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Don't put cash into a declining asset ...
Old 01-19-2008, 03:05 PM   #1
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Don't put cash into a declining asset ...

... at least according to the RV salesman I talked to today.

He ask if I had already arranged financing. I told him I would pay cash. He indicated that this was not a good idea, as the price of the motor home would drop 20% when I drove it off the lot, and I should not put my cash into something that was declining in value.

He gets extra credit for admitting the 20% loss of value upon purchase, but I could not get him to understand that you lost the money whether you payed cash or were making payments, unless you were planning on filing bankruptcy after you got upside down. Uggggggg!

If you are wondering, I would buy used but the wife has a problem with, quote, "buying other people's garbage."
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Old 01-19-2008, 03:12 PM   #2
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The reason you couldn't get him to understand this is that he wants to sell you some financing.

I've never met a dumb salesman who wasn't dumb for a good dollars and cents reason.

Ha
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Old 01-19-2008, 03:23 PM   #3
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In case you didn't see this:

http://www.early-retirement.org/foru...tml#post600083

20% decline when you drive a new one off the lot, 30% by the end of the first year of ownership. To each his own, but I've found there are a bunch of people who bit off more than they can chew and are eagerly attempting to sell their gently used, late model, far from garbage RV's. And that was prior to the market heading south.

But hey, it's only money...
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Old 01-19-2008, 04:13 PM   #4
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To each his own, but I've found there are a bunch of people who bit off more than they can chew and are eagerly attempting to sell their gently used, late model, far from garbage RV's. And that was prior to the market heading south.

But hey, it's only money...
Yeah, I know this, and you know this, but my wife has explicitly stated she would rather spend $20,000 that have to own a used motor home. This is some kind of family of origin issue I think.
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Old 01-19-2008, 04:57 PM   #5
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If a lot of people think the way your wife does, you'll have a heck of a time finding a buyer for YOUR new motorhome down the road when you decide to sell...

Personally I think motorhomes have similar economics to timeshares, they are both terrible investments and the less you pay, the less you lose.
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Old 01-19-2008, 06:04 PM   #6
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so......tell us about the new wheels
make
model
engine
transmission
major features and options
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Old 01-19-2008, 06:17 PM   #7
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I heard this bit about not paying cash for vehicles like motorhomes before. The explanation I got, which makes little sense to me so I might not do it justice, was that you want to save your cash for appreciating assets and treat things like cars and motorhomes as an expense and make payments for those expenses as will fit in your budget.
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Old 01-19-2008, 06:25 PM   #8
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So rather than pay cash one should borrow money and pay interest to purchase something that will continuously decline in value? Seems as if that would have you taking two financial hits rather than one. Unless the theory is if you invest the cash and get a return greater than the interest you'd pay to borrow...? Good luck with that.
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Old 01-19-2008, 06:38 PM   #9
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There's one case where "don't pay cash for depreciating assets" makes sense: If you are the kind of person who isn't averse to stopping payments and handing the keys over to the lienholder when you get in over your head. If a year down the road it's only worth 70% but you owe 95%, walking away looks awfully good.

I suspect most folks on this board don't think of themselves as being willing to skip out on a loan, and I personally wouldn't do it. But if you're buying a new motorhome you should definitely have an exit plan.

This whole subprime fiasco has made me aware that for many people the "walk away and let the bank deal if I change my mind" option is the special sauce that allows them to make money in real estate... they get the upside potential without the full downside risk.
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Old 01-19-2008, 06:51 PM   #10
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I'm pretty sure that you can use the RV as a write off. It's considered a second home so I think you have to live on it for 14 days. So the interest as a mortage is deductable.

The salesperson makes finance reserve if you finance with him. Not that there's anything wrong with that.
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Old 01-19-2008, 06:56 PM   #11
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I'm pretty sure that you can use the RV as a write off. It's considered a second home so I think you have to live on it for 14 days. So the interest as a mortage is deductable.
Using a HELOC to finance it would accomplish the same thing, right? Maybe get a lower interest rate to boot.

