Help Justifying my purchase

[NerdDoc]

OP, I'm in a very similar situation as you and live/work in the same relative area. I live in Bergen County, NJ but work in Orange County, NY. I'm also close to pulling a trigger on a Model S and give up my Model 3 res, but what's making me hold off is Elon's comments about doing the "obvious thing" for autopilot with an event end of the year. I would suggest you go for 75D due to the winter and higher elevations where you'll be driving.

How are you planning on spec'ing the car out?

 

[CapeOne]

go have a look here,
Tesla Model S Cost of Ownership vs. Honda Odyssey

the cost of a Tesla is much more affordable than most ICE cars at 70% of the cost.

The data is over two years old and I don't know how reliable it is. For example, the gasoline estimates shown are well above current averages. At year three (4/2016-4/2017), it is showing the price of regular at nearly double the actual current average.

Even ignoring the inflated gasoline cost, if you add up the purchase price, maintenance, and fuel costs and deduct the resale value (all as shown on that site) the net ‘expenditure’ on the Tesla is about $16K more than the Odyssey Touring Elite at eight years. The Tesla expenditure would probably be about $26K more with more realistic gas price figures.

Even taking all of the data at face value, how is the Tesla coming out "much more affordable" here? Just curious.

 

[xav-]

One question; if you owe $14k on your car and it is worth $14k then you won't end up with any cash in the process. Just an FYI.

I'd say it is a no-brainer to buy a MS. The reason I say this is that you are paying $400/mo in fuel that is just going down the drain. With interest rates as low as they are effectively you'll be transferring wasted money on gas into principal payments on your MS loan. Which means in 5 years you'll save almost $25k in fuel and you'll own free and clear a MS worth $40k+. And you'll have a better car and a more pleasant life

If you want me to I can run a quick financial analysis. I would need to know what interest rate you can likely get on the MS, how much down payment you'll put on it, how much interest you are earning on that money now, and the original terms on your current vehicle loan, and how many payments you have made. Also clarification of the likely sales price of your current car.

A used 5 year model S with more than 100k miles going for $40k+ I think you are off. I say $25k tops.

 

[TEUNTSLA]

its going to come down on your mileage driven and what you compare it to

You are correct, when taking a simplified view the Oddy is cheaper. The NPV calculation he uses does minimize the impact of the later years, and you are correct in that sense thats $15K to $20K difference

When i acquired our CPO S85 I used the same basic calculation (based on Canadian data). I also drive 25K miles/annum, and i was comparing it to a new Merc C-class and CLA amg45.

As i said, if you are in the ball park of 70% ICE cost to Electric you get into the ball park, than it comes down to mileage driven

I've got a Canadian version that i ran some comparisons on without the NPV if you are interested shoot me a PM

 

[Chopr147]

Debt to income doesn't tell the whole story. As you mentioned, some of your debts (i.e. Student loans) are going away sooner than later.

My question would be how many years are left on your mortgage, and what's your interest rate? If you have 20 years left, then even if you get a cheap loan for a tesla, that's money that could instead be put against your principle, which can save a ton of money lost in interest over decades.

If we thought this way ie.... sensibly, we would never buy a new car. Sure I could pay off my mortgage early instead of buying a Model S but wheres the fun in that?

 

[Chopr147]

I'm about 70 miles from the city upstate NY (Dutchess County). I looked at the 60D but there will be days that I have to drive to our office that is in central jersey. On those days my commute will be @ 110 miles each way (I must be crazy right ) but I really like my job, kids are older and I'm an early riser anyway (up by 4:45 AM anyway). So I need to make sure I can get to work and stop for a charge on the way home. Luckily I pass two superchargers on the way home so 15 Minutes for an additional 100 miles is no big deal. Plus I rather finance the upgrade now than have to pay cash for it later on.

And I totally agree with you regarding our salaries and living in NY. I have friend that live down south and make 100K but live better than we do. But I guess it all equals out when we sell our house and move down south later in life.

I have a house nearby in Green County. Beautiful area!
I see where you would need more range. Not to rub it in but I live 8 miles from work. Other than trips upstate (150 miles away) 60D gives me plenty of range. If I need it there is that supercharger in Newburgh almost exactly halfway

 

[CHG-ON]

Apologies for not reading all the posts. So I expect that I am repeating others.

It was, by far, the most expensive car I have ever bought. By a factor of 3. But I had to have it. And I love it!

Yes, I would finance the whole thing at these rates. I did. Then I paid it all a year later off because it worked well for me due to a couple of good things that happend.

Don't even worry about the charging cost. It is so cheap that it doesn't even hit my radar any more. I was paying 650/mth for gas. After changing my electric plan to time of use (EV out here), my electric bill actually DROPPED 100/mth with charging the car. So, essentially, I drive for free. It took changing my energy use at the house, like running appliances and the hot tub during cheap times. But that was as easy as could be.

