[Financial Advice] - Buy an e30M or just keep on the road of debt free?

[G-Man the Visionary]

At what point will the majority (like 75%) of your monthly payments be going to the principal? From what it sounds like, you've already paid it down enough that the interest is less than half the payment. You can probably find a good amortization calculator to throw all your info into and check it out, or maybe it'll say on your statement.

[Thizzelle]

buy it. It's just money and you will eventually get it back. You'll look back and kick yourself for not doing it and all the joy it would bring you (maybe). I'm probably never going to retire, so that's why I'm just like buy it now guy.

[Eric]

Think of buying an E30 M3 right now like buying a house back in 2008/09. Looking back at the housing market swings of the late 2000's would holding off a few years buy you a better house for the money?

[markseven]

Eric, I would agree, however there is no surplus M3s like there were houses in late 2008...

[Thizzelle]

Yeah it's dwindling

[N2MYE30]

Im probably one of the few that my bucket list has no mention of an M3. But that is a personal choice. Id say if that M3 (or where every you want to throw money at) is on your want list, go for it as long as you can balance your debt. Your not getting any younger and you could be checked out tomorrow.

[2mAn]

Its not a good time to buy a M3.

Its a good time to take advantage of the stock market, especially if you're in your early 30s. Reality is that if you made one extra house payment per year and put the rest into saving for retirement, you will pay down a ton of interest (you already seem to know this part), but you are also missing out on the time needed for your IRA account to grow. Ive been dumping as much money into my 401k and IRA as I can afford.

I still have debt (its manageable), but Im not concerned about that as much as I am about how much money I will have when I cant work anymore and want to retire.

[rcsoundn1]

In the end I feel this will come down to personal choice. For me, my wife knew I was a car guy and from the start said, we can budget for you to have a car, we just need to be open about it and make sure we save as well. We have been able to do that, but it does require good finical oversight. We don't necessarily pinch pennies, but we do have set amounts we put in too savings and 401k plans. Sometimes the project cars have to wait because he had a difficult month, but we do our absolute best to never to take money from our savings. If you can buy the car and still save money as well as pay your bills, I would consider it. If it stretches you to a point where any problem would cause great hardship, might have to wait longer.

[gte175x]

First off, I'm biased, I own an E30M. And I bought it just before they started skyrocketing. They were going up, but nothing like now. But that was a happy coincidence, as an investment, it has gone up in value....but that was only a bonus. I would say that if I sold it today, I definitely wouldn't have lost and I would have earned money on the car to beat your traditional savings account. Maybe more - but I didn't buy it for that reason.

Couple of questions: Have you ever driven an E30M? Seen 1 up close? Sat in one?
If no, I suggest you try. Sometimes our Heros don't live up to the hype. I love it, but I also owned a regular E30. And I wouldn't even call the E30 regular - it is 1 hell of a car. the M only makes it rarer and cooler, and I love owning it. Not trying to push you off the M, just either solidify your goal or not. You shouldn't lose money on the car if you decide you don't like it - unless you blow the motor up or get into an accident. (side note to consider, these car are not cheap - parts wise)

Another question - are you considering that your interest is a tax deduction? Right now, you want to get out of your loan, but as you get older your salary should increase and you will be looking for tax deductions....a home is 1 good way to reduce that tax you pay. This is essentially free money...

[bimmerman89]

First of all, thank you all for your input.

No. It's even more important for you to put money into investments now, rather than later, as you don't have that much cash to invest.

Your return calculation is ignoring the money that you have lost by not investing the money that you are using to pay down your mortgage. To be quite frank, I don't really understand where you are getting your "52%" calculation from. However, a 52% return over 30 years is 1.4% annually. So that would be pretty awful.

As an example, $1 invested and averaging a 7% return will be $7.61 in 30-years. Every extra dollar that you put towards paying down your mortgage today is a dollar that you are not investing exactly when it is most important to do so! Very simplistically, if you had an interest only mortgage (I'm not advising this, but it's a handy reference), you would have paid $2.81 in interest on that dollar. What is your return? In that scenario, it's $4.80, or around a 5.4% average return.

