Buy used DP with cash or get a loan? - RV-Dreams Community Forum

Gpndavid · RV-Dreams Family Member

Buy used DP with cash or get a loan?

Gpndavid · RV-Dreams Family Member

We are weighing the costs/benefits of paying cash or taking out a loan for a used motorhome. Normally, I like paying cash, but some of our assumptions and considerations indicate it may not be the best move. I appreciate your inputs on my assumptions and calculations listed below:

Assumptions

- After current brick and sticks home sale we walk away with $80K in equity

- Plan to full-time RV for 3 years

- Need down payment for future bricks and sticks home

- Estimate used RV cost of $80K and depreciation of $5K per year

Get RV Loan or Pay Cash?

Loan - $80K; 20 years @4.25%

- Payment = $500 mo

- Interest paid in 3 years = ($10000)

- Principle paid in 3 years = ($8000)

- Tax deduction benefit over 3 years = $300

- Interest on investing equity ($80K @ 6%) = $15734

- RV resale value $65K – payoff $72K = ($7000)

- Non-Tangible:

o Commitment stress of carrying debt

o Opportunity cost (interest potential of $500 per mo investment @ 6%) = ~$1890

o Ready availability of $80K+ emergency fund

Cost (int+prin+payoffdiff) = $25000

Benefits (tax benefit+equity investment) = $16034

Cash available for down payment at end of 3 years

(equity principle+equity interest+resale delta) = Cash available

($80000+$15737-$7000)=$88734

Pay Cash - $80K

- Invest $500 per mo; 3 yrs @ 6% = $19766

- RV resale value – ($80K - 3 yrs depreciation) = $65,000

- Non-Tangible:

o Freedom from debt

o $500 mo available for other living expenses

o No ready $80K emergency fund

o Less flexibility in new home purchase

Cost (int+prin+payoffdiff) = $0

Benefits (mo payment investment) = $19766

Cash available for down payment after 3 years

(mo payment investment+ resale delta) = Cash available

($19766+$65000)=$84766

bjoyce · RV-Dreams Family Member

At least you know how to be realistic with the numbers, since you are accounting for being under water $7000 in 3 years. There is a big assumption that you can resell at $65K in 3 years, it could be $55K and that will really mess up your numbers. The other assumption is there is an implicit one that when you go to sell the RV, it will sell quickly and you won't be paying a payment for months after you want to get off the road. You are also hoping you can get 6% with your money going into a period of history where that is not easy. I was always told 4%, and the last few years that was too high.
We took a loan on our first RV because we thought it crazy to lay out such a large amount at once on a depreciating asset. Then they sold our loan to Bank of America, who immediately moved our payment date up 10 days and we got the notice 2 days before it was due. They charged us $5 to make that first payment because we had to do it over the phone. The second payment was much larger, we paid it off. We could do that.
Find a $60K or less RV since you will need the $20K for something unforeseen.

Lucky Mike · RV-Dreams Family Member

I will second that!!!

there are some beautiful rigs out here available for short money in just 15 minutes of my time I find some great investments that 3 years down the line I would make money rather than loose it. and no matter what break even if anything was to happen!!!

suggestion would be to see whats available in the used market.....PPL has some nice older coaches for half of your price.......there are bank Repo's again for a fraction of the price.......Estate Sales giving them away.........better to take the saved money and invest it for 3 years and take the profit than to take the loss

cherylbrv · RV-Dreams Family Member

I'm not very good at numbers, so forgive me if this is already taken into account.... what are your plans for income in the 3 years you'll be F/T? Will you be living off the proceeds of the sale or will you have another resource?

My philosophy (from years of experience) is "man plans and God laughs". DH and I have been fixing up our house for sale so that we can live our RV dream --- for 3 years now! Every time we get a step ahead, we fall back 1/2 step. We're moving forward, but not according to plan. What I'm trying to say is no matter what you think may be, always plan for the unexpected.

Yes, I suppose we could move our plans ahead if we took out a loan before we sold the house, but we want to go on the road completely debt free, so we must sell before we can buy. We both have careers that can easily be done remotely, but there too, we can't count that our jobs or gigs will be available when we are.

Not sure that answered your question at all. Good luck with whatever you decide!

Jake62 · RV-Dreams Family Member

No doubt you're always better off paying cash and not taking out a loan to finance anything. That is, unless you can beat the interest rate the bank is charging you, to include the tax write-off you get for the RV.

