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When can I afford a Model S?

Hi folks,

I've been reading the forums for a month or so and have my heart set on a Model S. I read through a thread on financing where people basically said that Alliant Credit Union is the easiest and provides the best rates (PenFed had mixed reviews). I've created an account at Alliant.

I am determining what changes I need to make in my financial life to be able to qualify for a $70-100k loan for a Model S. I make money from my IT job and my house (I live on the first floor and rent out the basement + 3 rooms upstairs). I'm in the middle of a home flip (rehab) where I will probably make $15-45k profit. I plan on adding another rental property to my portfolio after paying off some debt. I will be starting a new job in 8-12 months at $70k. My current job pays $46.8k. I make $2370/month from renting part of my house. I'm 25 years old, single (with a girlfriend) and in Baltimore. My credit score is around 760.

Here are my current financials:

Income:
job = $2770/month
Rental = $2370/month
--------------------
$5140/month

(With new job the total will be $4124/month + $2370/month = $6494/month)

Expenses:
PITI + PMI = $1045/month ($127k left; will lower by $53/month next August when PMI is auto-removed)
Car loan @4.54% = $278/month ($13,500 left on it)
Personal loan @ 7.99% = $239/month ($5,000 left on it)
Personal loan @ 7.99% = $345/month ($9,000 left on it)
Cable = $150/month
Utilities = $250/month
Phone = $45/month
Insurance = $105/month
Food = $350/month
-----------------------
$2807/month

Assets:
House1 loan = $127,000; Value = $180,000

Liabilities:
My car (Honda Fit Sport 2012)

My current monthly cashflow = $5140 - $2807 = $2333/month
My soon-to-be monthly cashflow = $6494 - $2807 = $3687/month

With the profit from the home flip, I will pay off all of my 7.99% loans and purchase a 13.77kw solar panel system for $29k net expense (I'll use a HELOC for part of this). This will allow me to supply all of my own electricity and enough to include a Tesla Model S.

I'm thinking that once I've paid off every loan with the exception of my home loan, and once I have $25k from another flip for down payment + trade-in value of my Honda Fit, and once I'm making $70k + $28k rent + flipping income... I will be in a good position to purchase a Model S by financing $70-100k through Alliant. I'd probably be okay with the 85kwh Model S with some options... I've spec'd my Model S out to $88k, but I'd love to get the P85 for $98k.

What do you all think? Will I be able to purchase a Model S with no debt and $100k/year income (not including flips)? I'm thinking that in 18 months I will be able to accomplish all of the above and purchase a Model S.

Save for retirement.

My retirement model is built on amassing a multi-family rental income. I am putting 3% of my pay into a 401k, but that's not going to be my main retirement.

No judgement on you as a person -- and by the way, good work for being thoughtful about your retirement and finances.

That said, I don't think you have enough of a financial cushion that you should feel you need to get a Tesla.

Wait. It's cool now, but it will get cooler and cheaper over time. The cost of the Tesla approaches all of your major income and asset items -- this is too close.

Unless you have $100K savings you didn't mention, build up your savings and enjoy something like this (which will likely be even better) when you have the comfortable means.

The best thing you have now is time working for you. Save early, and things will be that much easier to spend later. Buying a depreciating asset now, and you sacrifice the earning potential of your many years ahead.

I'd focus on the GenIII. It's going to be an amazig car!

+1 @timmsteiner

@Exsedol - At a tender age of 25, you are doing much better then most of your counterpart.

Instead of laying out @29k for solar panels, wouldn't you be better off using Solar City to lease them instead? You net spending will close to zero and save a good % off electric use from the grid.

If you can safely get a cash cushion of at least $50k, I think you can afford a monthly car payment of about $1000/mth over 6 years from ACU.

Would you trade in your Fit for the MS? It's a lifestyle change and you have to continue your hard work in securing financial stability. Oh yeah, you will also need to start saving for the engagement ring account too.

I agree with the others. Wait and have some patience.

Get your debt paid off, wait for the clearance and wait for your salary to DEFINITELY increase. Also, the rental situation is a VERY nice situation to be in but that could change so I wouldn't necessary definitely count on that situation.

Wait a bit until you can definitely comfortably afford it and get rid of your debt. The car will only keep getting better.

Delay that instant gratification.

