If you know anything about personal finance, you know that buying a car is one of the worst investments you can make. A car is what is known as a depreciating asset, which is just a fancy way of saying it’s value goes down instead of up the second you buy it.
Take a brand spanking new BMW X3 for example. You can buy one for $45,000 brand new.
Ohhhh yeah (Kool-Aid Man voice), those first few weeks are going to feel good. You are going to peruse downtown, blasting “ballin” on the bluetooth enabled “technology package” speakers, and step out of the car like you are the boss. Maybe you get yourself a manicure and show off those nails right next to the BMW logo on the steering wheel and post it to Insta.
“Oh, was the BMW logo in the background? I didn’t even notice, I just wanted to show off my nails”.
The problem is, most people end up buying more car than they can chew (More car than they can chew? That’s not A SAYING). A person can buy that same BMW for $25,000, three years later, with 27,000 miles on it.
You just lost 20 grand on a kid pushing machine with a fancy logo.
Buying a Car is for Suckers
I am here to end this. Well, finance is here to end this, I am just here.
Even a child can understand that this is not a good decision. If you give someone $45,000 and in 3 years they give you back $25,000 should you have given that person your money?
No, the answer is no.
Why do we do it? No matter your car buying strategy, they never hold their value. Unless you’re a bike riding mustachian, we all feel the need to own one. What if I told you there is a way to get what I call a free car?
Hey Brad, you hear this guy? He says we can get a free car! Clickbait.
How to Have A Free Car
Cars are the kings of liabilities (things that go down from the day you purchase them). But, what if you bought CASH FLOWING ASSETS that paid for your car.
Joe Smo wants a truck. He sees that the truck that he wants is going to come to $25,000 or a $350 monthly payment.
Joe could buy the truck and make the payments monthly for five years, just like the rest of the world does. Joe does not want to be like the rest of the world. He decides there is another way.
Instead, Joe looks for a house that he can rent out. He finds a 3 bedroom 2 bath in a decent neighborhood. After expenses, taxes and mortgage payments, he figures the house will bring in $350 per month.
Now Joe has an asset that will pay for his liability. This means that Joe buys a house that the profit will pay for his truck. When the truck is paid off, Joe still has his original investment in the house, AND it is still producing $350 a month.
The amazing thing about this strategy is that Joe can do this forever. Someone else will wake up every single day, drive to work, listen to their crazy boss chew them out, all to pay their rent.
That rent pays for Joe’s truck.
5 Reasons I love this strategy
1. You Can Literally Use The Same Down Payment Forever
A down payment of say $20,000 on a house can pay for your car forever. You will never have to come up with a down payment for a car EVER again.
2.) Your Assets are Paying for Your Liabilities
Something that goes up in value is paying for the lifestyle that you desire. You don’t have to jeopardize your family’s financial future just because you like shiny things.
3. You Can Buy Cars More Frequently
I believe that you should buy used cars and drive them for long periods of time. I still drive a 2002 Suburban with 200K miles as I am writing this. But, with this strategy you can buy another car as soon as the loan is up (if you want). Or, if you love the car, you still have all your principal (amount you put down on the house) and you can collect the cash flow!
4. This Does Not Have to be Only for Cars
Want a boat? Buy a house that pays for your boat. Want a plane? Buy an apartment complex that pays for your plane. Want to retire? Buy enough cash flowing assets that pay for your expenses.
5. Other Assets Work as Well
If you’re not comfortable investing in real estate, this strategy will work with other investments too. Dividend stocks, index funds, you name it. You just may need more cash invested. Real Estate works so well because banks are willing to lend you money, and you can leverage that money to purchase an asset.
This entire strategy comes down to getting what you want out of life. Your cash can work just as hard as you do. If you allow your liabilities to be paid for with cash-flowing assets, you can accumulate wealth at an alarming rate.
Are you willing to give this strategy a shot?
Andrew is the host of The Personal Finance Podcast, a show that is changing the way you think about your money. His primary goal with the podcast is to bring as much value as possible to his listeners.
Andrew's favorite free financial tool he's been using since 2014 to manage his net worth is Personal Capital. Each month he uses their free Investment Checkup tool and Retirement Planner to track his investments and ensure that he's on the fast track to financial freedom.
His favorite investment platform is M1 Finance, a site that allows him to build a custom portfolio of stocks for free. It has no trading fees and is his preferred way to invest without having to lift a finger.
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