All of this is predicated on not blowing the money, of course. The great advantage of a paid off house is that it's harder to spend it. Investment accounts are easy to siphon off.

The 52% is a very simple calculation from my amortization spreadsheet. Its simply the ratio between two values; the sum of total early principal paid and the sum of savings in deferred interest. The reason the percentage will increase is because the PMI ratio will inverse soon.
Also, this return is not over 30 years, its over 6 years total.(were 1 year into paying the home off)
Assuming the plan comes to fruition and the home is paid off in 6 years total, according to amortization calculator we would have saved 112k in interest and our rate of return would be 160%. Divide that by 6 years and that's a whopping 27% return yearly!

I would advise against buying an M3 (or any car) as an investment. The bubble is growing unsustainably on investment-grade cars and will undoubtedly burst.. when? Who knows.


It also increases anxiety of having it damaged or worn, when the main motivator for buying a car should be to drive and enjoy it.



Also debt and credit (while scary) != stupid. You have to understand it and use both wisely.

Very good point as far as upkeep is concerned. Probably not wise to buy and investment car when every extra nickle goes towards paying off debt.

At what point will the majority (like 75%) of your monthly payments be going to the principal? From what it sounds like, you've already paid it down enough that the interest is less than half the payment. You can probably find a good amortization calculator to throw all your info into and check it out, or maybe it'll say on your statement.

Next month 44% will go to principal out of the standard mortgage payment, in approximately 2-2.5 years according to our early payment schedule.

buy it. It's just money and you will eventually get it back. You'll look back and kick yourself for not doing it and all the joy it would bring you (maybe). I'm probably never going to retire, so that's why I'm just like buy it now guy.

Still the numbers do not support this choice.

Think of buying an E30 M3 right now like buying a house back in 2008/09. Looking back at the housing market swings of the late 2000's would holding off a few years buy you a better house for the money?

Eric, I would agree, however there is no surplus M3s like there were houses in late 2008...

Very good point! Comparing housing market to a limited production car is not quite apples to apples. However, i still think that the prices will flatten out eventually. 90% of e30M cannot be worth more than what 70's 911 cost.

First off, I'm biased, I own an E30M. And I bought it just before they started skyrocketing. They were going up, but nothing like now. But that was a happy coincidence, as an investment, it has gone up in value....but that was only a bonus. I would say that if I sold it today, I definitely wouldn't have lost and I would have earned money on the car to beat your traditional savings account. Maybe more - but I didn't buy it for that reason.

Couple of questions: Have you ever driven an E30M? Seen 1 up close? Sat in one?
If no, I suggest you try. Sometimes our Heros don't live up to the hype. I love it, but I also owned a regular E30. And I wouldn't even call the E30 regular - it is 1 hell of a car. the M only makes it rarer and cooler, and I love owning it. Not trying to push you off the M, just either solidify your goal or not. You shouldn't lose money on the car if you decide you don't like it - unless you blow the motor up or get into an accident. (side note to consider, these car are not cheap - parts wise)

Another question - are you considering that your interest is a tax deduction? Right now, you want to get out of your loan, but as you get older your salary should increase and you will be looking for tax deductions....a home is 1 good way to reduce that tax you pay. This is essentially free money...

I driven a stock e30M for a couple blocks when i was about to buy it. It handled like shit, granted it had been rotting for 8 years in a driveway and the owner wanted 12k.(interior mildew was included in the price) I felt like my DD e30 handled twice as better than that stock m3.

Very good point. I did think of tax deductions factor. And i think that that's when an investment property will come into picture. Maybe when my PMI ration is as high as 90%, i would start saving up for a rental property and use that property as tax write off.

Honestly at this point, more than anything, whats driving us to pay off our home is the freedom and the burden lifted from being debt free.

