OK ill try and keep this simple. Some of you might be aware that as well as housing booms. We are currently in a australian muscle car boom.I was lucky enough to by a car for $40,000 1 1/2 years ago and now it is worth around $120,000 and will most likely reach $150,000 by the end of the year(some say$200,000 or more but im playing safe.)All tax free. A similar car boom was in the late 80,s which saw cars climb quite high but with the following recession in the early 90,s they lost some value while still remaining above there pre boom values.The same situation is happening now with a possible recession in the near future threatining to hit muscle car values(Clearly luxury items like cars will be hit first).
In the late 80,s ford ho phase threes rose from say $30,000 to $100,000 then lost half of that in the recession. Todays boom has seem them rise above $500,000 to 1 million for some examples. Not bad since they were $4,500 new in 71.
Now i currently owe $200,000 on my $350,000 PPOR and i owe 100% of my $ 310,000 IP
NOW DO I
A# Sell my car in six months for $150,000 reducing my PPOR to $50,000 which i pay of over the next year setting my self up for the next IP purchase
OR
B# Keep car and continue to pay house off, And hopefully by more IP,s if i can.
Now my car may drop in value early on but it will recover and the next muscle car boom in say 15 years it may reach $600,000. By then my PPOR may be paid off and that money i can invest.Im thinking A as although my car will be worth more in the next boom. If i pay my own home off now and invest in a few properties, the potential gain in property values over the next 15 years will probably be higher than the possible $600,000 from the car sale.
So basically would you take a definate $150,000 now and reduce debt or a possible $600,000 in 15 years.
I think i know the answer.PS i guess i could always buy another one before the next boom hey.You guys should check it out. There is a lot of potential no tax profits being made right now in aussie muscle cars if you buy the right car. The beauty of the old bathurst race cars is unlike houses they arent making anymore so supply and demand is insuring there value long term
I guess i should add, My car is a holden hsv walkinshaw with 9,000 klm from new. Not bad for a 20 year old car.Most people in the know agree this is the new breed of collectable car from the 80,s selecting it as well as the vk brock to be the most sought after in the future
I don't understand how the profit from selling your car can leagally be tax free, wouldn.t it have to be declared as income.
secondly, a car is not an income producing asset, it may increase in value but unless you are renting it out you have no weekly income from it, but you will be incurring holding costs such as insurance.
I would approach this situation by working out how much I could sell the car for today, lets say $120,000, now find out how much interest this amount of money would save off your home loan per year, probally 8% compounded monthly then add on your holding costs for the car on top of that figure, if you don't think you car is likly to increase by more than that amount each year, then I would sell the car and invest else where,
atleast then you will have better cashflow, probally be better as far as growth is concerned, and lenders will lend you more money, I can't see a lender giving you an lvr of 80% on a car
No it does not produce a income but its holding costs are insurance only at $400 per year.My thoughts are as you stated. Hold on while the rise in value is more than the interest cost on my PPOR. At the moment it is easily doing that.
I guess you could call it cash flow neautral but showing good capital gain.This scenario sounds similar to that of a parcel of shares in the stock market that don't return a great deal of dividend, but keep going up in value. You know there will be a correction at some point in the future, but how long do you hold on while the price keeps going up?
I like Warren Buffet's quote: "I made a fortune out of buying too late and selling too early".
B y the end of this year you will have made approx a 400% return on your money in only 18 months according to your prediction.
I think that is a pretty good return, and as you say; the party may end soon.
Most people can never pay off $100k on their home loan; you have the chance to do that and it is the biggest financial burden anyone can have as the interest is not tax deductible.
I'd be selling around the end of the year (or even now), pay off the home loan and use the equity for more investments that have good tax benefits and the chance of good income and cap growth.Marc is 100% correct, however I feel that Devo may be emotionally attached to his investment. never a good thing. Get out mate as quick as you can. And this from a car buff. I have seen the market on collectable cars alter very quickly the likes of E type Jags and XK 120's and 150's.
Jon
I agree. Sell at the end of the year. If it goes up more,well i still made over $100,000. If the market drops,i have timed it well.I guess the key is if i pay my house of dont sit around doing nothing. Get in and invest some more.
Hi Devo….never one to knock someone elses wheels….and we won't discuss what even holden nuts called these (the two nciknames…rmember???) …but honestly, if you can get anywhere near the price you are talking (more than a XY GT) mate…Grab it and use that sweet profit….don't take that the wrong way either…….THink of all that CGT free real estate you can buy!
1989 HSV COMMODORE SS GROUP A VL
PRICE GUIDEEngine8cyl 5.0L OHVPrivate$20,400 – $25,000Body4D SEDANDealer$28,000 –Transmission5M (RWD)Trade In$19,600 – $22,700
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