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This was an eye opener

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This was an eye opener

Old 11-23-12, 02:18 PM
  #26  
AsanaCycles
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here is another cool reference:

Donald Shoup: The High Cost of Free Parking

https://www.uctc.net/papers/351.pdf
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Old 11-23-12, 04:34 PM
  #27  
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Originally Posted by I-Like-To-Bike View Post
What costs so much, insurance?

I must be lucky. I bought a 2000 Honda Civic, with 144,000 miles 3 years ago for $3K to make a 160 mile R/T commute once a week. Put 14,000 miles on it in three years. I'm retired now but it only costs $35/year for registration and $280 year for insurance to sit in my driveway. Haven't even done an oil change for the last 2 years. Don't need the money and keep it as backup in case my wife's 10 year old car quits. I use it mostly to get a pizza every now and then and drop larger items off at the Goodwill store. Still running on the tank of gas I put in when I filled it up on 31 Aug. Runs like a top. Good running automotive transportation does not have to cost an arm and leg.
You're right, you are lucky.

Basic minimum insurance used to cost me $650 a year, and that's for a perfect driving record with over 10 years experience, female, and over 25. Under 25 male and it can be close to $3k a year without collision or comprehensive. I paid the extra $400 a year to get collision and comprehensive, which turned out to be handy when my car incurred $8k damage last summer due to 2 hit and runs and one hailstorm.

Also, not having to do so much as an oil change in 2 years on a car with 144k miles is very lucky. I don't think it's wise to plan on a trouble-free car while budgeting.
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Old 11-23-12, 04:43 PM
  #28  
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Originally Posted by bjjoondo View Post
Man you all must have CHEAP House's in your area, We rent a 1 bedroom apt. for $450.00, (utilities included) a month, and that's CHEAP for an apartment in Colorado Springs, CO. There's not a single HOUSE anywhere that you can BUY for that kind of money, heck most of the Rental Houses are DOUBLE what we pay for rent!!!! Yes, it's a bit getto looking but it's not bad inside, the median house here is $250,000 or so, which would make our "house payment", $1,000 + a month, and that DOES NOT include, utilities, trash, etc., there's NO WAY we will ever be able to afford to BUY a home!! So the advise to BUY instead of RENT doesn't work for a lot of us!!!!!
Don't know where in Colorado Springs you live but the average rent is higher than what you pay. https://www.apartmentratings.com/rate...Price&msa=1720 My Son just got a home in Security and after his down his cost is about what the average rent is. Doesn't plan to move so as soon as they make break even he will be making equity rather than giving it to a landlord. And yes some lost money during the housing crash. But ever since the great depression thise that can afford to buy and pay off a home have made money. Those who rent have not but they have provided a living for someone else. However because some feel it is better to be able to move easier they will spend what other spend developing equity on rent and after 10 years it is a lot more than the cost of a Honda. I am not saying one is better than the other only that people are willing to spend a whole lot more than 40k on rent. It is true that if your rent is dirt cheap you should be able to save money on the bank. But in the end you will always be paying rent till the day you die and it will never go down. The owner can sell out on you and you might have to move even if you don't want to. Someone that buys a home, moble home or even one of those Tiny homes, or a cabin in the woods someday should have no rent payments. I haven't paid rent for five years my home is paid for and I made enough off of my last house to pay off any bills I may have had five years ago and send me off on a two year tour of National parks and reservations. Are their disadvantages? Yes there are but people are willing to spend way more than 40k to deal with those disadvantages. I also know some will not be in a position to buy but that has little effect on the principle of spending on what you value.

wahoonc has a point as well but in the whole people have made money buying a home. It was only when the market was over blown to the point where 150k homes were selling for 350k to people that made 35k a year. But now those same homes are selling for 158k and going up again. I made 30k on my first home, 60+k on my second home and 120k on our resort home when I retired. If car free people put the extra money they say they save not having a car in the bank they should be able to buy property and have a place to live rent free as well. I have to add the point that I happen to live where rent is as high as the cost of a house payment, or very close to it so saving to buy is a no brainer. The OP however lives in an area where homes reach break even in less than 2 years as I posted. That is 270,000 bucks in Vegas average rent with nothing to show for it after 30 years verses owning a home of your own in the same period of time.