[Kevinl]

if you already own a e30 I don't think you need a M3

a e30 M3 is one sexy car but it does not drive much better than a 325i(S) it is not a lot faster and if the suspension is going to be changed anyway doesn't matter what you start with

[tkeenan]

Like Rubenstein said, you can take the extra money you use on the mortgage and do something more economically productive with it (stock market, rental property, business, etc.) I think your idea would make more sense if we we're paying 10% interest rates.

The car, on the other hand, is certainly an irrational purchase, especially an M3. You could very well be worrying about every ding and scratch, while you could be thrashing around a very nice e30 with equal or greater performance for much less money.

The real question though probably pertains to what your wife thinks :)

[bimmerman89]

Like Rubenstein said, you can take the extra money you use on the mortgage and do something more economically productive with it (stock market, rental property, business, etc.) I think your idea would make more sense if we we're paying 10% interest rates.

The car, on the other hand, is certainly an irrational purchase, especially an M3. You could very well be worrying about every ding and scratch, while you could be thrashing around a very nice e30 with equal or greater performance for much less money.

The real question though probably pertains to what your wife thinks :)

My wife is pretty chill about it, she would go with whatever i choose. She's not much into cars, but supports me and understands my hobby.

BTW, part of the reason why shes so cool about it is that we bought her a brand new Camry a couple years ago. (with cash, of course)

[nrubenstein]

First of all, thank you all for your input.



The 52% is a very simple calculation from my amortization spreadsheet. Its simply the ratio between two values; the sum of total early principal paid and the sum of savings in deferred interest. The reason the percentage will increase is because the PMI ratio will inverse soon.
Also, this return is not over 30 years, its over 6 years total.(were 1 year into paying the home off)
Assuming the plan comes to fruition and the home is paid off in 6 years total, according to amortization calculator we would have saved 112k in interest and our rate of return would be 160%. Divide that by 6 years and that's a whopping 27% return yearly!





Very good point as far as upkeep is concerned. Probably not wise to buy and investment car when every extra nickle goes towards paying off debt.




Next month 44% will go to principal out of the standard mortgage payment, in approximately 2-2.5 years according to our early payment schedule.




Still the numbers do not support this choice.





Very good point! Comparing housing market to a limited production car is not quite apples to apples. However, i still think that the prices will flatten out eventually. 90% of e30M cannot be worth more than what 70's 911 cost.




I driven a stock e30M for a couple blocks when i was about to buy it. It handled like shit, granted it had been rotting for 8 years in a driveway and the owner wanted 12k.(interior mildew was included in the price) I felt like my DD e30 handled twice as better than that stock m3.

Very good point. I did think of tax deductions factor. And i think that that's when an investment property will come into picture. Maybe when my PMI ration is as high as 90%, i would start saving up for a rental property and use that property as tax write off.

Honestly at this point, more than anything, whats driving us to pay off our home is the freedom and the burden lifted from being debt free.

*sigh* You are not calculating the return correctly.

For one thing, if you are going to work backwards like that, you need to take the present value of all those interest payments you are not making. The PV of that $112k savings is not going to be as much as you think it is.

For another, you are not offsetting it against the returns you would have achieved by putting that money to work.

And finally, even if we ignored all of the other ways that you are wrong, your fundamental return calculation isn't even close to correct. I still don't know where your "160%" return calculation is coming from, but if we assume that that is correct, that's a 17% rate of return if you are getting all of your investment back in six years (which you aren't). Not that this would be the correct calculation, but it's important to note.

It sounds like you are investing $70k to avoid paying $112k in interest. This sounds like a good deal on the surface, but over 24 years, you are actually "earning" less than 2% on that money. Putting that $70,000 to work instead, would earn you quite a lot more, even after the interest expense.

Again, you can say that you want to be debt free and that you would enjoy not having to worry about it. Just don't delude yourself about what it does.

[Mistawall]

off topic but... this thread is great! i feel like i learned something new today. or at least got a better understanding of it. do you work in that field rubenstein? you seem very knowledgeable