How Long to Finance?

[Nightwatch]

Not sure if you seriously found it funny or if you are just turning my sarcasm back around on me - difficult to read tone in emails and postings. For the record, I was being light heartedly sarcastic

[Alice&Billis]

Originally Posted by Nightwatch

I find the majority of posts on this thread very interesting. Either Airstream owners are more financially responsible than 90% of the US, the people posting here own older airstreams, the people that own airstreams are of the older set and have therefore saved up cash over time, or Airstream owners tend to have mored disposable wealth than the typical RV trailer owner.

A lot of people chimed in here to say "Pay cash". Ok that is of course great advice. That would be equally advisable to someone who wants to buy a house. But how many of you bought your house with cash? How many of you actually saved up $50k in cash for a late model 25 to 30 ft airstream?

Now before I get a lecture on "if you don't have the cash you can't afford it" - let me give you some background. I'm 37, I earn a solid income (I have for 10 years - and though I wont quote #'s solid means solid), I have no credit card debt, I have some decent equity in my house (amazing considering the economy), I have quite a bit saved in 401k, pension, and other investments, and am fairly responsible with my money. With that said, I want a late model 23 ft airstream to work out of and to vacation in. I don't have 50k in liquid assets lying around to pay for it, and I don't want to wait a couple of years to save it up. So I plan to pay 20% down and take out a 10 yr loan on the rest. Is that the best decision - well no. I could lose my job, have a health problem, get hit by a bus etc. any of which would put me in a bad situation with the trailer payments. But if I wait, in the meantime I have lost out on 2 years of enjoying the trailer.

It's like people that save everything for retirement - thinking "when I get to 65 then I'm going to have fun". Let me tell you, I know of many people that have had life changing events (especially with the economy) that meant they were not able to enjoy their retirement. Some lost life savings, some had health problems that meant they couldn't do much of anything. I bet now they wish they had taken that trip, earned that pilot's license, or bought that boat.

Am I suggesting that people go up an run up their credit now while there is still time? Obviously that is a bad idea. But I do think there is a balance to the suggestion "Pay Cash only". I plan to continue to invest in my retirement and be responsible with my debts, but I also want to enjoy my life while I am still young and able to enjoy it.

Just my 2 cents. If you are doing other things right with your finances, I see no reason that you can't take out a loan to buy an airstream.

By the way - if I lose my job or get hit by a bus (and survive it) I'll come back here and post that I was wrong and you shouldn't listen to me.

We are 54 and 51 years old. We still work and plan to continue until further notice or until we inherit a large sum of money or hit the lotto. We have no weathly relatives or friends and we don't play the lottery so...we went for it in 2005 ordering a new 2006 Safari at an RV show. We paid down as much as we could afford without taking money out of our savings account, we didn't cash in CD's, our 401K's or savings bonds and simply financed the balance through Thor credit. Few people can afford to pay cash for a house or their vehicles and personally I think a car is a necessary purchase but I see no reason to pay 35-40K cash for one...talk about a depriciating item and that's just about any car. Houses have been poor investments lately especially those who are upside down. We are purchasing our home as well. We wanted a small unit that would be functional when we retired and were ready to use it. Meanwhile we are loving it and have never regretted our purchase. I've said it before and I'll say it again...it's our cabin in the woods, it's our mountain top chalet, and our beach cottage. We also do most of our cooking in the coach and that's saves a lot of money as well. Think what one of those 2nd sitebuilt homes would cost you. We have no timeshare fees, we DO NOT stay in motels or hotels, we don't go on cruises, and we don't fly anymore. If you think you can afford it, if you know you want it, just do it. I wouldn't want to live in my car, and I don't think the average ski boat would be much improvement. Considering what you can get out of your travel trailer? Enjoy your future purchase!!!

[bolerama]

Nightwatch, you said it very well!

I had a Chinese student whose grandma said: The 65-year-old American man relaxed in his chair and said, "Ah. I have finally paid off my house." In China, the 65-year-old Chinese man relaxed in his chair and said, "Ah. I have finally saved enough to buy a house."