What does this all have to do with the OP? Eyes are opened for different reasons by different people based on what people value.
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Old 11-23-12, 06:00 PM
  #29  
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Originally Posted by Mobile 155 View Post
Yet, and I undestand the logic, many car free seem to value their freedom to move quickly enough that they would ather drop 700-1500 a month in someone elses pocket for 20 years, $180,000.00 to $360,000.00 that is not equity except for the landlord. In my case the equity in one home after 30 years paid off all of my bills, paid off my second home so I have no rent, no payments, I do not use credit cards. I have no car payments, bought a new travel trailer for cash and retired two years early.
I did just the opposite and became carfree in order to save money for a down payment and stop paying the landlord. I also suspect with salaries either stagnant or dropping, more people will have to give up their cars for the American dream.
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Old 11-23-12, 06:18 PM
  #30  
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When I sold my Jeep, it was like giving myself a $750 a month raise. That was nice.
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Old 11-23-12, 06:32 PM
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[/QUOTE]
wahoonc has a point as well but in the whole people have made money buying a home. It was only when the market was over blown to the point where 150k homes were selling for 350k to people that made 35k a year. But now those same homes are selling for 158k and going up again. I made 30k on my first home, 60+k on my second home and 120k on our resort home when I retired. If car free people put the extra money they say they save not having a car in the bank they should be able to buy property and have a place to live rent free as well. I have to add the point that I happen to live where rent is as high as the cost of a house payment, or very close to it so saving to buy is a no brainer. The OP however lives in an area where homes reach break even in less than 2 years as I posted. That is 270,000 bucks in Vegas average rent with nothing to show for it after 30 years verses owning a home of your own in the same period of time.
[/QUOTE]

The prices of homes have come down but not everywhere. In New Jersey, they only dropped about 30-40% from the high and are still over priced. One in five home owners are upside down and that might include me and I purchased two years ago! I don't regret buying since it was better than living in a studio but I'm not going to make alot of money on the deal. I hope I'm wrong.

I think you were quite fortunate not to have bought at the peak of the real estate boom but alot of people did not. I was just about to but did not pull the trigger. I'm quite lucky.
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Old 11-23-12, 06:58 PM
  #32  
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Originally Posted by Mobile 155 View Post
ever since the great depression thise that can afford to buy and pay off a home have made money. Those who rent have not but they have provided a living for someone else.
I understand the point you are trying to make and I agree that under the certain circumstances renting a particular property can cost significantly more than owning said property. However, I feel that you are overlooking a few important considerations. Purchasing a home entails a risk/reward tradeoff. You are purchasing an asset and financing that purchase with long term debt. There is a probability that over time home ownership will be cheaper than renting. There is also a probability or risk that home ownership will be more costly than renting. There are no guarantees of any particular outcome.

That break-even study is helpful for those that are able to stay in one place. Unfortunately, many people are forced to move by circumstances that are beyond their control. Let's say I commit to living in Vegas for 2 years and then after 2 years I have to move because of my job. Well, for the two years I lived in Vegas owning was cheaper in than renting. Then I put my house on the market. There is a risk it will be on the market for a few months. What if it takes 6 months? Well, I find a new place to live in my new city, but I still have to keep paying the mortgage on the Vegas property for 6 months, there is no way I break even. That article sounds great, but their break-even analysis is irrelevant for those who do not have the opportunity to stay in the same home for X number of years. It doesn't properly account for the risk associated with home ownership.

My father had the same job for 30+ years. In the current economy this is becoming less and less likely. Purchasing a home involves significant transaction costs. For a typical homebuyer that includes $3k+ in closing cost and 6-7% to the realtor at the time of sale. The longer you own the home, the less significant those costs become. But, what if you have to move every 5 years because of the job market? In the first 5 years your mortgage payment is mostly interest. To use your words, you are "providing a living" for a banker during those first five years and not building up much equity. In a slow real estate market you may lose money on a home if you only stay five years. If you have to move every 5 years for 30 years you will be "providing a living" for a banker for 30 years.

