Looking At Getting Into An R35 - Advise?

[Hazey]

Hi Everyone, 1st post here. I've read a few threads and noticed some folks like Brian from the fordxr6turbo forums

Looking at some advise (some of it financial) on getting into an R35. Hoping not to bore everyone but just want to share some background info.. Here goes...

I am 28 in a defacto relationship, have a baby girl, work in I.T and love my cars. My previous cars have been SSS Pulsar, modified xr6turbo (350rwkw) a 370z and now own a 2010 G6E Turbo (family car). I sold the 370z as my partner and I had a baby girl (shes 10months now). The G6E Turbo just isnt doing it for me although is a great family car(partner drives it more than me) and will most likley like to hold onto it for that purpose.

So I have my heart set on a R35 GTR and looking for the best option for me to get one. Sell property? Lease? Rob a bank?

If I sell my only investment property today I can walk away with approx $170,000, if I hold off 1+years maybe $200,000+ (who knows?). I'm living in a rental and looking at getting another investment property using equity from a family property. The plan was to get a few investment properties this way and then in 5years or more buy the family home.

I am after all sorts of opinions and advise. I know you shouldnt really sell property but it is the only way I can see myself getting a R35 GTR aside from waiting 5+ years perhaps. The way i look at it is you only live once! I was fairly lucky with the capital growth in short time, I will be replacing it with other investment properties mentioned above. Doing it this way does not impact my living expenses or $$ for wedding, family/daughter etc. ie I dont have to service a large loan.

Thoughts?

[The Bogan]

Dont borrow money or sell houses to buy cars, house-property yes, cars no, its not like you could sell it for no loss, every year older means money lost, how much are you going to pay.

R35 GTRs are nice but unless I had alot of liquid cash to spare to pay for it outright and for insurance and servicing I wouldnt touch it.

Keep buying property, make some good $$$$$$$$$$$, then later on buy one, or something better.

If you donot live beyond your means you could have a live a long and happy life and with some good investments buy what you like later in life.

If you live beyond your means, well, look at what happens to countrys like America that are full of the "I want it now" type people, broke, familys in trouble, divorce, dont say "it wont happen to me" because thats what everyone says just before bankruptcy.

Also the you only live once phylosophy is fine if your going to die soon, but if you plan on living to watch your grandkids grow old, it doesnt hold much weight.

Mark

[domino_z]

wow id never sell an appreciating assett for a depreciating one

at the end of the day, it's your call

keep in mind the status of the world's economy and where we're headed now with this farce new tax on carbon - read recession imminent

id be gauranteeing a roof over my head before getting into hock over a car

[Hazey]

Cannot say i don't agree with both comments. if one does invest only in property how do they get to enjoy the gains without selling? (tax benefits and positive gearing aside) you would have to sell at least one at some stage to reward yourself, im just doing it early.

i wouldn't be living above my means would i? as I've purchased outright and not in debt to own the car.

It would be a car that i would keep long term.

hmm may have to set myself a goal and save/invest over 5 years.

Edited July 12, 2011 by Hazey

[jahn-15]

Go for it hazey im waiting to win this 30 million to get mine haha but i dare say you wouldnt regret it. I took a f6 typhoon for a test drive the other day 6 speed auto hands down best family car when i have kids ill be buying one for the missus!

[fib]

Think of your 10 month old girl, you'd rather be comfortable with investments because you are investing in her future.

Just a thought.

[fungoolie]

Cannot say i don't agree with both comments. if one does invest only in property how do they get to enjoy the gains without selling? (tax benefits and positive gearing aside) you would have to sell at least one at some stage to reward yourself, im just doing it early.

i wouldn't be living above my means would i? as I've purchased outright and not in debt to own the car.

It would be a car that i would keep long term.

hmm may have to set myself a goal and save/invest over 5 years.

I guess you will have to do your sums and you haven't really provided enough info for anyone to provide any form of concrete advise. That being said I am also not holding myself out to be an financial adviser and you should consult a licensed adviser before making any decisions.

