of it....so, would I? Should I?

How did you convince your wife?
PN

Great questions!
My answers in brief here, (more below).

1. Even if it is a few years off, agree that she can have whatever she wants when she buys her next car.
2. Look at the marginal TCO difference relative to your alternatives (cost to purchase and drive).
3. View your TCO as within your monthly family budget -- does not need to use even 1% of your cash.

Some context...
I had a somewhat analogous situation -- we returned from abroad this summer with a 2005 Land Cruiser and to a 1999 Lexus. We didn't "need" two new cars, but we have three young drivers in the pipeline, so additional cars were likely soon.

1. I will start where you ended (how to convince your wife): Agree that her next car will be whatever she wants. Although this was not my explicit strategy, I realized afterwards how my generosity with my wife's new car in June helped her with my decision in September.

2. 25% of your cash as you've defined it above could be perfectly fine.

• First, look at the marginal cost difference to the alternative car. For me, that meant replacing my Land Cruiser for ~$85,000. So my real question was whether the MX six-seater was worth the extra ~$25,000.
• Second, roughly estimate the total cost of ownership (TCO) over the eight years for the MX vs. your alternative. We have solar and cheap electricity, so my cost per mile of the MX vs. the LC was no contest. We have loved our Toyotas, and our LC performed well for five years in Russia, but the additional cost of driving and maintenance the LC will far exceed the "savings" vs. purchasing MX.

3. Unless you are retiring shortly, a $100,000 car will not consume 25% of your cash over eight years. Your TCO, including recharging, financing, insurance, etc. (and assuming a small residual value) might be $15,000/year. You should view this $15,000 within the context of your financial planning and family budget. If the costs are built into your monthly/annual budget, and you continue saving as you have, this purchase should not have any material impact on your net worth.

Of course, this is all theoretical. Ask me again in eight years!

 

[deonb]

Not in America. Several ways to "start a business" LLC with expenses. Separate business income and deductions.

You'd have to get money into the business in the first place for it to be able to pay expenses.

If it's a "business" in quotes, that money will come from you, which will mean you've already paid tax on it anyway.

 

[number12]

You'd have to get money into the business in the first place for it to be able to pay expenses.

If it's a "business" in quotes, that money will come from you, which will mean you've already paid tax on it anyway.

Rent your car on turo one day a month. Deduct other 29 days...

What do you mean? This is about expenses not income.

 

[deonb]

Rent your car on turo one day a month. Deduct other 29 days...

What do you mean? This is about expenses not income.

"Deduct" from what? If your business doesn't have income, you can deduct all day long until you're blue in the face. You'll just go from owing nothing in taxes to still owing nothing in taxes.

The IRS isn't going to send you any money that you didn't actually owe or pay to them first.

 

[number12]

"Deduct" from what? If your business doesn't have income, you can deduct all day long until you're blue in the face. You'll just go from owing nothing in taxes to still owing nothing in taxes.

The IRS isn't going to send you any money that you didn't actually owe or pay to them first.

My fault. I thought people that buy $100,000 cars have some taxable income that they can deduct from. Stupid assumption.

One "company" can make money and one can lose.

 

[deonb]

My fault. I thought people that buy $100,000 cars have some taxable income that they can deduct from. Stupid assumption.

One "company" can make money and one can lose.

The premise that you replied to originally was about people who were NOT self-employed. i.e. Salaried regulars working for another company, and drawing a paycheck every month.

They can be earning $300'000 per year salary from that employer, and thus easily afford the $100'000 car.

But what does it help them to "start a business"? That business entity will have no income. (Unless they put some of their own money in it from their salary, but then it's money they already paid tax on...).

 

[Diavel]

Everyone has a different situation. If you have no mortgage (rent? already paid off a house?) then where the heck can you get a low risk 1.7% return on your money? The best rates are basically 1% for anything secure. Telling someone to borrow the money for the car and then go play in the stock market is no different than borrowing money to play in the stock market, which is a very risky deal.

If you know of a place to get a guaranteed return of 1.5%+ on $100k+ cash, I've got it right here. Let's go!

There are multiple examples but I'll provide one. Put that money in a time savings account overseas (such as Mongolia or Johannesburg) where the interest rate is 6-7% in $ or local currency at 20%. Problem is finding a person to invest it there. That is guaranteed by their form of federal reserve. Unless the whole country goes down the drain, your money is safe backed by their gov't.

