Finance whizzes...It's pretty cheap to buy a $200K car....kinda | FerrariChat

Finance whizzes...It's pretty cheap to buy a $200K car....kinda

Discussion in 'Ferrari Discussion (not model specific)' started by tubeguy, May 7, 2004.

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  1. tubeguy

    tubeguy Formula 3

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    #1 tubeguy, May 7, 2004
    I'm getting an equity line of my home because it is sooo cheap.

    E-loan has a 3.75% simple interest-only payment loan, that stays at .25% below prime for the life of the loan. No pre-payment penalty. Go into it or out as you wish.

    Assuming $200,000, that is an interest cost of .31% per month...or about $620.

    After tax write off..if you pay 40% state and fed tax, the interest cost is $372. Or 2.25% per year

    What else do you add? Depreciation...you will take a hit if you pay interest only. How much? Depends on the car. Maybe $800 month on a 360.

    Plus the other stuff...but for the sake of argument leave it out comparing it to other purchase or lease modes.

    Or...have the corporation lease it?

    Makes for a nice way to bullsh*t your way into a new car
     
  2. jordan747_400

    jordan747_400 F1 Veteran
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    #2 jordan747_400, May 7, 2004
    Hm...now there is some promising information for a college student :)
     
  3. Smiles

    Smiles F1 World Champ
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    #3 Smiles, May 7, 2004
    Or you could spend even less on a Daytona, and live depreciation-free. (For me, that makes the justification more tempting...)

    Good post.

    --Matt
     
  4. davem

    davem F1 Veteran
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    #4 davem, May 7, 2004
     
  5. BWS550

    BWS550 Wants to be a mod

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    #5 BWS550, May 7, 2004
     
  6. garysp7

    garysp7 Formula Junior

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    #6 garysp7, May 7, 2004
    I am not a bean counter or a tax planner but I gather you are talking about depreciating the car on your tax return and not the actual depreciation of the car in the market place.
    If you buy your car with a home equity loan, you will not be able to have your business make the payment with pretax dollars due to you deducting the interest on the home equity loan. IF you do that, then you will have to have your accountant charge back the payments to your W-2 as income. You would then have an inflated income on your W-2.
    The cleanest way I think is to find a good auto loan (now 4 year @4.9) and have your business make the payment. You are buying the car with pre-tax dollars. You will thefore save whatever amount of tax bracket you are in. Then after the car is paid for, buy it out from your business for a value you determine.
    Gary
     
  7. tubeguy

    tubeguy Formula 3

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    #7 tubeguy, May 7, 2004

    I meant depreciation as a cost to me, and of ownership. So that remains no matter what.


    We operate as an S-corp, so it all flows to me anyway... I don't see the big benefit to having the company buy it. So the interest is pre-tax on a home mortgage too, no? I don't see the diff. I will ask my tax advisor.

    My point is that an interest only loan, tax deductable interest, is so cheap.

    Any other thoughts on this or ways to structure it?
     
  8. davem

    davem F1 Veteran
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    #8 davem, May 7, 2004

    Rub it in, rub it in!
    Seeya soon Bruce at WWOC.
     
  9. judge4re

    judge4re F1 World Champ

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    #9 judge4re, May 7, 2004
    Okay, nice plan on paper, but what if I paid cash for my house?
     
  10. tubeguy

    tubeguy Formula 3

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    #10 tubeguy, May 8, 2004

    Depends on the best use of money. If you can have a mortgage and get a net interest rate of 2.25% per year on your home and invest it, you may be ahead. Esp in the last year...but of course there are not guarantees of the market.

    Plus these rates are variable...and we may go into a bad time for bonds. But if you are liquid, you can pay off the loan.
     
  11. judge4re

    judge4re F1 World Champ

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    #11 judge4re, May 8, 2004
    Its a toy. If I can't pay cash for it, I don't need it. Still can't understand why people go into debt for these things...
     
  12. noahlh

    noahlh Formula 3

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    #12 noahlh, May 8, 2004
    Because they want them?
     
  13. nickdtm

    nickdtm Rookie

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    #13 nickdtm, May 8, 2004
    Because it's worth it to them?
     
  14. cab2u

    cab2u Karting

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    #14 cab2u, May 8, 2004
    Just so you know, the interest is deductible on only the first 100k on a home equity loan or line of credit if you use the money for any reason. Anything over that must be used for the property on which the loan is secured for the interest to be deductible. There are some exceptions depending on the original mortgage but I do not think it applies to your situation.
     
  15. billh1963

    billh1963 Formula Junior
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    #15 billh1963, May 8, 2004
    ALWAYS PAY CASH FOR TOYS! When our old friend "Murphy" comes to pay you a visit it's amazing how that toy you had to have and love so much becomes something you hate. When you pay cash you own it and are beholden to no one!

    Take it from someone who's been there and is now totally debt free!
     
  16. darth550

    darth550 Six Time F1 World Champ
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    #16 darth550, May 8, 2004
    You won't learn this there but you CAN sell your blood for beer money and hit the sororities! :D

    DL
     
  17. Tom C

    Tom C Karting

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    #17 Tom C, May 8, 2004
    Tube Guy:

    Ask your accountant about the AMT impact on this transaction. It may be a very bad result for you.

    Tom
     
  18. riverflyer

    riverflyer F1 Rookie

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    #18 riverflyer, May 8, 2004
     
  19. tubeguy

    tubeguy Formula 3

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    #19 tubeguy, May 9, 2004

    Lots of reasons. Some good some bad. Nobody has to have a Ferrari, Jet Skis, or high end stereo, or a mechanical Swiss watch. But if I counted on all my customers having zero debt it may be slim pickins to make a living. So reality states most people owe some money. Mortgage, credit cards, or loans secured by biz or cars.

    Why would anyone who is liquid finance it? Money is cheap, and someone could take those dollars and put them into real estate, business inventory, or wherever the most will do the most good. At 3.75% or less to borrow the money it ain't hard to beat.

    I don't have interest in real estate. Boring to me. But should have bought a four-plex that was offered up to me last year when I got my 360. I could have financed 70% LTV on each and been way ahead. Instead I took a small note on the car, and passed on the four-plex. Woops. Not smart. The real estate has gone from $250k to $425K.
     
  20. W00dEar

    W00dEar F1 Rookie
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    #20 W00dEar, May 9, 2004
    if you can do better investment with the money than the loan APR, why would you pay cash??
    Isn't a simple math question?? debt or not??
     
  21. garysp7

    garysp7 Formula Junior

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    #21 garysp7, May 9, 2004
    I see many good postings on finance here.
    The probem many have sometimes is not doing what we know is the smart thing because we want immediate gratification sometimes.
    Pesonally I feel it is wisest to only finance appreciating assets.
    Toys and vacations and everything else I believe in paying cash for. I have lived with the philosophy that if I can't write a check for it, I can't afford it. I am not saying this to be arrogant and I am not extemely wealthy. It is a way I have stayed out of financial trouble in my life and never had financial worries while securing my financial future.
    The only reason I finance cars is because I have a "C Corp" and let the company pay for it with pre-tax dollars.
    If youhave to finance it and pay with post tax dolalrs, then the smartest way is with a home equity loan. There is the issue of the money being used for other than home improvements then and the 100K value.
    But ultimately, you have to have a passion or toy that keeps you playing the game of life. That's what keeps us going and working hard.
    Good luck
    Gary
     

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