My point is that it is hard predict if you will be able to stay in a home long enough to pay it off. When you take on a 30 year mortgage you take on a lot of risk.

You may lose your job.
You may lose your health.
You may get married.
You may get divorced.
Your living preferences may change.
Your neighborhood may deteriorate.

Homeowners also bear more risk of surprise expenditures compared to renters. AC goes out. Roof needs to be replaced. House needs to be painted. These are significant cash outlays that renters don't have to worry about.

Last edited by mtb123; 11-24-12 at 06:36 PM.
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Old 11-23-12, 08:39 PM
  #33  
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Originally Posted by I-Like-To-Bike View Post
What costs so much, insurance?

I must be lucky. I bought a 2000 Honda Civic, with 144,000 miles 3 years ago for $3K to make a 160 mile R/T commute once a week. Put 14,000 miles on it in three years. I'm retired now but it only costs $35/year for registration and $280 year for insurance to sit in my driveway. Haven't even done an oil change for the last 2 years. Don't need the money and keep it as backup in case my wife's 10 year old car quits. I use it mostly to get a pizza every now and then and drop larger items off at the Goodwill store. Still running on the tank of gas I put in when I filled it up on 31 Aug. Runs like a top. Good running automotive transportation does not have to cost an arm and leg.
Insurance, registration and property taxes. Insurance is ~$750 a year (I carry more than the minimum required), Tags are ~$200 (weighted requirements) the rest is inspection and property tax. It got filled up 4 times last year at about $140 each time, a tank is good for 500 or so miles. It is primarily used to pull a travel trailer or haul a couple of antique tractors to a show.

Aaron
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Old 11-23-12, 09:32 PM
  #34  
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Originally Posted by mtb123 View Post

You may lose your job.
You may lose your health.
You may get married.
You may get divorced.
Your living preferences may change.
Your neighborhood may deteriorate.

Homeowners also bear more risk of surprise expenditures compared to renters. AC goes out. Roof needs to be replaced. House needs to be painted. These are significant cash outlays that renters don't have to worry about.
Much of what you say is true and nothing is ever cut and died. But it is the same with how much a car costs. Pay cash and buy used and there is no reason your 5 year cost has to be 44k. But every one of the first six things that can change for the home owner can happen to the renter. Plus the landlord can raise the rent every year for all ten, twenty or thirty years.

Renters aren't responsible for the air conditioner but they also have no choice on how long it might take to get one fixed. But the other things is 750.00 for 30 years is $270,000.00 that all goes into the landlords pocket.

The only point I was making however was for some of us, in fact many of us renting is a total expense with no chance of making any equity. And while yes it can be a risk to own the renter still will be a renter when they are retired. They never get a break on the rent and even a car gets paid for sooner or later. It is simply bad credit practice that causes someone to make payments on a car year after year. Unless you get a credit form work to do so. So when someone says "I gave up driving my Honda Civic and saved $1000.00 a month" that may or may not be true for anyone but the one posting. If you remember I admitted that many here value being able to move quickly over equity and I understood it. But there is a cost to that choice as well and in real terms it is higher than the cost of a Honda. (And yes I know for some it isn't a choice.)

It is no different in the cycling culture, that is why some people pay $1000.00 to $2500.00 for a set of wheels and some have never spent more than $100.00. To the upper end people there is no way they will waste their time on a $100.00 set of wheels and for the lower end there is no way they would pay $1000 to $2500 on wheels. But the same people that only pay $100.00 for wheels will buy organic whole foods at twice the price of the standard foods at the store. It is what they value.
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Old 11-23-12, 11:45 PM
  #35  
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Originally Posted by wahoonc View Post
I have never quite figured that one out either. I paid cash for my last truck, currently it "costs" me ~$1200 a year to have it sit here, even if I never drive it. I can sell it for about 60% of what I paid for it 6 years ago due to the low mileage on it. Operation costs are a high on that truck, it is a diesel and gets about 15 mpg on a good day. I am sure there are some fancy formulas that will allow you to figure out the depreciation vs the loss of interest if you had invested the money.