You can also put it in low risk funds or index. Wait until after elections where stocks historically dive and invest. Though not guaranteed, if you leave it in there you are pretty much going to be positive historically speaking.

Regardless if you own a house or not, sub 2% interest rate is basically free money. Use other people's money to generate and put yours to good use. It's not hard to beat 5%.

Keep in mind. 3% rate of inflation and 15% tax on capital gains but any person who knows what they're doing will take the loan 10/10 times.

 

[Diavel]

this is Not an advice to you but this is what i would do (actually I've done even more than i care to admit):
i would buy the car on super low interest rate financing available through Tesla and invest my cash into TSLA stock
to me it's a no brainer
also, paying cash for any depreciating asset instead of financing it especially in this super low interest rate environment does not make any financial sense

100k on Tesla stock? As much as I love Tesla, you are advising someone to expose themselves to a tremendous amount of risk especially when we're talking about 25% of net worth.

Only your financial advisor can recommend what to do but it's often a good idea to diversify and consider your ability to gauge risk. Invest right before the apple iPhone 8.

Don't put all your money on one stock, that's just scary. Tesla just got out of the volatile realm, it may be a good bet but it's still a bet.

 

[Diavel]

The website vets the people, and insures the car for up to $1 million of value. I'm about 30 minutes from Boston so there are people around there, though oddly half of the people I've rented to aren't in or around the city. I have the website standard of 200 miles per day for my car, though you can modulate it to whatever number you want. If there are any issues with the car afterwards, you can file an easy quick claim on Turo's site. I haven't had any issues though but do like to creep sometimes using the phone app to see where people are going :E

Misinformation.

Turo only insures the vehicle up to 75k. The rest of the $ is for bodily injury, property damage etc. Teslas may be an exception but they do NOT cover cars up to $1,000,000.

Renters beat up cars. One mistake like putting it through a drive in carwash can hurt the car. Please be careful and choose your renters. The accumulation of mileage is also quickly dropping the value of the vehicle but it's probably still worth it I guess. Turo does not cover for interior damage unless you pay them 30% of rate.

 

[Nick Deng]

You think too much, not as much as the $ you have?

I never drive a sigle car over 30k miles, average life about 1.75 years I can hold on to a ICE CAR but that just me! So never worry about what happens later! My tesla S was my 1st all E car and 16k miles in 8 months, wait for a full 2.0 X soon ! Then my wife will take over the Red S. Will see how long I can hold on X, maybe longer than expected.

Who cares! Tired ICE car? Just go get an all E Car.

 

[deonb]

TPut that money in a time savings account overseas (such as Mongolia or Johannesburg) where the interest rate is 6-7% in $ or local currency at 20%.

I invest in Johannesburg. You can get about 10% on fixed rate investments - but you have to keep in mind that rate reflects the expected currency exchange change, which is loosely tied to the differential core inflation rate between the two countries... which in the case of US/South Africa is about 5%.

So you're really only getting about 5% effective or so. And you get to pick up interesting worries on the short term. Long term it works out ok though.

PS: And yes, I also keep a Tesla loan at 2% and get higher returns elsewhere. Lending Club so far has outperformed that by quite a bit - but that's yet another thing that you have to not think too short term about...

 

[SageBrush]

The notion of putting the Tesla into a "business" that incurs losses that are deducted from a second, actually profitable business might work for me. But so far as I know, a business cannot take advantage of the federal tax credit; or, also in my case, the Colorado innovative car tax credit.

Unrelated comment: this notion of financing rather than paying cash barely passes my personal sniff test* of an arbitrage: am I willing to borrow money at the proposed interest rate for an investment ? My personal answer is yes only if the investment risk approaches zero. The people here who are rationalizing a Tesla they could otherwise not afford by the nominal arbitrage difference in rates without discounting risk are playing with fire.

*sniff test: if it smells like cr*p, it is cr*p.

 

[deonb]

Unrelated comment: this notion of financing rather than paying cash barely passes my personal sniff test* of an arbitrage: am I willing to borrow money at the proposed interest rate for an investment ? My personal answer is yes only if the investment risk approaches zero. The people here who are rationalizing a Tesla they could otherwise not afford by the nominal arbitrage difference in rates without discounting risk are playing with fire.

*sniff test: if it smells like cr*p, it is cr*p.

You realize people do this all the time right? It's called margin.