If you are responsible with your money and debt load, interest rates are low. As others have already stated, try to get your term as short as you can comfortably manage. Make extra payments when possible. Then you can sit by the fire and say, "Ah. The flames really make a beautiful pattern on that Airstream."

Lisa

[lylesgl]

Thanks Nightwatch for your post. My rational is the same as yours. I'm 38 years old and wanted to enjoy an Airstream now rather than wait until i'm older and may be unable to do the things I can physically do now. Life is Good, but short, and I intend on enjoying mine within reason. Like you, I have a more than adequate income, and although I could have paid cash, I'm not going to tie up most of my "working" capital. I have a very low interest loan and a 10 year loan that is almost paid off.

[flyfisher]

Originally Posted by bolerama

Nightwatch, you said it very well!

I had a Chinese student whose grandma said: The 65-year-old American man relaxed in his chair and said, "Ah. I have finally paid off my house." In China, the 65-year-old Chinese man relaxed in his chair and said, "Ah. I have finally saved enough to buy a house."

Lisa

For many years, Chinese man puts money in bank.

Chinese bank loans this money to US bank.

US bank makes sub-prime mortgage loan to American man with Chinese man's money.

Americn man defaults on loan.

65-year-old Chinese man THOUHGT he had finally saved enough to buy a house.

Problem resolved: Give house in US to 65-year-old Chinese man. Avert foreclosure!

John


p.s. My background was in corporate finance, which included being on the board of a multi-billion dollar credit company.

I see nothing wrong with credit worthy people borrowing money. I've borrowed money my entire life, and now 10 years into an early retirement, I continue to borrow money. Why not? I'm presently earning several times more on my investments than what I'm paying in interest.

I appreciate that many people take out 10 year loans to buy RVs. That may be ok if there is a substantial downpayment (loan equity). But it is too long and too risky in many cases as far as I'm concerned. (Where are all of those Chinese RVers when we really need them?)

[British_Rove]

Those Chinese RV buyers are buying RVs made in California currently.

MVP RV featured on CNBC - PE.com - Business

Riverside-based MVP RV, which moved into Fleetwood's old factory after they secured more than $300 million in funding from a Chinese battery inventor, was featured on CNBC recently. The segment highlights the company's plans to export RVs to China, both Class Cs that look like trailers sitting in the bed of a truck and Class As that more closely resemble a tour bus.
I ran into CEO Brad Williams at Riverside County's foreign trade event Tuesday evening who said that his company is building the vehicles (that are a little shorter both in height and length for customers in China) while it secures certification to ship and sell them there. They have about 210 employees and plan to add another 30 to its payroll soon.

US Company MVP Exporting RVs to China | RV News, Videos & Reviews @ RV Buddies

[Staceytlc]

I wait til I have cash I will be dead. I want to build memories with my children. I have one of those rare pension jobs so my retirement will secure. My income and job are stable. I have full disability income insurance, if I were to become disabled. I do not have large cash and even if I did I would leave it alone alone for emergency. I'm going for memories, low affordable payment and building memories with my children. PS ,I'm thinking it'll b paid off bout time I retire. How sweet is that. I really don't know-how folks have ginormous amounts of cash these days.

[TBRich]

I am self employed so my income fluxuates from month to month...so when we buy on time we finance for as long a period as we can at the lowest possible interest rate that will give us a monthly payment we know we can always make... then we religiously make double payments (or more) when we are able ... and always pay it off far before the term of the loan. We have never owed money on any car (or RV) for longer than two years. We hate paying interest on anything. PS: Remember that interest paid on a trailer or RV is tax deductible because it is considered a second home (as long as it's self-contained, which AStreams are.

[urnmor]

Looks like you have covered a number of bases however now you must determine how much you can afford for monthly payments and how long you want to make them. As stated above you can always double down and pay off early. Don't forget to include storage, insurance and other operational costs. Interest rates are still low at least on new AS. Not sure on used however ever I would suspect they are higher

[rideair]

There’s the old saying:

It’s not the man who dies, but the man who dies with the most toys is who wins!

