I am looking to buy a car for my wife- around the 50k mark. Although I don't really like splashing out on depreciating assets, we do have another bub on the way and we need a bigger family car. My question is this: Lets just say I found a property for sale at around 50k and it rents for $150 per week and I pay cash for it with no loan and then I did some minor upgrades and got the property valued at 60k. Could I draw the equity out of the property to buy the car and have the rent pay the loan down? So basically I would have a car and a property for the same outlay?
If you draw equity out of an investment property for a personal purchase the interest on that loan won't be tax deductible. I would presume you would be better off borrowing as much as you can to buy the investment property and paying cash for the car.
Yeah, You are going the wrong way. Pay cash for the car, and borrow to buy the property. Your interest rate will also be lower. Blacky
Purpose of funds determines tax deductibility - much better to have an investment resi debt and cash paid car - in terms of tax and borrowing capacity. Good luck finding a decent 50k property.
I actually have found an off market 50k property returning $150 per week in a rural town which I do not expect to have any CG. Its a 1 bedder and is very low maintenance. And I know what you mean about the tax, that has been what I have been questioning as well but I keep coming to the same conclusion. It will be positive geared so the tax incentives won't be amazing any way. But if I pay cash for the car then there are no incentives there either- and I wouldnt buy the property just to buy and hold anyway. This concept has just got me thinking that for a 50k outlay I can have a car or a car and property. There are always risks like property maintenance and occupation and I have weighed these up but can't really see why this is a bad idea if after all thats said and done the whole deal ends up positive in return.
Borrow $40k for the property and claim the interest while paying cash for the car. Or Borrow to buy the car not being able to claim the interest and oay cash for the property with no interest to claim.
Wind forward 5years. You will have a car worth $0, and potentially a paid off house which is (hopefully) worth $50,000. You will have incured ~$5,000 in buying costs, and another ~3,000 in selling cost. You are looking at -$8,000 in equity. Over 5years you will have earned $39,000. Spent ~$12,000interest +repairs, maintenance, agency costs etc (call it $3,000/year) $15,000. Profit of $12,000 over 5years. Less $8,000 in buying and selling costs =$4,000 over 5years (less tax). Or pay cash to buy the car. without the risk and hassle of holding an ip which isnt making you diddly squat - which will probably be hard to sell. You could also pay cash for the car. Then take out a 'car loan' and transfer the funds to an investment accound (eg shares). The loan will remain deductable. Blacky
Yeah I know. What you say makes sense and the hassle prob wouldnt be worth it, but I just can't bear the idea of spending 50k on something that will be worth zip in 5 years with no tax benefit. Trying to think outside the box a bit
So go option 3 Pay cash for the car. Borrow against it and put it into a managed fund. The interest on the loan (if done properly) remains deductable. Blacky
Or don't buy a 50k car? Buy a 2 year old car with cash that somebody ELSE paid 50k for. And still buy the property. I always pay cash for my cars cause you know, car loans are annoying and hamper your BC and all that.
You can get brand new cars for less than $20k these days. I would rather pay $10 for a car and invest the remaining $40k
Well... theres always that. A large car doesnt have to mean a brand new all singing all dancing large car.
This is true. Its kinda my own fault because I have promised my wife this for a while as she has endured numerous renovation projects and investment ventures with the sacrifice of expensive holidays and shiny things that girls love. She is gonna get her nice car but I am looking at ways to somehow get a return on this outlay. I agree, I would rather do that as well. Its what Ive always done
Also having a look at some numbers, Paying $50,000 for a rural property seems highly risky. Have you calculated insurance, maintenance, council rates and also increase in tax since its cash flow positive?
I never use cash for cars? Why for me personally I would rather use the cash on a investment or shares but also there are some competitive deals at the moment. I bought a merc c 200 two years at 0% finance .
It's a lifestyle cost - money is there to be spent after all. If you feel that you can't afford it, then don't get it. Otherwise loosen the purse strings and enjoy it before you can't.