Bill is right ... I know of no three-year investment that's going to net you 6%. You have to be in the stock market for those numbers and, in three years, the market may crash from today's high so I wouldn't count on that. Even short-term bond investments are only generating in 3%-4% and those have risk as well.

We just sold our home in Arizona and will close on July 1st. We hope to do a cash deal in two years for a DP but I want something with a warranty so it's going to take us into a higher price range. We'll see ... but keep us informed on your decision.

lindy · RV-Dreams Family Member

Add to the above comments that you can write off the interest on the loan for the MH on your taxes if you need addition deductions.

bjoyce · RV-Dreams Family Member

We have no pensions and live off our investments. Expecting 6% is totally out of line at this time.

bjoyce · RV-Dreams Family Member

We are talking the next three years, not 30, in this case. You can't compare those time frames or you are doing a massive disservice to someone. That someone might be the one you see in the mirror. 10 to 15 years ago most were easily getting 6% or more, including me. But mortgage rates and simple savings rates were also much higher than today. A few years later lots of people found themselves hurting as interest rates, bond rates, stock index fund returns, etc., became smaller.

RVs can be treated as a home for federal tax purposes if you are a full-timer, so you can deduct the interest. I remember Howard thought it a dumb idea, at most you will get back around 25% of the interest as taxes, unless you are in one of the really high brackets. People will do all kinds of odd things to reduce their taxes by $1000 by spending $4000.

Edit: We got the $5 back from Bank of America once they ran a credit check on us. We paid off the loan because they were slime, not because of $5. What other ways were they going to get extra fees and such out of us?

-- Edited by bjoyce on Sunday 9th of June 2013 07:55:45 PM

Terry and Jo · RV-Dreams Family Member

lindy wrote:
Add to the above comments that you can write off the interest on the loan for the MH on your taxes if you need addition deductions.

This is not a benefit for everyone. Jo always does our taxes and our interest on the loan is not deductible.

Terry

WestWardHo · RV-Dreams Family Member

I just want to know where anyone can get a 6% return an a safe investment. Seriously! 😉

Terry, your RV is your home so the interest isn't deductible? Would you mind explaining?

Thanks,
Sherry

Terry and Jo · RV-Dreams Family Member

WestWardHo wrote:
I just want to know where anyone can get a 6% return an a safe investment. Seriously! 😉

Terry, your RV is your home so the interest isn't deductible? Would you mind explaining?

Thanks,
Sherry

OK, Sherry.

I guess I should have explained a bit more, but I verified some questions with Jo this morning and now I have an answer. In our case, our Suites is financed through USAA instead of a bank. At the time we got the coach, USAA's interest rate was about a point less than the "normal bank loan" at the time. Also, at that time (2010), we weren't living in it full-time. We don't get a document from USAA to submit with our taxes for the interest deduction.

We kind of have the idea that the lower interest rate "compensates" for not getting the interest deduction on our taxes. Plus, we NEVER itemize on our taxes, so the interest deduction would be the only one. In the past, we've had very little to itemize and we never take deductions for charitable donations because we feel that a "deduction" diminishes our generosity. Even being a conservative, I believe that all should pay some taxes for the privilege and benefit of living in this country, so that further explains why we don't itemize.

Terry

WestWardHo · RV-Dreams Family Member

Interesting terry and thanks!

Sherry

jjsbergy · RV-Dreams Family Member

Mike, how do we find out about RV Repos and Estate Sales where they are "giving" RVs away?

Tom222 · RV-Dreams Community Member

I am almost in the same boat as you, when we sale our home we will get appox. $90k equity. I would like to know what investment pays 6% ? No CD, stock?

thanks

Tom

p.s. we are looking at a loan because of the emergency fund.

Lucky Mike · RV-Dreams Family Member

if you find an investment that pays 6% consistently let me Know I will pay nicely for it !!

PD CFK · RV-Dreams Family Member

Mike, a question for you. When looking @ the larger RV sites, the motor homes seem overpriced to me. But then I really don't know. What percent should one expect to be able to deduct from the advertised price of a pre-owned DP, in order to make an educated offer? Thanks, Pk

Lucky Mike · RV-Dreams Family Member

look at the blue book and deduct 30 %.......blue book prices are set according to the MSRP......nobody has ever paid the msrp.......2 normally unless Im looking to buy it pre inspected with a guarantee.....buy it from a private party...or buy a bank repo direct

Gpndavid · RV-Dreams Family Member

Several have questioned my 6% return on investment estimate. Given economics today, I don't blame you. I am not a smart money geek. For 22 years I managed my own finances by putting money in an IRA and investing in in a few different mutual funds. When my father passed away in 2008, I met his financial advisor who he had recently consolidated all his assets with to simplify things for my Mom. I was so impressed with his financial advisor, and so disappointed with my mutual funds loss rate in 2008, that I asked her if she would take over my accounts. She agreed. My funds were transferred to her in 2010. Since then, my funds have averaged a 6.7% annual return and I pay a few hundred dollars a year in fees. In the past 12 months, it has been 12.5%. I told her my plans for the motorhome and she believes a 5-6% return is easily obtainable. I have found that when I don't know much about a subject, it is best to pay someone who makes their living doing it.