I also love to hear people that think housing is a great investment... in many cases it is not. Depending on the local market you may be better off renting, as well as depending on your circumstances. I have a friend that bought a house a few years back and is now upside down on his mortgage to the tune of over $100k due to the collapse of the market. He can make the payments, but he is paying a lot of money for something that isn't worth what he paid for it 6 years ago. My current house is worth less than I paid for it 12 years ago, but I paid cash so my loss is all on paper at the moment.

Aaron
As I've read through this thread, it occurs to me that, yes, cars are a very bad financial choice for some people, but that there's a much greater injustice that exists in real estate. Cars make people poorer, but keeping a roof over one's head makes one poorer still. Why is it that people in some places are paying ridiculous rents or mortgages? Where I live, a one-bedroom basement apartment goes for well over $950/month; a modest, two-bedroom, 1700 sq ft house can cost well over half a million dollars, usually more like 750K. The cost of a car is tiny by comparison. Many small local businesses have gone belly-up in recent years, not so much because business was bad, but because they couldn't keep up with increased rents demanded by landlords. Who owns the real estate, and why are these people so greedy? Are they the same people who demand poverty-level wages for workers so that Wall Street investors can get a dollar more per share? It's definitely a good idea to shed the car if it's more than you can afford, but meanwhile there's an elephant in the room that everyone is working very hard to ignore. We need a new set of Wobblies.
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Old 11-24-12, 07:55 AM
  #36  
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Originally Posted by bragi View Post
As I've read through this thread, it occurs to me that, yes, cars are a very bad financial choice for some people, but that there's a much greater injustice that exists in real estate. Cars make people poorer, but keeping a roof over one's head makes one poorer still. Why is it that people in some places are paying ridiculous rents or mortgages? Where I live, a one-bedroom basement apartment goes for well over $950/month; a modest, two-bedroom, 1700 sq ft house can cost well over half a million dollars, usually more like 750K. The cost of a car is tiny by comparison. Many small local businesses have gone belly-up in recent years, not so much because business was bad, but because they couldn't keep up with increased rents demanded by landlords. Who owns the real estate, and why are these people so greedy? Are they the same people who demand poverty-level wages for workers so that Wall Street investors can get a dollar more per share? It's definitely a good idea to shed the car if it's more than you can afford, but meanwhile there's an elephant in the room that everyone is working very hard to ignore. We need a new set of Wobblies.

A lot of it comes down to demand. If there is limited real estate available it is going to be more costly, think places like NYC or Boston. I know for a fact in Boston that they put a moratorium on parking garages quite a few years back, they now have the most expensive parking in the US. A good example is in the oil fields of the Dakotas, single wide mobile homes were renting for $5,000 a month because someone was willing to pay that price to have a roof over their head. Of course there were plenty of people willing to take advantage of the fact people were willing to pay that price and kicked lower paying renters out. In places like NYC or Chicago things like this lead to rent control.

I have a friend that owns a beach house, he purchased it for ~$190,000 20 years ago, it shot up in value to over $400,000 around 2008, when the values collapsed it fell back to it's current value of around $245,000. It was pure demand in this case. Sad part is the county has not done a re-evaluation so he is still paying taxes on the inflated value.

In some cases it may be greed. There is a local real estate "investor" that bought up a lot of the buildings in a depressed downtown area and wants premium rents for them, someone may rent from him for a year or two but they are quick to leave when the lease is up. Others charge more reasonable rates and keep tenants for a longer period of time.

Aaron
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Old 11-24-12, 08:35 AM
  #37  
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Originally Posted by I-Like-To-Bike View Post
What costs so much, insurance?