Obviously selling your real estate and buying a car of equivalent value to your equity in your property will set you on a path of losing net worth cf gaining as you currently are (not counting the income from your work). One thing you didn't mention was what the value of the property is. You only mention you have $170K equity. I presume that because you are renting and also own an investment property that the investment property is significantly more valuable than the house you are renting. If you really have your heart set on the R35 and the discussion here isn't whether or not you should buy the car but rather what is the most effective and cheapest way to own that car, then I would recommend, (assuming your L/V Ratios are adequate), to keep the property, use the investment property (and other property you kind of mentioned) as security and lease the car. If you have enough equity in the property you must be positive geared by now meaning the property is cashflow positive. This extra income will assist you in making the lease payments on the car. The car payments will be fully deductible beyond the FBT value of the vehicle so you have some tax effectiveness in your car loan. If things remain relatively stable then your vehicle will be depreciating approx $15K per annum but you will be getting around $5K back on that in tax assuming you structure the lease properly. This net $10K loss should more than be compensated by by the $25 - $30K?? per annum you believe the property will appreciate. On top of this you have to add the increased interest you will be paying (~$10K per annum extra due to the car lease). Speak to a financial adviser who you provide access to all the facts and figures and I think some basic modelling will show that you will still be better off owning the property just as you are better off owning the property whilst you are renting assuming you can manage the cashflows.

And as far as your comment about getting gains without selling?? Your statement is very common and always comes from people early in their investment life. They see the potential capital gains but they dont see much income because it is all spent paying the loan interest.. This is my answer when this question is posed. Heres a scenario. You have expenses of say $50K per annum. You own investments earning you (income not capital gains) say $100K per annum. Do you think your motivation will be to sell those investments to "realise" the gain or perhaps more likely be constantly on the lookout for more investments to buy? Trust me you will be in this position down the track.

Most importantly, you're 28, Good on you for doing what you've been doing to date. If you choose to go down this path don't lose track of what you started out to do. Don't let the GT-R be something that breaks your investment habit. Moderation is the key. Enjoy some and invest some..... It keeps you from running off the rails down the track..

(Also when you have enough in your super consider a self managed super fund and buy or transfer one of your properties into it). The tax benefits are significant.

Edited July 12, 2011 by fungoolie

[Hazey]

Go for it hazey im waiting to win this 30 million to get mine haha but i dare say you wouldnt regret it. I took a f6 typhoon for a test drive the other day 6 speed auto hands down best family car when i have kids ill be buying one for the missus!

thanks for reminding me to get a ticket.

Yes they are a great car for the money.

[Hazey]

Fungoolie cheers for the info helps alot.

Can you or someone give an example of how the lease may be structured with my investments as security on a gtr purchase of $120k? lease term, residual payment etc.

As for payments being "fully deductible beyond the FBT value of the vehicle" can you explain that.

Again, thanks

[R-PWR]

On $120000 over 3 year period with 47% ballon you will be looking at $2200 per month that's info as of last week

[fungoolie]

Fungoolie cheers for the info helps alot.

Can you or someone give an example of how the lease may be structured with my investments as security on a gtr purchase of $120k? lease term, residual payment etc.

As for payments being "fully deductible beyond the FBT value of the vehicle" can you explain that.

Again, thanks

Basically a car lease is just a car loan. What makes it a lease vs a hire purchase agreement has more to do with the taxation treatment of the payments. You would just be drawing down more funds to fund your car purchase.

A hire purchase agreement is a loan where you only claim the interest but you get to claim depreciation on the car. This is only a useful instrument if you can purchase the vehicle for company use. This option is not available if you are a salaried employee.