Alie and Jims Carrilite · RV-Dreams Family Member

Lucky Mike wrote:
if you find an investment that pays 6% consistently let me Know I will pay nicely for it !!

Ay Mike!!! Acetone, sudzfed, and something else will net you about 200%... just saying! biggrin

melvonnar · RV-Dreams Family Member

I no this thread is rather old, but I hope you don't spend your 80 grand on a used DP, right off the bat you will spend about 5 grand on repairs, don't ask me how I know.

best advice I would give is, go to PPL or any dealer and find what you can buy for 30 grand, you may be surprised, then start hunting for a privet seller, you will save about 5 grand for buying from a privet seller if you have cash. I just turned down a deal (25 grand) on a 37 foot motorhome that only had 18 thousand miles on it. keep looking you will find a deal. save your cash, you will need it. I really wanted that 37 seven footer, but I store my motorhome beside my home and it just wouldn't fit.

And that's my two cents.

Gpndavid · RV-Dreams Family Member

Melvonnar, Thanks for the advice. We are still looking and rethinking the loan vs cash calculations. Sure would add to the freedom lifestyle to just be debt free.

Barbaraok · RV-Dreams Family Member

Guess I hadn't paid attention to this thread before. Yes, a lot of us are getting MORE than 6% on our investments. In fact we have had better than 6% except for the year of the crash. Another option would be to finance part of it, so that you have an emergency fund just in case. In our case we would have had a huge tax bill if we had withdrawn enough from tax deferred investments to pay cash, so financing part made sense.

Now for my however. If you are only going for 3 years don't go with a DP. Buy a nice newer gasser.

Barb

melvonnar · RV-Dreams Family Member

I second that: the 37 footer I was looking at had two slides, perfect for full timing. and it was a gasser

-- Edited by melvonnar on Wednesday 4th of June 2014 06:50:31 AM

DEWhit · RV-Dreams Family Member

That surprises me that every one is looking for an investment or financial instrument at or above a six percent return.

We have large cap, mid cap, small cap and foreign stock funds in 401k and IRA's that made near or over a twenty percent return in the past years.

Like it or not, stocks have been the only growth game recently.

We are not yet fully retired and would not consider it now unless we stayed in some equities since the meltdown.

I cannot imagine not having some position in stocks, if just for the cost of living factor, even in retirement especially since we are not retired state or federal employees with the COLA .

As for the cash or credit question for a RV purchase, I am reading between the lines on the responses I am getting from individuals I talk with that are selling used units and they are definately wanting to sell for quick cash and many discounted for a fair market price. Some units are still financed and were not the best decisions for those with mortgages when they initially purchased and they are now wanting them gone.
They are everywhere and I'm not having to look very hard. I believe this fall and winter will have many lowering prices further.
A dealer told me he is awash in those wanting consignment sales but he is being very particular to steer interest towards his new sales.

I myself would not want to tie up my eventual brick retirement home purchase if that was the plan with the money in RV rolling stock but that is just me.

Buy cheap now for cash. You can always spend more down the road. just an opinion.

-- Edited by DEWhit on Wednesday 4th of June 2014 05:53:59 PM

tigercx1 · RV-Dreams Family Member

I like the suggestion of buying something for 30 grand. You won't get crushed with depreciation in 3 years when you plan on going off the road. There are some amazing deals out there with like new rigs.

Also buying with cash and being debt free would sure makes things more enjoyable.

Mark

-- Edited by tigercx1 on Wednesday 4th of June 2014 06:55:25 PM

Hdrider · RV-Dreams Family Member

Our money has made a little over 10% in the last 2 years and 9.5% over the last 12 months. Our loan is under 3%. and our trade was free and clear which created equity in our new coach. So even if something did go wrong and we had to dispose of it we could and not worry much. So it was easy for us to THROW CAUTION TO THE WIND and do the loan thing. everyone is different.