I must be lucky. I bought a 2000 Honda Civic, with 144,000 miles 3 years ago for $3K to make a 160 mile R/T commute once a week. Put 14,000 miles on it in three years. I'm retired now but it only costs $35/year for registration and $280 year for insurance to sit in my driveway. Haven't even done an oil change for the last 2 years. Don't need the money and keep it as backup in case my wife's 10 year old car quits. I use it mostly to get a pizza every now and then and drop larger items off at the Goodwill store. Still running on the tank of gas I put in when I filled it up on 31 Aug. Runs like a top. Good running automotive transportation does not have to cost an arm and leg.
I'm in the same place as you with my car. It's a '94 Sentra, the same one I bought in high school. My desultory maintenance and thinly veiled contempt for it only make it stronger. I get an oil change once a year, but the oil guys always say I didn't need one, because all of the fluids and stuff are still clear.
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Old 11-24-12, 09:32 AM
  #38  
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Originally Posted by kookaburra1701 View Post
I'm in the same place as you with my car. It's a '94 Sentra, the same one I bought in high school. My desultory maintenance and thinly veiled contempt for it only make it stronger. I get an oil change once a year, but the oil guys always say I didn't need one, because all of the fluids and stuff are still clear.
It seems the several reports on this list of the extremely high costs of owning a motor vehicle come from people who have little to no direct knowledge of the subject and are fond of pointing out high side estimates that they cherry pick from the Internet; or from people who have no interest or desire to own a vehicle so any amount of money is too much. A third subset of people whose "eyes open up" at spending money on transportation convenience or comfort expenses seem to be a few folks who either have very limited income, or no motivation to live beyond a subsistence level, or both.
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Old 11-24-12, 11:17 AM
  #39  
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Originally Posted by I-Like-To-Bike View Post
It seems the several reports on this list of the extremely high costs of owning a motor vehicle come from people who have little to no direct knowledge of the subject and are fond of pointing out high side estimates that they cherry pick from the Internet; or from people who have no interest or desire to own a vehicle so any amount of money is too much. A third subset of people whose "eyes open up" at spending money on transportation convenience or comfort expenses seem to be a few folks who either have very limited income, or no motivation to live beyond a subsistence level, or both.
When the last time you replaced a tranny? Last time it happened to me the cost would have covered all my cycling costs for the last 5 years. Just saying....
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Old 11-24-12, 01:26 PM
  #40  
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Originally Posted by gerv View Post
When the last time you replaced a tranny? Last time it happened to me the cost would have covered all my cycling costs for the last 5 years. Just saying....
I am going to have to spend multiple thousands of dollars for a reroof job on my house, as well as a new heater soon. But I don't associate or compare these necessary expenses with cycling costs since they have no relationship. For myself, and I suspect most families, automotive requirements and associated expenses are NOT interchangeable or comparable with cycling requirements or expenses.

Haven't replaced anything in the drive train other than tires and brakes, hoses and belts in 50 years of automobile ownership. I did get rid of a beat up 1976 BMW 520 rather than fix it while living in Germany in 1987. Bought a one year old used German Spec Toyota Corolla to replace it for $5000. Then drove the heck out of it all over Europe with my wife and three children for the next 4 years before selling it for $2500.
My wife's 2003 Nissan Sentra with 89000 miles, bought new for $13500 has had only routine maintenance and no replacement of anything besides tires, brakes, belts, fluids and hoses. No repairs, no breakdowns, 100% reliability. It is due for a timing belt replacement which will probably cost about $250. I suppose it will need a replacement battery or muffler in a few years since they are still the originals.
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Old 11-24-12, 01:32 PM
  #41  
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Originally Posted by wahoonc View Post
A lot of it comes down to demand. If there is limited real estate available it is going to be more costly, think places like NYC or Boston. I know for a fact in Boston that they put a moratorium on parking garages quite a few years back, they now have the most expensive parking in the US. A good example is in the oil fields of the Dakotas, single wide mobile homes were renting for $5,000 a month because someone was willing to pay that price to have a roof over their head. Of course there were plenty of people willing to take advantage of the fact people were willing to pay that price and kicked lower paying renters out. In places like NYC or Chicago things like this lead to rent control.

