Author Topic: No More Car Depreciation  (Read 815 times)

Mustacean

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No More Car Depreciation
« on: March 20, 2017, 11:38:21 PM »
As I go along in my search to reduce or eliminate expenses I keep coming back to the seemingly unavoidable expense of automobile depreciation. I think my car purchases are more or less inline with the mustachian philosophy in that I tend to buy used cars that are 8-10 years old with about 130 - 150K miles for about $5,000 or less and keep them for about 2-3 years. I now have a 2003 Ford Focus with 185K miles that I bought 3 years ago for $2850 and now estimate to be worth about $1000. My last several cars have experienced the same approximate depreciation. With this experience I have been estimating about $83 of monthly expense accounted to depreciation.

I now need to replace my Focus and that has got me thinking about the depreciation. Has anyone here had success in eliminating this cost? I have been thinking that there may be some hope in purchasing a car in this price range every 6 months or so and reselling it in this cycle. Seems every 6 months I might be able to buy a used car on craigslist and sell it for what I bought it for. Think this might be doable?

SnackDog

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Re: No More Car Depreciation
« Reply #1 on: March 21, 2017, 02:12:30 AM »
If you don't mind being a bit of a used car salesman you can even make money on your vehicles. Buy them at auction, clean them up, and sell for a profit. Get a dealer license so you don't have to register them. I had a neighbor who did this as a side gig. He had a six car garage and a boy who worked part time to clean and address cosmetic issues. When ready for sale, he wrote the price in huge letters on the windshield and parked them near a busy street. Sold several cars per month.
The habit of saving is itself an education; it fosters every virtue, teaches self-denial, cultivates the sense of order, trains to forethought, and so broadens the mind. –Thomas T. Munger

Car Jack

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Re: No More Car Depreciation
« Reply #2 on: March 21, 2017, 07:24:02 AM »
It depends on the costs that your state imposes for buying a car.  For me:

Sales tax 6.25%
Exise tax (personal property tax) 2.5%
Title fee  $75
Registration fee $50
Inspection $35

So even if I get a killer deal of a car for say $1000, I'm going to pay $282.50 just to get it on the road.

I think the longer you can keep a car on the road, the lower the costs. 

Spork

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Re: No More Car Depreciation
« Reply #3 on: March 21, 2017, 08:11:52 AM »

There are a few that poopoo buying used cars due to the added risk of the car you don't know.  I mostly think this is bunk.  The risk is there, but if you're buying decent used cars and driving them 5-10 years, it's minimal IMO.

BUT... if you start buying really cheap used cars every 6 months... I believe this risk becomes real.  I think you are likely to reduce/eliminate depreciation and replace that cost with maintenance/registration/taxes.  If you're buying 2 cars a year for 10 years, your chances of getting a lemon start becoming a reality.
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Midwest

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Re: No More Car Depreciation
« Reply #4 on: March 21, 2017, 08:20:52 AM »
I buy cars w/about 30,000 miles and keep them forever.  Every time you buy, you incur sales tax.

Example, current vehicle purchased for 11,000 w/30,000 miles.  We are now at 185k, 14 years later.  It's still worth 4k.  If we estimate 4k for repairs over the life of the vehicle (new engine at one point), depreciation/repairs is 65 per month.  If we look at pure depreciation, $42 per month at this point.

With your six month flip model, you would get eaten alive by sales tax in my state.

Mustacean

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Re: No More Car Depreciation
« Reply #5 on: March 21, 2017, 11:17:23 AM »
It depends on the costs that your state imposes for buying a car.  For me:

Sales tax 6.25%
Exise tax (personal property tax) 2.5%
Title fee  $75
Registration fee $50
Inspection $35

So even if I get a killer deal of a car for say $1000, I'm going to pay $282.50 just to get it on the road.

I think the longer you can keep a car on the road, the lower the costs.

There is no sales tax where I live and no inspection required so my only costs are:

Title Fee $77
Registration Fee $86
Plate Fee $6

So, $169 for each purchase, or $28/mo. on a 6 month purchase cycle. Still a savings of $55/mo. Between my wife and I we drive two cars so savings would be $110/mo.

BUT... if you start buying really cheap used cars every 6 months... I believe this risk becomes real.  I think you are likely to reduce/eliminate depreciation and replace that cost with maintenance/registration/taxes.  If you're buying 2 cars a year for 10 years, your chances of getting a lemon start becoming a reality.

It does not have to be a really cheap car to have the same effect. A $3000 car with 130K miles vs. a $8000 car with 80K miles would likely incur higher maintenance costs but it costs me no more to buy and sell the $8K car than it does the $3K car. Except the opportunity cost that the $5K could be earning if invested. At 8% APY this cost is about $33. So, now this is getting closer to a wash... but, I think another unaccounted for savings is that as long as I bought cars with tires that have plenty of life, I will not need to replace them in the 6 month period! a $400 savings every couple years!

alsoknownasDean

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Re: No More Car Depreciation
« Reply #6 on: March 25, 2017, 12:53:31 AM »
Depends really.

Ultimately, the only way to do so is to either buy a car for significantly below market value and sell it for at least what you paid, or buy something old (and/or desirable) enough that it's value remains steady or increases.

Have a read of this:

http://www.mrmoneymustache.com/2016/01/28/the-man-who-gets-his-cars-for-free/

Although, buying a good condition 5-10 year old smaller car and driving it for a long time is still pretty good compared to the general population.

jerseymark

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Re: No More Car Depreciation
« Reply #7 on: March 25, 2017, 05:45:46 AM »
The only time this has worked for me is when I bought cars with some type of problem or I got lucky(jeep wranglers sometimes appreciate).

One example I had years ago - I bought a Pontiac Firebird(I know not mustachian but I liked that type of car and as a poor student back then it was one of the few "cool" cars I could afford).  The firebird had coolant leaking into the passenger compartment - a common problem when the Heater core leaks.  I knew the repair was inexpensive for parts(I estimated about $50-$100) but could be expensive in labor($1000 with labor).  I paid a low price for the car.I repaired it myself for about $50 and drove the car for 5 years.  Sold it for 20% more than I paid.