First Time Buyer - Should I Finance?

[McRod]

Cash vs Financing: A bird in the hand is worth two in the bush.

Most "financial advisers" will advise you to keep your money in the market... that's how they make their money. The stock market is propagated on this premise. As long as everyone plays, we will all get rich! Why do you think their stiff penalties for early withdrawals? That's what I remember from my MBA anyhow. Remember, you don't make ANY money, until you take your money out of the market - regardless of what your statement says from your broker. And when you do take it out, guess what?, Uncle Same wants a portion of it. So that 7%, you thought you were earning, is really only going to be 4-5%. And that 3.75% variable APR loan on your RV, may cost you 6-8% a few years down the road.

Cash flow in retirement trumps just about everything with the sole goal of keeping everyone's hands out of your pocket - including Uncle Sam. Now, if you haven't got to a point where you have some sort of an annuity, then your choice should be to move in a direction that has the potential to earn or save you more money, based on your risk level and savings habits. Reality is, you probably shouldn't be buying an RV.. you should be saving for retirement.

From this thread, I guess there are still people out there that didn't learn from the financial collapse... basically, financing an RV using a HELOC is about the worst thing you can risk... just ask the tens of millions of Americans that just went through their own personal financial collapse as they saw their home values plummet and not only did they lose all their toys, they lost their homes too!

[Onstar20]

Originally Posted by Vacay Wheels

I agree with this approach, too. Putting half down should keep you above water the whole time, which removes a big emotional burden if you need to sell unexpectedly.

Personally, I am a big fan of financing motor homes, especially if you still have significant income coming in. The way I see it, the tax code is PAYING us to finance, by allowing a deduction for the interest.

Here's an example. Let's say we finance $100,000 over 10 years at 3.09%. We pay $16k interest over the life of the loan. Assume a 25% marginal tax rate this reduces our taxes by $4k, for a net outflow of $12k over the course of the loan. That's equivalent to a 2.3% loan. So by pledging our coach as collateral, we can get money pretty cheaply.

What could we do with that money? A moderate/low-risk whole-market bond fund (e.g. Vanguard VBMFX) returned 4.29% annually over the last 10 years. We can take a bit more risk, such as a Target 2040 fund, which comes in close to 7% annually, even through the 2008 recession.

Obviously there is some risk to this approach, which not everyone is comfortable with. For those who are, the access to cheap money is pretty handy.

You over simplified your tax write off example.

[Coma]

We have to be careful applying Macro economic lessons to personal finance. In the last down turn the foreclosure rate exceeded the great depression, from what I read. That said, it is likely that a major portion of those shouldn't have been able to qualify for a loan, given todays standards. Further, the lesson was, lend to those who can't afford it and Uncle Sam will bail me out.

Moreover, RVing is a bad financial decision. Putting cash into a depreciating asset is the same as setting it on fire. The decision can not be based solely on cost. It must have a value component. Cost and Value are different for everyone, which is why there is no one way to do this.

IMHO

[JMonroe]

Originally Posted by McRod

...
Most "financial advisers" will advise you to keep your money in the market... that's how they make their money.

That's also how we make our money, as well as others that have responded here. We packed money away for most of our working lives to be able to enjoy our current lifestyle. So far we've been able to live entirely off the growth of our 401k/IRA investments, not yet needing to tap into the original principle. We found a trusted advisor that helps us with this and yes, that's how he makes his money. So far he's earned it. As I stated earlier in this thread, when we discussed paying off our RV loan he pointed to our investment results which were returning almost three times what the loan was costing us. At that point it was simple math.

Social media will widely and rapidly spread the word of any bad experiences, the "normal" doesn't usually rate mention. The bad does illustrate that "buyer beware" is as relevant as it ever was, but it does not mean that we should all hide in a closet with our coffee can full of cash.

I stand by my earlier suggestion. Research and find a competent financial advisor. We do what we feel is best for us but as they say, "your results may vary".

[McRod]

Originally Posted by JMonroe

That's also how we make our money, as well as others that have responded here. We packed money away for most of our working lives to be able to enjoy our current lifestyle...

That has to feel somewhat disconcerting to know that your livelihood is balanced on the decisions of others to play along in the market. I hope you get everything back that you put into it, you certainly deserve it.

Many Americans establish financial independence by investing in themselves rather than investing in the future performance of others. That's a far cry from hiding in the closet with a coffee can of cash.

The OP asked about paying with cash vs financing and the discussion quickly led to financial investments. At a point in life when you feel financially independent, no matter how you got there, is the right time to buy an RV. It's not an investment, its a luxury expense, and the two really have no business in the same conversation. Our lifestyles of "gotta have it now" has led us to believe that we can ride the coat tails of others to get what we want (not what we need). The further we get in life, the more we believe "we deserve it" because we spent our whole lives doing "something" - even if we can not afford it.

[Bucky1320]

Originally Posted by McRod

That has to feel somewhat disconcerting to know that your livelihood is balanced on the decisions of others to play along in the market. I hope you get everything back that you put into it, you certainly deserve it.

Many Americans establish financial independence by investing in themselves rather than investing in the future performance of others. That's a far cry from hiding in the closet with a coffee can of cash.