Similarly people borrow money against their house all the time to invest in a startup business.

That might not be right for you, but different people have different risk tolerances in different stages of life and with different family obligations. If Elon never took any risk we won't have Tesla today.

 

[SageBrush]

You realize people do this all the time right? It's called margin.

Indeed. That, however, is not an arbitrage. Read the posts again of people who state with confidence that financing is less expensive than paying cash. They are neglecting the associated risk.

I don't care what investment risks you or anybody else take, so long as I don't have to support the failures. Just do not go into it blindly. By the way, that Joh* word is too much trouble to type. Iceland is easier ;-)

 

[deonb]

Indeed. That, however, is not an arbitrage. Read the posts again of people who state with confidence that financing is less expensive than paying cash. They are neglecting the associated risk.

I don't care what investment risks you or anybody else take, so long as I don't have to support the failures. Just do not go into it blindly.

I've read through the post and can't find the one you referred to where someone seemed oblivious to risk. Can you quote it?

However, as a general rule, when someone has $100'000+ cash sitting in a liquid investment that they can make a choice to either withdraw and buy a car cash, or keep as an investment, they're most likely not neophytes to investing. So I don't think your "go into it blindly" comment is quite warranted.

 

[SageBrush]

I've read through the post and can't find the one you referred to where someone seemed oblivious to risk. Can you quote it?

Here are a few, for your enjoyment. Yours should be added, of course, since you write '10% - inflation' without mentioning default risk.

Finance the X, use my referral (save you a $1000 so it's only $99k, lol), invest your remaining cash. Have your money work for you. I surely don't have $1M+ under my mattress. As long as you live by your means everything should work out.

I don't understand all these people paying cash. It's 1.72% interest. What mortgages do you all have 1%? I mean finance the car and pay down a house.. Mind blown.

this is Not an advice to you but this is what i would do (actually I've done even more than i care to admit):
i would buy the car on super low interest rate financing available through Tesla and invest my cash into TSLA stock
to me it's a no brainer

SolarCity was selling bonds with 6.5% interest. I'm not sure if that deal is still going or not though. I know it was a limited time.

- You can get really cheap money and while we're in a period where you have to chase yield, there are things out there. Many blue chips will pay 2%+ in annual dividends, you can fiend tax-free bonds that will yield more than that. So net net, borrow sub 2%, make more than 2% on your money. Positive return overall.

I am 23 and am worth only about $100,000, but have a buisness mind so easily made this work. Ordered and picked up a MX in July that cost just over $100,000, and financed $80k of it.What I'm doing is renting the MX on the website TURO.com at least 2 days a month,

Investments are making some money, but cash is not.

 

[deonb]

Here are a few, for your enjoyment. Yours should be added, of course, since you write '10% - inflation' without mentioning default risk.

Seriously? I did that literally right next to it in the same sentence. And again 2 later.

"10% on fixed rate investments - but you have to keep in mind that rate reflects the expected currency exchange change, which is loosely tied to the differential core inflation rate between the two countries... which in the case of US/South Africa is about 5%. So you're really only getting about 5% effective or so. And you get to pick up interesting worries on the short term."


As for the rest, I don't see anybody above who says anything they recommend is risk free. Have we really come to a society where we need to pre-fix and post-fix every single sentence we write with: "just in case you didn't know, all investments carry risk" ?

BTW: If someone assumes e.g. SolarCity bonds at 6.5% is risk free, they shouldn't be allowed to be in charge of their own money.

This doesn't change the fact that borrowing money at 2% on a car loan vs. 6.5% on margin loan (~current rate for that value), the car loan is cheaper. What you do on the investment side of that is up to you.

 

[SageBrush]

Have we really come to a society where we need to pre-fix and post-fix every single sentence we write with: "just in case you didn't know, all investments carry risk

You do when you propose it as the smart alternative to a cash buy.

 

[Diavel]

You know both of you don't really have a fundamental disagreement. Just a placement of disclaimer as you both agree @SageBrush & @deonb that investment carries risk.

Be aware that if one were to invest and lose part or the whole amount and be inherently stuck with the X payments so don't put everything I one place unless you have vetted that investment well. Otherwise you might as well go to Vegas and bet everything on black.

Re Johannesburg, is that 5% if you deposit in local currency? In Mongolia the return is 20% guaranteed but you have to put it in local currency and 6-7% if in US greenbacks so currency won't change.