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The salesperson makes finance reserve if you finance with him. Not that there's anything wrong with that.
Against my religion...
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Old 01-19-2008, 06:59 PM   #12
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Yes, HELOC is the same deduction.
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Old 01-19-2008, 08:04 PM   #13
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With my last car I gave the finance guy a choice:
If he could give me 2% or better financing I would take it. He said no, so I paid cash.
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Old 01-19-2008, 08:09 PM   #14
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Technically HELOC interest is only deductible if it's used for improvements to the structure you have the mortgage on. But there are many who violate this rather silly rule with impunity even though it's against the law.

There do seem to be a lot of lawless RV dwellers. I remember when I was on some RV yahoogroups, a lot of the posters were on the lam, discussing how to hide contraband and avoid getting their records pulled by cops.
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Old 01-19-2008, 08:14 PM   #15
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There do seem to be a lot of lawless RV dwellers. I remember when I was on some RV yahoogroups, a lot of the posters were on the lam, discussing how to hide contraband and avoid getting their records pulled by cops.
Actually, we're mostly gypsies, con men and modern-day pirates. But keep it quiet, would ya. Thanks.
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Old 01-19-2008, 08:58 PM   #16
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Technically HELOC interest is only deductible if it's used for improvements to the structure you have the mortgage on. But there are many who violate this rather silly rule with impunity even though it's against the law.
That is not correct:

You can borrow 100,000 for any purpose as long as it does not exceed the value of your house.


If all of your mortgages fit into one or more of the following three categories at all times during the year, you can deduct all of the interest on these mortgages:
  1. Mortgages you took out on or before October 13, 1987, called grandfathered debt.
  2. Mortgages you took out after October 13, 1987, to buy, build, or improve your home, (called home acquisition debt) but only if this debt plus any grandfathered debt totaled $1 million or less throughout 2007. The limit is $500,000 if you are married filing separately.
  3. Any mortgages you took out after October 13, 1987, other than to buy, build, or improve your home, (called home equity debt) but only if these mortgages totaled $100,000 or less throughout 2007, and all mortgages on the home totaled no more than your homes fair market value. The limit is $50,000 if you are married filing separately.
If one or more of your mortgages does not fit into any of these categories, refer to Publication 936, Home Mortgage Interest Deduction, to figure the amount of interest you can deduct.


People do cheat by deducting all of a 120% LTV loan or by deducting interest on more than 100k.
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Old 01-19-2008, 09:46 PM   #17
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Personally I think motorhomes have similar economics to timeshares, they are both terrible investments and the less you pay, the less you lose.
Agreed. I want one but it is not an "investment." It is expensive entertainment.
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Old 01-19-2008, 09:51 PM   #18
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I stand corrected. I verifed on the IRS link that you can deduct the interest on up to 100k of mortgage debt not used for the home. Thanks!
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Old 01-20-2008, 02:09 AM   #19
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Quote:
Originally Posted by free4now View Post
There's one case where "don't pay cash for depreciating assets" makes sense: If you are the kind of person who isn't averse to stopping payments and handing the keys over to the lienholder when you get in over your head. If a year down the road it's only worth 70% but you owe 95%, walking away looks awfully good.

I suspect most folks on this board don't think of themselves as being willing to skip out on a loan, and I personally wouldn't do it. But if you're buying a new motorhome you should definitely have an exit plan.

This whole subprime fiasco has made me aware that for many people the "walk away and let the bank deal if I change my mind" option is the special sauce that allows them to make money in real estate... they get the upside potential without the full downside risk.
So, if you give the keys and RV back to the bank...and the bank sells the RV for what the market will bring...don't you still owe the bank the difference between what you owed at default (plus legal costs, sales cost, etc.) and what the bank was able to sell the RV for? And will the bank issue you a 1099 for the "difference" you still owed them if they have to write it off?
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Old 01-20-2008, 04:52 AM   #20
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Imputed income. This is the current big discussion reference sub-prime "injured" borrowers. Seems to really have died down lately since there is an entire industry out there that buys this unpaid debt so they can pursue the borrowers that walk away.
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