How bad is buying a $30K car?

[JLee]

We're in the midst of deciding on another vehicle similar to this situation. Currently we've got a subaru mustachian wagon that's been great and only cost $1800. We'd obviously keep the grocery-getter, but I've got my eye on leasing a new (double cab/long bed) 4x4 Tacoma. And here's a few reasons why:

I can write off a large portion of a lease payment/insurance/etc being an independent contractor..  Whereas if I bought, that's a huge chunk that could be invested at a higher rate over the course of time. Taking a loan out for one would require a larger down payment, and would equate to a larger payment each month and only be able to write off the business use percentage on the interest of the loan. Not to mention the fact DW and I would be splitting payments, regardless.

Toyota's are best known for holding their value; especially in my area of the Northwest. Residual value on newly leased Tacoma's is between 70-75%. And the key would be to absolutely purchase after the lease ends at a low interest rate through a credit union. If I decided to, even if I maxed out a 36k mile lease term and owed 22k on a ~31k truck, I could sell it for the local going rate of around 28k and get a good chunk back. But we'd most likely keep it.

We also do a lot of outdoor activities, road trips and weekend warrior projects that definitely warrant a solid, reliable truck. Taking a subaru wagon in the backcountry isn't ideal, and I don't like spending money on alignments or new tires after the fact. DW and I can rig the bed of the truck up to make it into a "tiny camper" with a canopy shell... so that covers our camping rig as well. And we drive less than 10k miles/year... even if we made it to 200k miles.. that's 20 years of good use!

Although there's lots to go over, both positive and negative, figuring out which outweighs the other has been racking my brain for the past couple years.

Why lease first, and not just buy it in the first place?

[paddedhat]

Rockwater, you might want to take a look at Consumer Reports and the enthusiast's websites before getting too serious about a brand new Tacoma. CR calls them a "worst buy" and there is significant evidence that they are far from the class leading, bulletproof machines they were in the past.

[StephenP]

So I want to buy a truck in the $30K range. A slightly used Ford F150. It is not a total need but it would be very convenient for my lifestyle. I have a couple of rental properties that I do all the maintenance on and I mountain bike and kayak and go camping in the mountains and it would be very convenient to have a truck. We have a household income of ~$200K per year including our rental property income. We have one other vehicle that we probably owe about $10K on. Our family net worth is about $500k including equity in our three houses. We save probably $70K per year. The vehicle I drive right now I paid $3K for.

How bad of a financial decision is buying this truck going to be? How much time is this going to delay my retirement by?

One thing I would advise against is long-term financing. You said you owe $10k on your other vehicle, which likely means you weren't thinking of paying cash for your new one. Do the total math on the interest you'll pay, not the sticker price of the vehicle. The average lease term in Canada is 70 months now, not sure what the US is but I can't imagine it's much better. At 3% interest rate over that time, with $5k down, you're looking at an extra $1500 total. Some people might not bat an eyelash at it, but some people would rather pay cash to ensure they don't have to pay $1500 more than they have to.

Buying a car that's more expensive than you need is never a great idea, it's an emotional one. That said, don't discount emotional satisfaction as an aspect of financial planning. It sounds like you're doing pretty well in terms of investing and producing income streams, so spending an extra $20k on something you use every day might be considered a reward. Occasional rewards for doing well financially is one of the benefits of doing well financially, you shouldn't have to wait until you're 65 to buy something you want.

[Turnbull]

We're in the midst of deciding on another vehicle similar to this situation. Currently we've got a subaru mustachian wagon that's been great and only cost $1800. We'd obviously keep the grocery-getter, but I've got my eye on leasing a new (double cab/long bed) 4x4 Tacoma. And here's a few reasons why:

I can write off a large portion of a lease payment/insurance/etc being an independent contractor..  Whereas if I bought, that's a huge chunk that could be invested at a higher rate over the course of time. Taking a loan out for one would require a larger down payment, and would equate to a larger payment each month and only be able to write off the business use percentage on the interest of the loan. Not to mention the fact DW and I would be splitting payments, regardless.

Toyota's are best known for holding their value; especially in my area of the Northwest. Residual value on newly leased Tacoma's is between 70-75%. And the key would be to absolutely purchase after the lease ends at a low interest rate through a credit union. If I decided to, even if I maxed out a 36k mile lease term and owed 22k on a ~31k truck, I could sell it for the local going rate of around 28k and get a good chunk back. But we'd most likely keep it.