The OP asked about paying with cash vs financing and the discussion quickly led to financial investments. At a point in life when you feel financially independent, no matter how you got there, is the right time to buy an RV. It's not an investment, its a luxury expense, and the two really have no business in the same conversation. Our lifestyles of "gotta have it now" has led us to believe that we can ride the coat tails of others to get what we want (not what we need). The further we get in life, the more we believe "we deserve it" because we spent our whole lives doing "something" - even if we can not afford it.

I agree very much. It really boils down to what an individual is comfortable with. If the theory in retirement is to not touch principle of investments and live off the interest (hoping that the interest/profit keeps up) then that's fine. You are stuck making payment. If the market goes nutty and you lose a bunch, then you are stuck twice with no way to meet your obligations. I cannot convince myself that an rv is an investment. I just try to get out of each one with my skin in tact!

The OP asked a question that very much prompted answers that are based on how folks here live their lives financially. They will obviously be very invested in the answers that they give.

[bmurph44]

We are currently having the same debate, to finance or not to finance. Our money will be coming out of a savings account that we have already paid income tax, its only drawing maybe a half percent so crunching the numbers on that is a no brainer, it's the tax write off on interest paid on a loan that keeps us thinking. I'm going with paying cash and no monthly payments and title in hand.

[vapor3000]

Originally Posted by bmurph44

We are currently having the same debate, to finance or not to finance. Our money will be coming out of a savings account that we have already paid income tax, its only drawing maybe a half percent so crunching the numbers on that is a no brainer, it's the tax write off on interest paid on a loan that keeps us thinking. I'm going with paying cash and no monthly payments and title in hand.

Good choice!!!

[Bucky1320]

When it comes to the conversation of being able to deduct interest paid, I really think there are two situations:
1. Folks who would take out of a competitive investment so they could pay cash as the other alternative. The deduction IMO is a part of the equation.
2. Folks who either have the money or would need to save the money in order to pay cash, vs. taking out a loan.

For situation # 2, my response is: "You must really hate the government if you would pay a bank three dollars in order to avoid paying the government one."

[JMonroe]

Originally Posted by bmurph44

We are currently having the same debate, to finance or not to finance. Our money will be coming out of a savings account that we have already paid income tax, its only drawing maybe a half percent so crunching the numbers on that is a no brainer, it's the tax write off on interest paid on a loan that keeps us thinking. I'm going with paying cash and no monthly payments and title in hand.

I agree, if .5% is all you're getting it is a no brainer. As pointed out earlier, you get a break on your taxes if you can write off the interest, but you're still flushing the majority (somewhere between 75 & 85%, most likely) of that interest down the toilet. Where it may make sense to borrow is only if your return on investment is significantly higher than your cost of borrowing.

For us right now it makes sense for us to use someone else's money, for you??

[SteveLevin]

Something else folks haven't mentioned is that cash itself is a depreciating asset. It's called "inflation." Remember what houses, cars, and even milk cost 20 years ago?

If you have substantial cash, you should at least consider investing it in 10 year t-bills or some form of inflation-shielded investment. Even in today's world, you can very safely get 2% on your money (10 year Treasury notes are currently quoted at 2.348%).

And I'd argue that if you don't have enough income to generate a marginal tax rate (to take deduction against), you should seriously reconsider purchasing an RV that can carry significant repair costs. Conventional homes are available with vastly lower maintenance costs and won't leave you stuck in a location you didn't really choose without paying a large repair bill.

Just sayin...

Steve

[ahicks]

Originally Posted by SteveLevin

Something else folks haven't mentioned is that cash itself is a depreciating asset. It's called "inflation." Remember what houses, cars, and even milk cost 20 years ago?

If you have substantial cash, you should at least consider investing it in 10 year t-bills or some form of inflation-shielded investment. Even in today's world, you can very safely get 2% on your money (10 year Treasury notes are currently quoted at 2.348%).

And I'd argue that if you don't have enough income to generate a marginal tax rate (to take deduction against), you should seriously reconsider purchasing an RV that can carry significant repair costs. Conventional homes are available with vastly lower maintenance costs and won't leave you stuck in a location you didn't really choose without paying a large repair bill.

Just sayin...

Steve

Steve, that's the biggest piece of nonsense I've seen yet in the years I've been reading/participating in this forum. I'm honestly offended......
-Al

[27TinTow]

Originally Posted by SteveLevin

Here's a simplified example:

Cash Example:
Dealer Cost on a unit: $100,000

If you pay cash, dealer has to sell for $100,001 to make a profit.

Finance example:

Dealer cost on unit: $100,000
Finance referral bonus from bank: $2000

Dealer has to sell unit for $98,001 to make a profit.

So in the finance example they can sell it to you for $99,001 and make more money than if you bring them $100,001 in a briefcase.

Steve

I personally do Not like to have monthly payments...I Own Everything I have...

I do Remember a Time When Cash WAS KING...Nowadays...Dealers Make More Money Financing something and Are Not all that Willing to discount IF You pay Cash...Simply because Someone else that wants to Know How Much is it a Month Rather than How Much the Actual Cost Is...