I went wild and got everything. So I paid a bundle. I am single income at less than your double and it was no problem for me. So to me, your HH income could support this purchase, assuming you have all your other financial goals and long term plans in place and this purchase will not alter them.

Once you drive this car, all your doubts will miraculously disappear. It is hard to understand the impact of this car until after you have had it for a few months. Everything changes. I know. It's hard to believe. But it does. Especially if you drive a lot of miles.

 

[AB4EJ]

Define "a lot". 1.5% (compounded) of principal? You have to compare that to (after tax) whatever else you could do with that same principal.

I try to avoid paying interest whenever possible. I guess maybe I drank too much of the Dave Ramsey Kool-aid. In my experience , it has been difficult to find an alternate investment that would yield a higher ROI (guaranteed, over the entire life of the loan) than the interest on a loan (i.e., so that it made more sense to borrow). Essentially, you are investing with borrowed money, so it ties in with your risk tolerance.

 

[S4WRXTTCS]

I try to avoid paying interest whenever possible. I guess maybe I drank too much of the Dave Ramsey Kool-aid. In my experience , it has been difficult to find an alternate investment that would yield a higher ROI (guaranteed, over the entire life of the loan) than the interest on a loan (i.e., so that it made more sense to borrow). Essentially, you are investing with borrowed money, so it ties in with your risk tolerance.

The hard part is the risk tolerance. We live in such a time where some people are so risk intolerant that they essentially have negative interest rate on money they have. If I'm correcting understanding the way things are right now in the financial world.

But, if you have just some risk tolerance it's pretty easy to exceed the interest rate of the loan by a good margin. For my mom I set up an investment portfolio that nets her around 5% annually. She's not at all tolerant to risk since she lives on a fixed income (she's ancient). But, I tried to make the investments fairly stable ones, and I do act as a backup in case something happens. The only thing that matters is she gets a fixed amount every month.

 

[RogerHScott]

it has been difficult to find an alternate investment that would yield a higher ROI (guaranteed, over the entire life of the loan) than the interest on a loan

It doesn't need to be guaranteed over the life of the loan, unless you ill-advisedly get a loan that somehow locks you in (huge
pre-payment penalty or something). If the loan ceases to be better than the investment, sell the investment and pay off the loan.
The specific low-risk example I'm thinking of is tax-free long-term muni bonds. Even if they're only paying 2-3% these days that's 3-4%
after tax, which beats the heck out of a 1.5% (or even, as in my case, 1.99%) loan. I get the risk tolerance issue, but one needs to
be realistic about all of the risks (including opportunity risks) that one is balancing and not just focus on the "obvious" ones.

 

[Engineer1971]

OP, I'm in a very similar situation as you and live/work in the same relative area. I live in Bergen County, NJ but work in Orange County, NY. I'm also close to pulling a trigger on a Model S and give up my Model 3 res, but what's making me hold off is Elon's comments about doing the "obvious thing" for autopilot with an event end of the year. I would suggest you go for 75D due to the winter and higher elevations where you'll be driving.

How are you planning on spec'ing the car out?

Autopilot is not a big deal for me. Since I'm ordering the car in late October (for Late November/Early December Delivery) I may have whatever upgrade he may discuss. But if not it's fine with me. The current car has more than enough to keep me satisfied.

The options I'm considering are:

75D
Pano Roof
19" Slipstream Wheels
Next Gen Seats
Auto Pilot Convenience Feature
Premium Upgrades Package (Like Power Liftgate Option, Leather Interior , & LED Light Package)
Ultra High Fidelity Sound


I don't want the subzero weather package (as long as I have heated front seats I'm fine) or Smart Air Suspension (Since I'm keeping the car for at least 8 years I don't want to take a chance that this fails and cost an arm and a leg to fix)

 

[Engineer1971]

Debt to income doesn't tell the whole story. As you mentioned, some of your debts (i.e. Student loans) are going away sooner than later.

My question would be how many years are left on your mortgage, and what's your interest rate? If you have 20 years left, then even if you get a cheap loan for a tesla, that's money that could instead be put against your principle, which can save a ton of money lost in interest over decades.

I thought about this as well but my thought process is that I would save about @ 10 years (@ 20 years left) if I continue to drive the car I have today and pay the down the mortgage. The thing is I don't know if I will still have the same commute in 10 years and it will be harder to justify a car like this with a shorter commute. Besides my payments are low enough and we do a pretty good job of saving our money that we see no reason to pay it off sooner. Hopefully as time goes along we will receive raises that will allow us to save more or offset the cost of the car even more.

 

[Model S M.D.]

Autopilot is not a big deal for me. Since I'm ordering the car in late October (for Late November/Early December Delivery) I may have whatever upgrade he may discuss. But if not it's fine with me. The current car has more than enough to keep me satisfied.