I have a friend that owns a beach house, he purchased it for ~$190,000 20 years ago, it shot up in value to over $400,000 around 2008, when the values collapsed it fell back to it's current value of around $245,000. It was pure demand in this case. Sad part is the county has not done a re-evaluation so he is still paying taxes on the inflated value.

In some cases it may be greed. There is a local real estate "investor" that bought up a lot of the buildings in a depressed downtown area and wants premium rents for them, someone may rent from him for a year or two but they are quick to leave when the lease is up. Others charge more reasonable rates and keep tenants for a longer period of time.

Aaron
Still is there not an absolute truth here,rent always has to be above what the owner paid? Rent either makes the owner a profit or the owner goes out of business. Apartment dwellers simply share the cost to make the owner the profit but they still have to pay some amount over the cost of the place. That is one reason some owners put off repairs as long as they can get away with it, profit. But it brings us back to what people value. People that value being in the city and close to down town seem to be willing to pay high rent for less space. People that want more space and less rent or even a place of their own move to the metro area, think Atlanta. What opens some peoples eyes is if they can afford it they might want more room and more personal comfort. The Ah-ha moment for them is they don't have to throw away $1600 a month on a small one bedroom in town they can get a 3 bedroom for $1000 a month away from town and $600 a month on a car. (Ihave never paid $600.00 a month on a car.) Both groups feel the other is crazy. If we have learned almost nothing about our society we should have learned people live up to the limits of their income. Most people have spent their tax returns several times before they even get it. ( I try to make sure my deductions make my tax bill zero. I don't need a return and I don't want to give the government a tax free loan for the year.)

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Old 11-24-12, 02:52 PM
  #42  
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Originally Posted by Booger1 View Post
So,it cost $250 a week to own a car.....LOL! .....somehow that doesn't seem right.
Get something built this decade from the buy here pay here car lot, add in insurance, fuel, and the breakdown payment plan and you're not too far off. I don't know how those vultures sleep at night. They have a 2004 F-150 for $125 a week, for 156 weeks. That's $19,500 if you ever manage to pay the thing off. Add in another $25 a week for their breakdown insurance which covers you if the engine or something major goes out. They prey on those with poor credit and marginal jobs. That F-150 has been for sale 3 separate times that I've seen. Good scam, keep "selling" the same car over and over. When the sucker gets 3 weeks behind repo it, keep his money, take him to court for the rest, and sell the car again to someone else. Yes, they do actually try to collect on the balance just like a bank does if the rig is repo'd.
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Old 11-24-12, 03:46 PM
  #43  
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Originally Posted by iheartbacon View Post
Get something built this decade from the buy here pay here car lot, add in insurance, fuel, and the breakdown payment plan and you're not too far off. I don't know how those vultures sleep at night. They have a 2004 F-150 for $125 a week, for 156 weeks. That's $19,500 if you ever manage to pay the thing off. Add in another $25 a week for their breakdown insurance which covers you if the engine or something major goes out. They prey on those with poor credit and marginal jobs. That F-150 has been for sale 3 separate times that I've seen. Good scam, keep "selling" the same car over and over. When the sucker gets 3 weeks behind repo it, keep his money, take him to court for the rest, and sell the car again to someone else. Yes, they do actually try to collect on the balance just like a bank does if the rig is repo'd.
Does this wicked car dealer shanghai suckers from off the street or from barroom floors into his car lot and hold a gun to their heads to make them buy overpriced over sized vehicles? Does he ply the innocent lambs with alcohol and weed prior to the sale? Does this wicked car dealer own every motor vehicle sales lot in the territory?
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Old 11-24-12, 03:59 PM
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My bike has saved me probably a few hundred in transport fares etc but recently has hardly cost me anything in repairs and maintenance thanks largely to a Community Bike Shop.