A friend of mine took it one step further:

It’s not the man who dies with the most toys, but the man who dies with the most toys “that are not paid for” who truly wins!

[Alice&Billis]

Originally Posted by urnmor

Looks like you have covered a number of bases however now you must determine how much you can afford for monthly payments and how long you want to make them. As stated above you can always double down and pay off early. Don't forget to include storage, insurance and other operational costs. Interest rates are still low at least on new AS. Not sure on used however ever I would suspect they are higher

I'm preparing for the worst as I expect to be a downsizing victim effective
September 30. I'm home right now burning my vacation that I will lose if I don't take the time off...(four weeks of it) and I have already applied for a couple of jobs in my industry but they will be 100 or more miles away from home. There is no way I would sign a lease in another town or city when I have a stocked and furnished home I can pull behind me. No, I don't necessarily want to leave my comfortable home, my dad, my wife, the four legged children but I have to keep working if at all possible. We just refinanced the Airstream and dropped the rate 1.7 through our credit union and that means our payment went up $38 a month but will be paid off in eight years or earlier (at retirement age) so we knocked off five years of the original note. Also paid off the tow vehicle. If I am correct in what I feel is coming with the loss of my current job, then the toy becomes a very important piece of property.

[Getaways]

Wow. Surprised at the answers on this thread.

I am a CPA by background and have worked in Finance/Accounting for 30+years. There is an old addage at play that most people who want to pay for their trailer in cash are missing, called: OPM - Other People's Money.

Rarely, does it pay, from a cash flow/net value perspective, to pay for an asset out of your own pocket.

It doesn't matter what value you use for the price, $20,000 or $40,000, or $60,000 or whatever. I used in my analysis $40,000. That you had on hand to buy a trailer.

You have two options, borrow money to get your AS or pay in cash. 1) you pay in cash you just reduced the value of your investments. And I assumed you take the money that you would have paid for the monthly loan payments and invested that - to replenish your portfolio. 2) you leave that $40K in your portfolio let it increase in value, and make monthly payments.

In option 1) your monthly investment will grow slowly, but build up steam over time as you keep adding that monthly amount. However, in option 2) the full value of that $40K earns from day one. In the vast majority of cases you will have more money in your pocket using option 2. The only way option 1) yields a better return is if the markets stay low to flat for many years. However, if the markets return to historical levels in anywhere less than 4 years from now option 2 is still ahead. This was all calculated on a 10 year payment. On a 20 year payment the difference is huge.

Just so you know, when I did my analysis I calculated tax impacts too.

That is for those with the cash who insist on paying for their trailer in cash. Most of America usually doesn't have that much disposable cash available so they would borrow the money anyway. I was just addressing those who were advising to always pay cash. It doesn't make as much "cents" as you think. It actually costs you more "cents" in the long run.

just my 2 cents!

[Aage]

Sounds great, But:

Is it your opinion that you can earn more money on an investment than you will pay out in loan interest/fees for a loan used to buy a trailer? I am talking about the current world, not a potential future world.

[nsbcpa]

I'm a cpa/cfp and rarely do I find one solution/answer that fits everyone.

For me personally, unless it's an appreciating asset, I wait until I can pay cash.

[Splitrock]

I have a friend who is shopping for a new car. He is early 60's, modest tract house isn't paid for, still works, has a very modest retirement savings account (less than 100K), and doesn't own any investments. He's going to take out a home equity loan to buy the car (about 20k).

I asked him why he didn't just buy a car he could afford? He said, "I wouldn't want to drive a car I could afford". Hahahaha!! There it is:-) Hard to argue with that kind of reasoning:-)

I was trained in business to never borrow money to buy a depreciating asset. I did when I was younger. Since I was about 35 I started paying cash for everything personal. I did borrow to build a couple commercial buildings in the 80's. I paid those off in short order. I borrowed to buy a rental house in 2004. I paid that off last year.