A car lease is a loan where you can claim the principal AND interest payments against your tax thus effectively deducting the principal. On the other side you don't get to claim depreciation however the principal should be the equivalent to the depreciation if you choose a residual that is equal to what the car is worth after the lease period has elapsed. The bank gets to depreciate the vehicle with a car lease. As you can see if you choose a residual that is lower than what the car is worth at the end of the lease period you actually get larger deductions than what you would have had if you simply depreciated the vehicle. The downside is that you have larger payments because you actually build equity in the vehicle as you pay it back faster than it depreciates. Upside is that you receive that equity back when you sell the vehicle and the "profit" (meaning what you get when you sell the car over what you pay out on the loan) is not taxable. This means you effectively converted the equity built in the vehicle from taxable to tax paid dollars. As a salaried employee you can utilise a novated lease to own a car using this method. You make the payments out of your pre-tax salary. The only tax you pay (as of the May budget) is a constant. It is levied at your marginal rate on 20% of the vehicle value per annum (The FBT value). Any payments made towards running the vehicle (including lease payments) over and above this amount is all out of your pre tax income. Why don't we all go for a 0% residual? Well this would be great if the govt allowed it because it would mean that we could effectively pay off the car with pretax dollars in its entirety (FBT component notwithstanding) and then get it all back tax free when we flog the car. The govt will only let us go as low as 65% for a one year lease, 55% for a two year and 45% for a three year from memory. If you own a car and you do not run a business, the novated lease is the cheapest way to own it due to the tax benefits afforded to us. What other non business asset does the govt effectively let us use pretax dollars to purchase part of it's capital cost? Not even our principal place of residence.

The car is meant to be the security for the loan but I've found that banks still like to see something else besides the car as security even if you go for an accelerated payment low residual lease. I think this is a symptom of people who don't think this through properly and opt for a high residual in order to minimise their payments and thereby increase the hurt when the lease is up and they find themselves owing more than the vehicle is worth. They lose the tax benefits described above as well as have to find money which they probably don't have to pay the lease out. Banks cannot rely on predictions of vehicle's worth three years out. Because of this you would have to get the lease from your property investment lender who already has the registered first mortgage over your property.

Going back to your first post, keep in mind that the hardest thing to do in this game is to get started. You have already done so. Just because it came easy doesn't mean you can repeat the process just as easily next time if you choose to sell the house to buy the car and turn your $170K into $80K in 4 years time. Markets and asset cycles are fickle things and you might find yourself waiting 5 years or more for advantageous conditions again. Just something to keep in mind if you can be swayed on the decision to go now rather than wait. (In two years time you can get yourself a nice pre-loved MY09 for around $90K and your property(s) equity may well be approaching $300K if you continue making payments into your investment loans. 2 years isn't that long. Some food for thought....

Edited July 12, 2011 by fungoolie

[LSX-438]

My thougts are:

1. Don't sell your property

2. If you must buy an expensive car, draw on the equity in the property instead

A couple of other points..

An R35 will depreciate at about $2k a month, think about that. Also, if you want to use the car as intended and track it, it can get VERY addictive and VERY expensive, if you do regular sprints and practice days etc, it's going to cost you about another $2k a month also. Then start thinking about the usual mods everyone does....

If you just want a flash road car, you sould get something else IMO. As a road car, the R35 is relatively uncomfortable, expensive and boring (unless you are willing to drive like a royal knob). However if you want to run the same lap times as the best exotics, for less than half their cost, and yet still DRIVE to the track, in that sense it's the perfect road car.

Hi Everyone, 1st post here. I've read a few threads and noticed some folks like Brian from the fordxr6turbo forums

Looking at some advise (some of it financial) on getting into an R35. Hoping not to bore everyone but just want to share some background info.. Here goes...

I am 28 in a defacto relationship, have a baby girl, work in I.T and love my cars. My previous cars have been SSS Pulsar, modified xr6turbo (350rwkw) a 370z and now own a 2010 G6E Turbo (family car). I sold the 370z as my partner and I had a baby girl (shes 10months now). The G6E Turbo just isnt doing it for me although is a great family car(partner drives it more than me) and will most likley like to hold onto it for that purpose.

So I have my heart set on a R35 GTR and looking for the best option for me to get one. Sell property? Lease? Rob a bank?

If I sell my only investment property today I can walk away with approx $170,000, if I hold off 1+years maybe $200,000+ (who knows?). I'm living in a rental and looking at getting another investment property using equity from a family property. The plan was to get a few investment properties this way and then in 5years or more buy the family home.

I am after all sorts of opinions and advise. I know you shouldnt really sell property but it is the only way I can see myself getting a R35 GTR aside from waiting 5+ years perhaps. The way i look at it is you only live once! I was fairly lucky with the capital growth in short time, I will be replacing it with other investment properties mentioned above. Doing it this way does not impact my living expenses or $$ for wedding, family/daughter etc. ie I dont have to service a large loan.

Thoughts?