So bieng car free has certainly been beneficial tho with my partner's increasing disability I sometimes think it would be good to be able to drive him to work instead of him having to walk due to buses being so unreliable at the time he sets off.
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Old 11-24-12, 04:06 PM
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Originally Posted by I-Like-To-Bike View Post
Does this wicked car dealer shanghai suckers from off the street or from barroom floors into his car lot and hold a gun to their heads to make them buy overpriced over sized vehicles? Does he ply the innocent lambs with alcohol and weed prior to the sale? Does this wicked car dealer own every motor vehicle sales lot in the territory?
Can't believe this car dealer has the nerve to sell people a product they want at a price they are willing to pay. Unbelievable!
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Old 11-24-12, 04:41 PM
  #46  
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Originally Posted by I-Like-To-Bike View Post
I am going to have to spend multiple thousands of dollars for a reroof job on my house, as well as a new heater soon. But I don't associate or compare these necessary expenses with cycling costs since they have no relationship. For myself, and I suspect most families, automotive requirements and associated expenses are NOT interchangeable or comparable with cycling requirements or expenses.
I can't take my condo to the grocery. I can take a car, and accept the costs of ownership, or I can walk, ride or take the bus, and use the savings for other things. When I decided to go without a car, I suddenly discovered hundreds of dollars of new discretionary income each month. I saved them all, and, ironically in light of this discussion, bought a condo. For me, this was serious savings. $6,000 a year can be a big chunk of discretionary income for many people.

How is it 'cherry-picking' to look at a study of the cost of car ownership from the American Automobile Association? They say about $6500 to $9500 for 15,000 miles.

You can't have it both ways. If it is unrealistic for most families to consider cycling as a substitute for driving, then perhaps it is unrealistic to think they can beat the averages by so much in terms of cost of auto ownership.
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Old 11-24-12, 05:00 PM
  #47  
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Originally Posted by mtb123 View Post
I understand the point you are trying to make and I agree that under the certain circumstances renting a particular property can cost significantly more than owning said property. However, I feel that you are overlooking a few important considerations. Purchasing a home entails a risk/reward tradeoff. You are purchasing an asset and financing that purchase with long term debt. There is a probability that over time home ownership will be cheaper than renting. There is also a probability or risk that home ownership will be more costly than renting. There are no guarantees of any particular outcome.

That break-even study is helpful for those are able to stay in one place. Unfortunately, many people are forced to move by circumstances that are beyond control. Let's say I commit to living in Vegas for 2 years and then after 2 years I have to move because of my job. Well, for the two years I lived in Vegas owning was cheaper in than renting. Then I put my house on the market. There is a risk it will be on the market for a few months. What if it takes 6 months? Well, I find a new place to live in my new city, but I still have to keep paying the mortgage on the Vegas property for 6 months, there is no way I break even. That article sounds great, but their break-even analysis is irrelevant for those who do not have the opportunity to stay in the same home for X number of years. It doesn't properly account for the risk associated with home ownership.

My father had the same job for 30+ years. In the current economy this is becoming less and less likely. Purchasing a home involves significant transaction costs. For a typical homebuyer that includes $3k+ in closing cost and 6-7% to the realtor at the time of sale. The longer you own the home, the less significant those costs become. But, what if you have to move every 5 years because of the job market? In the first 5 years your mortgage payment is mostly interest. To use your words, you are "providing a living" for a banker during those first five years and not building up much equity. In a slow real estate market you may lose money on a home if you only stay five years. If you have to move every 5 years for 30 years you will be "providing a living" for a banker for 30 years.

My point is that it is hard predict if you will be able to stay in a home long enough to pay it off. When you take on a 30 year mortgage you take on a lot of risk.

You may lose your job.
You may lose your health.
You may get married.
You may get divorced.
Your living preferences may change.
Your neighborhood may deteriorate.

Homeowners also bear more risk of surprise expenditures compared to renters. AC goes out. Roof needs to be replaced. House needs to be painted. These are significant cash outlays that renters don't have to worry about.
Alot of good points.