Not servicing debt has given me tremendous advantage the last 30 years, not to mention the elimination of risk. My strategy has been to live below my means, accumulate cash and buy income producing real estate. I still drive my '87 Chevy pickup I paid cash for new in '87:-)

[mcintoshMD]

I am newbie here. I am 62 year young, I do not know anything about RV. We decide that we would like to give it a try. Looking at used AS just one a sport safari 20 ft 2008, the owner wants 25K for it , I said I am worried about the body damage which cause a gigantic dent on the driver side, I said I do not feel comfortable with that, he immediately lower the price to 22K. I still walked away. Now, I do like 2012 20 ft flying cloud, but the dealer wants 54K solid, I read somewhere in this forum that I should pay 80% MSRP, so I told them 40K then. They all look at me like I am a three eyes martian or something. Anyway, there is no way that I could get it for that price. A week later still no luck. Now, I might still going to do it anyway. I have >50K in my bank earning decimal interest, I left it there just in case if I could not go to work. I am a physician so is my wife. I have my money mostly in CD and bank note, paying anywhere from 8 % to 15 % federally insured for the principal. I have income from my investment more than I am making from my work. I also have more than 100K of shiny gold sitting in my vault as well as SPDR GLD and SLV stock. Just curious the guy run my credit and his eyes were popping out when the credit score return 840. I have no mortgage on our home which I am paying county tax based on 800K value, the kids are gone , I have 2 kid 1 owe me 50K and another owe me 30K interest free for their home down payment, one just sold her home and hopefully will return me the 50K soon, I hope. Now, back to the RV, the dealer said the bank could do 5% for 180 m , of the 40k balance, payment would be $300 a month, interest should be tax deductible, of course there is no pre payment penalty. If I stick with the term it will cost me 80K to do this deal. My mind got stuck at $300 a month, shoot, that's pocket change. I might do it. So I will not have to touch my investment or parted with my shiny asset, and I still have 50K sitting in the bank doing nothing but just for emergency. What do you all financial guru think of my situation?

[HowieE]

I will not get into the higher elements of your savings but I will offer the same advice I have given New RVers for years.

NEVER BUY a new or nearly new rig for your first purchase. It is almost impossible that you will buy something you are completely happy with. You have to get out there and see just what you need to be happy. Not what some designer or salesman thought you would like. The only way to control the cost of this initial experiment is to buy used.

I have seen many individuals go out and buy a rig only to find out their spouse refused to go out in it. On a more practical scale there are those that loved a layout when set up on the showroom floor only to find they could not get to the bathroom or refrigerator when on the road.

Test the waters.

[CanoeStream]

Hi mcintoshMD. Welcome to the forum!

As long as any sailboat or RV has a galley & toilet, home mortgage interest deductibility applies for those who itemize. Paying interest is your call. You should seek no prepayment penalty if you realize at some point you are going to use this for roadtrips beyond available time and imagination.

$300 a month isn't a bad price to dip your toes in the water if you later decide you aren't using it enough and sell out. Except that buying new will lower the resale value 40-50% the instant you drive it off the lot -- acceptable if you are in this for the long run IMO.

The Sport owner was willing to drop his price $3K. That would pay for nearly a two-panel replacement at Jackson Center. How many panels were affected by that ding? Did the dent pass through a rib? (ie, the vertical member at the junction of the rounded front and the parallel sides)

[DKB_SATX]

With lots of cash, you're in an ideal position to pick up a gently-used trailer a few years old. That lets you avoid the steepest part of the depreciation curve and someone else has (ostensibly) sorted out the new-trailer warranty issues.

You can still finance lightly-used trailers if you want, preserving your cash position and the interest would still be potentially tax-deductible. You'd also be in a much better position if you decide in a year that you want to trade up to a different trailer than your first one, because you wouldn't be underwater on loan-to-value like you will if you buy a new trailer.

[mcintoshMD]

Thanks for your advice, I am still not comfortable with buying a used RV, might give us bad experience and ruin all the fun.Besides, imagine if we do like it and wants the trade in for the new one the dealer probably will suck more money:-(. I guess everyone need is different.