We also do a lot of outdoor activities, road trips and weekend warrior projects that definitely warrant a solid, reliable truck. Taking a subaru wagon in the backcountry isn't ideal, and I don't like spending money on alignments or new tires after the fact. DW and I can rig the bed of the truck up to make it into a "tiny camper" with a canopy shell... so that covers our camping rig as well. And we drive less than 10k miles/year... even if we made it to 200k miles.. that's 20 years of good use!

Although there's lots to go over, both positive and negative, figuring out which outweighs the other has been racking my brain for the past couple years.

I don't know where you are in the Northwest, but what about something like this?

https://seattle.craigslist.org/kit/cto/6163454620.html

I bought a 6MT 2006 Tundra (2wd)last year with 14x,000 miles for $4800. I would drive it anywhere and plan on keeping it forever. It's always pulling a trailer for my mowing business, hauling pine needles for my blueberries, or piled up with beekeeping equipment. It hasn't let me down yet and I don't expect it to anytime soon. A friend has a Tacoma and after being around both of them I would never buy a Tacoma when the Tundras are similarly priced.

Do you have kids and therefore need a double cab? I could understand not wanting to cram kids into the extended cab area for a long road trip.

[RangerOne]

Relative to people on this site, that's a pretty bad choice from the standpoint of being frugal.

Relative to an average American, it would probably put you in the spitting range of the pinnacle of frugality.

I always like the 1/10th rule as a gauge of where we start to consider a car purchase relatively frugal. Don't spend more than 1/10th your gross yearly income on a car.

That kind of squares with recommendations around here of trying to keep a car purchase at our below $10k, assuming many readers are within range of a lower 6 figure income.

Realistically that rule would put you at a $20k vehicle as being pretty "frugal". At $30k we are still only talking 15% of your yearly take home. I honestly think you are completely justified in spending that. People with that income depending on location and amount of kids on average are likely driving a more expensive car or even worse leasing.

Just don't lie to yourself. By choosing to spend $30k instead of $25k or $20k you are doing so likely as more of a luxury and robbing yourself of a chance to create wealth even faster. But hey your primary goal may not be very early retirement.

If you really just wanted utility my engineering co-worker with 3 kids just shopped to get a family van that could handle a growing family. I think he is shooting for 5 or 6 kids. He also wanted the vehicle to be able to tow a decent load.

His final solution? He picked up a used Ford 8 seater commercial van with a towing package. A standard family van with 30-40k miles, even used, runs probably $30-$40k and it can tow at all. The used Ford commercial van cost him $18k with a towing package, 30k miles and 2 rows of removable seats for mass storage. It even has a back up cam... He might not look as cool as the person driving the nice truck or SUV though, depending on what you think is cool.

[Paul der Krake]

Relative to people on this site, that's a pretty bad choice from the standpoint of being frugal.

Relative to an average American, it would probably put you in the spitting range of the pinnacle of frugality.

I always like the 1/10th rule as a gauge of where we start to consider a car purchase relatively frugal. Don't spend more than 1/10th your gross yearly income on a car.

That kind of squares with recommendations around here of trying to keep a car purchase at our below $10k, assuming many readers are within range of a lower 6 figure income.

Realistically that rule would put you at a $20k vehicle as being pretty "frugal". At $30k we are still only talking 15% of your yearly take home. I honestly think you are completely justified in spending that. People with that income depending on location and amount of kids on average are likely driving a more expensive car or even worse leasing.

I'm a big fan of the 1/10th rule because it's simple and works well for everyone from the fresh grad earning $30,000 to the established professional pushing 500k, but only as an upper limit, not something to strive for.

[aceyou]

I like the 2% of net worth rule because it makes me feel extravagant with what I've already got.  2% of net worth of 500k is 10k, so both my wife and I each have a 5k vehicle.  So instead of feeling like we own something cheap, I'm like wow, I'm really pushing the fanciness limits here!!!

[big_slacker]

Rockwater, you might want to take a look at Consumer Reports and the enthusiast's websites before getting too serious about a brand new Tacoma. CR calls them a "worst buy" and there is significant evidence that they are far from the class leading, bulletproof machines they were in the past.

I really don't want to be the default taco defender here but he'd presumably be buying a 2nd gen with the 4.0, not a brand new one. Jury is still out on the new ones, but I'd be looking at the colorado diesel really seriously against the new taco.

[BTDretire]

Love our 1997 Totota T-100 we paid $11,000 17 years ago.
It has just a little over 100k miles on it, I expect another 17 years with it.