I want to say what keeps alot of people not buying property is the simple fact that high rents make it impossible to save for a home. If you require more than one bedroom, the monthly rent could be 80% or more of a mortgage! It could take 10 years like in my case to save enough for a downpayment and I have no children or car. We have seen homes drop but qualifying is alot harder than ever before. The real estate broker told me in not so many words don't even think about selling for five years!

Then there are other risks like hurricane Sandy that destroyed thousands of homes. Also, if any family member loses their health, you could lose your home and this includes grand parents. A tree right on my property caught fire thanks to some careless smoker and I nearly lost my home! In short, there are dozens of reasons why you could lose the house not just to job loss.

While it's highly unlikely we will have another real estate collapse there is talk of eliminating or dramatically reducing the real estate interest deduction! Should that happen, every home will lose 10-20 percent of it's value!!

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Old 11-24-12, 05:01 PM
  #48  
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Of course he doesn't force them to buy. However on some level he is taking advantage of people. Especially the foreign students, a lot of them really don't understand what they're signing. Perhaps I'm too sympathetic when I hear people tell me how badly they're struggling to pay for their car. I've always been a softy and think pay day loans, but here pay here car lots, and rent to own stores take advantage of the poor and uneducated. I don't know what the answer is, but I do know predatory lending isn't it. Just my opinion, for what it's worth.
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Old 11-24-12, 06:32 PM
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Originally Posted by iheartbacon View Post
Of course he doesn't force them to buy. However on some level he is taking advantage of people. Especially the foreign students, a lot of them really don't understand what they're signing. Perhaps I'm too sympathetic when I hear people tell me how badly they're struggling to pay for their car. I've always been a softy and think pay day loans, but here pay here car lots, and rent to own stores take advantage of the poor and uneducated. I don't know what the answer is, but I do know predatory lending isn't it. Just my opinion, for what it's worth.
Payday loans provide a valuable service for people that need quick access to cash. Is it worth it for someone to pay a $50 fee to get $400 right now rather than waiting 2 weeks for a paycheck? Well, you don't really know unless you are in that person's shoes and I think it's a little arrogant to assume that you do. How do you know the this car guy is "taking advantage of people"?

Think about the nature of these payday loans. They are very short term but they still require a transaction cost. You can approve someone for a $25,000 car loan just as quickly as you can approve a $400 payday loan. If you've ever purchased a car on credit you know that the dealership will nickel and dime you with all these little doc fees, processing fees, etc (transaction costs). But, they seem pretty small compared to your $25,000 loan. Well, a payday loan company is going to charge the same sorts of paperwork and processing costs to their customers. But these little fees amount to a much larger percentage of a $400 loan. Not to mention the fact that there is a cost associated with poor credit. You have to pay higher interest rates. I can see how you might think that the cost of these payday loans are "predatory" or whatever but I think it's because you don't really understand the economics of these transactions. Again, think about the extreme short term nature of these loans. It's kind of like getting a hotel room. I think $100 per night is a pretty good deal for a basic hotel room. But would I pay $36,500 to live in those accommodations for one year ($100 per day x 365 days per year)? No way, that would be a rip off. Same thing with payday loans and rent-a-centers. They serve a short term function. If you extrapolate the short-term costs out for a full year then they seem exorbitant.

Regarding the foreign students. If they are smart enough, to come here to study then I am sure they are smart enough to do the math to convert this guy's weekly price to a monthly or annual cost and compare to options at other car dealerships.

Personal irresponsibility in financial decisions can create difficulties anyone, rich or poor. Look at Donald Trump. His various businesses have declared bankruptcy at least 4 times.

Regarding the folks you know that are struggling to pay for their cars. The good news for them is that cars can be sold fairly easily and you can almost always find a cheaper, older, smaller car that will get you from point A to point B as reliably as your current car. If you are having trouble paying for your current car, sell it.

Last edited by mtb123; 11-24-12 at 08:13 PM.
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Old 11-24-12, 06:43 PM
  #50  
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I apologize for my previous posting. My opinion is apparently wrong and I do not wish to start an argument. Again I apologize for starting this conversation. If a moderator is reading this please delete my posts so we do not derail this thread further.
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