[blah_blah]

I'd be working out the numbers before deciding to purchase a car within a business (assuming you are running a business). Due to the associated Fringe Benefits Tax Conseqences

As going off rough calculation FBT Tax Payable on a Motor vehicle $125,000 using the Statutory method off 15,000km a year is approximately $31,000 in tax. You will also continue to pay FBT as long as a car is held in a business name.

There's other factors to take into account such as the GST refund you would get and depreciation depending on the type of lease.

But there are a lot of factors that make the numbers, so as such some situations it is beneficial and some others it is not.

[g35me]

Property first, car second. Simple but effective.

[fungoolie]

I'd be working out the numbers before deciding to purchase a car within a business (assuming you are running a business). Due to the associated Fringe Benefits Tax Conseqences

As going off rough calculation FBT Tax Payable on a Motor vehicle $125,000 using the Statutory method off 15,000km a year is approximately $31,000 in tax. You will also continue to pay FBT as long as a car is held in a business name.

There's other factors to take into account such as the GST refund you would get and depreciation depending on the type of lease.

But there are a lot of factors that make the numbers, so as such some situations it is beneficial and some others it is not.

I assumed the OP didn't own a business hence why I suggested a novated lease as the best method with which to own the vehicle.

Not sure where you got FBT of 31K. Since the may budget the kms travelled have become irrelevant and the % value of the vehicle that FBT is levied on is now fixed at 20% and you pay FBT at your marginal rate on that amount if you utilise the contributions method. For a vehicle of this expense the OP will be dropping his taxable income significantly in order to make payments so may be below the 47% bracket as well as increasing his Family Tax benefit and Child Care rebates and allowances. You have to take all of these other effects into consideration when assessing how much the vehicle ends up costing you.

[blah_blah]

I assumed the OP didn't own a business hence why I suggested a novated lease as the best method with which to own the vehicle.

Not sure where you got FBT of 31K. Since the may budget the kms travelled have become irrelevant and the % value of the vehicle that FBT is levied on is now fixed at 20% and you pay FBT at your marginal rate on that amount if you utilise the contributions method. For a vehicle of this expense the OP will be dropping his taxable income significantly in order to make payments so may be below the 47% bracket as well as increasing his Family Tax benefit and Child Care rebates and allowances. You have to take all of these other effects into consideration when assessing how much the vehicle ends up costing you.

Hi Fungoolie,

Yes you are correct that their are alot of other factors you need to take into account but didnt want to go into too much detail, but its good to get a constructive discussion going

The calculation was if a car was held in a business at a statutory at 20%. This is then grossed up by the applicable FBT value and the multiplied by the FBT Tax Rate. In regards to the flat FBT rate of 20% announced in the budget that is a rate that is only progressively applied from 10 May 2011 and will come into full effect from 1 April 2014.

On the flip side you can choose to use the 'Operating Cost' method and do an employee contribution but I was just giving the OP a window of how many variables there are and do the calculations before committing

[g35me]

Stop. You guys are blowing my mind with all this tax stuff. I just get the accountant in and walk away. Tax gives me a headache.

[adis]

Keep your investment property, buy a 15, 000 gtr 32 and flog it....Just imagine your in 1992 again, that way the car is still "brand new".

[scarf]

I'm surprised your missus is allowing to do what your thinking of doing.

I can see it now: For the 1st 12 months you will be over the moon, and then you will realise the repayments to the bank, the insurance, running costs etc, are eating up your hard earned money.

You persevere for another 6-12 months before coming to the realisation that you need to sell. Then another depressing period of time will pass when the reality of not being able to sell occurs. Have a look at how many R35s are on carsales, that only have 10-20K on them.

Its a big jump from a G6E Turbo to the R35 in cost. There are many other cars that are exciting to drive, that turns heads, and at significantly less cost,

How about a nicely modified R34 GTR for 60K? Or even another 370z with a TT kit for 70-80K? Or wait till you turn 30, when the 2011 GTR will be around 110K, and you will of had another 2 years of growth in your property and further savings in the bank.

[blah_blah]

Yes its getting a little bit off topic. Feel free to PM me for any further questions or enquiries, or you can come into my office in the Melb CBD. I'm a Tax Manager and will look after SAU members