The options I'm considering are:

75D
Pano Roof
19" Slipstream Wheels
Next Gen Seats
Auto Pilot Convenience Feature
Premium Upgrades Package (Like Power Liftgate Option, Leather Interior , & LED Light Package)
Ultra High Fidelity Sound


I don't want the subzero weather package (as long as I have heated front seats I'm fine) or Smart Air Suspension (Since I'm keeping the car for at least 8 years I don't want to take a chance that this fails and cost an arm and a leg to fix)

Nice config! I got pretty much the same options (everything except air, cold weather pkg and RFS). I bet you will take back that statement about AP not being a big deal, it is the killer feature of the car imo, especially since you drive so much. You can't fully appreciate it on a 24-48 hour overnight test drive, you must drive it everyday to truly appreciate its value.

I say pull the trigger!! The car really is life changing, seriously. One press of the go ordeal and you will forget all of this detailed analysis I'm already thinking of my next Tesla!

 

[AB4EJ]

It doesn't need to be guaranteed over the life of the loan, unless you ill-advisedly get a loan that somehow locks you in (huge
pre-payment penalty or something). If the loan ceases to be better than the investment, sell the investment and pay off the loan.
The specific low-risk example I'm thinking of is tax-free long-term muni bonds. Even if they're only paying 2-3% these days that's 3-4%
after tax, which beats the heck out of a 1.5% (or even, as in my case, 1.99%) loan. I get the risk tolerance issue, but one needs to
be realistic about all of the risks (including opportunity risks) that one is balancing and not just focus on the "obvious" ones.

Well, I recognize that I have a lot to learn about investments. Still, let me ask this - even if you find an ultralow interest loan (local financial organizations around here are charging 3% for 72 month car loans, but apparently one can do better than that) - isn't it true that with a lengthy loan and zero down payment, you have an asset that is worth substantially less than what you owe for the entire life of the loan? (At least in the case of a car). Which is no problem if you plan to keep the car for the entire life of the loan, and longer; but with a constantly evolving high-tech product like the Tesla, many people would like to get a new one more frequently than every 7 or 8 years, to get the benefits of the new features... and then you're upside down on the loan. I guess you could sell the investment (you mentioned long term muni bonds, but I guess you mean a mutual fund composed of these so that you could sell early) - maybe that's the idea...

 

[RogerHScott]

The specific low-risk example I'm thinking of is tax-free long-term muni bonds

I meant to say "long-term muni bond funds".

 

[RogerHScott]

local financial organizations around here are charging 3% for 72 month car loans

You need to find some better financial organisations. Back in March I got 1.99% for 72 months through Aliant, and I've heard of 1.49%
since then.

you have an asset that is worth substantially less than what you owe for the entire life of the loan

"Substantially" at first (thus, GAP insurance), but the lines gradually converge and eventually cross.

If you are fairly sure you're; only going to keep a car 2-3 years then leasing may make more sense.

 

[Xenius]

You need to find some better financial organisations. Back in March I got 1.99% for 72 months through Aliant, and I've heard of 1.49%
since then..

This is correct, current rate for well qualified buyers (740+ FICO) is 1.49% for as long as 72 months.

 

[jbcarioca]

...


I don't want the subzero weather package (as long as I have heated front seats I'm fine) ...

Were I in your area I'd want the subzero package for the ancillary elements that make inclement winter conditions less of a hassle.

Otherwise, after reading the thread I note nobody has mentioned the one risk you'll run by getting a Tesla. That is that you very well might end up driving more than you plan to. That certainly has been the case for me. Financially that will have less impact than it would were the car ICE, but it still is a factor. For me a happy one, per mile, great, but lots more miles.

 

[Engineer1971]

Were I in your area I'd want the subzero package for the ancillary elements that make inclement winter conditions less of a hassle.

Otherwise, after reading the thread I note nobody has mentioned the one risk you'll run by getting a Tesla. That is that you very well might end up driving more than you plan to. That certainly has been the case for me. Financially that will have less impact than it would were the car ICE, but it still is a factor. For me a happy one, per mile, great, but lots more miles.

I though the same thing at first but none of my previous cars (Audi, BMW and currently Acura) have that option and I'm fine. The car will be Garage kept and I will definitely utilizing the preheating feature when it's parked outside at the office. Heated front seats are standard on the Model S and that's what I'm looking for. The funny thing about it is that my wife had an Acura MDX with heated rear seats that the kids loved it but when she moved to her current truck it didn't have heated rear seats and the kids initially complained (spoiled kids ). But I guess I'm spoiled too since I need heated front seats

 

[buckerine]

This is correct, current rate for well qualified buyers (740+ FICO) is 1.49% for as long as 72 months.

1.49% for 72 is exactly what I got. And I'd go so far as to say that I probably wouldn't get a Tesla if not for the rate.