Also, stick with the rental properties. I'm not into "flipping" but I did start with owning property like you at an early age and it was the best decision I ever made. The earlier you start, the easier it is and the more properties you can potentially accumulate.

@Mathew98

It's better to buy your own PV, especially if you can self-install or have reliable contractors. Solar City takes a cut on people's lack of capital or risk aversion.

I don't think he's working on stability. He's working on wealth.

OP also needs to take car insurance into account.

Personally, I like the simple 50%/30%/20% (Necessity/Disposable/Savings) rule.
Car financing => contract => Necessity
Car insurance => Necessity
Car fuel etc => necessity

That is, if Current Necessities + ( Model S - Fit ) keeps you under 50% of income, go ahead. Otherwise, if you really want it, start saving some of your disposable income to lower the debt burden on the Model S. If you're doing the Tesla financing then you always have the buyback option to help you. But don't let this bit of fun lower your Savings (long-term savings and investments) below 20%.

I should add that I've test driven a Model S P85+. I'm hooked

@Soma & GLO - The GenIII is my fallback, but I'm concerned that it won't be as fun as the Model S. It is also unlikely to have the same range as the Model S.

@Mathew98 - http://solarleasedisadvantages.com/
I would trade in the Fit. No way I would ever want to drive it again. For long distance travel (which I've never done in the Fit, besides a 3 hour trip to Deep Creek Lake) I would stop at KOA overnight and charge.

It sounds like what people are saying is I should have paid off all debt and have a positive net worth value of $50-100k before purchasing a Model S.

Weird post. Why share all the unnecessary personal info?

To the OP...

Go take a "Financial Peace University" course at your local church. Look it up online. Do not try to buy a luxury car with such finances that you have. You need to look inside and turn away desires that are well beyond your current earning potential. You could increase your income and use that to grow savings and perhaps buy spashy cars.

My personal feeling is that nobody making under $120K a year gross should even consider a Model-S. Remember when the press was saying "people buying Chevy Volts make, on average, $175K a year". And the Volt is 1/3 the price of a Model-S.

Consider checking out the cheap leases on Nissan Leaf vehicles. Under $200/month. All electric. Good around town. And NOT a huge financial burden to your personal financial structure.

I agree with bonaire. The plain truth of the matter is the Model S as it's currently prices is NOT for the masses.

The reality is that some of us that make much more than that and have relatively high net worths felt a bit guilty for buying the car.

Or at least I know I did. I can comfortably afford the car but I still felt a bit guilty spending this much on a car. The car IS amazing but this is by far the most I've spent on a car before.

@nickjhowe - I want accurate feedback.

@Bonaire - I'm looking at cashflow all day long. I don't see the Model S as a luxury car like I would see a Mercedez or BMW or Audi (which I would never consider buying; note that I'm driving a Honda Fit Sport right now) where just maintaining and driving the car sucks away money. The Model S is a car that I could enjoy and feel good about driving.

I've already taken a similar financial course at a church that lasted for a month or two.

Nothing about my post is instant gratification. It is all about planning. My 18 month plan shows all debt paid off, high cashflow (I didn't take into account the savings from monthly loan payments), and a sizable down payment.

Instead of saying, "I can't afford it" - I'm asking "How can I afford it?" How many houses do I need to flip? How many rental properties should I realistically have first?

I don't care that I'm "only" 25 years old and have 50 years ahead of me. I won't always have the rest of my life ahead of me.

Exsedol,

You've certainly got more financial sense than your average 25 year old, and I commend you on that.

I think I'd kill that 14,000 of high interest, unsecured debt first. I also would think carefully about a solar panel purchase. You are taking on a lot of debt in a short period of time. Ultimately, the purchase will pay off more than a lease, but you'll have opportunity costs until it's paid off.

Regarding flipping, depending on where you live, the potential to do that has run it's course. I would not consider flipping in your financial forecasts.

But you seem like you've got your head screwed on straight.

You're 25. Let's say you have 40 yrs to retirement. In the next few years, that Model S will lose $40k in value. That $40k at 5% compounded would be worth $280k. At 10%, $1.8M.

Is having the Model S now really worth $1.8M in future value?

Buy the same kind of crappy car everyone else got at 25. Shoveling more than a year's income into a car is simply financially irresponsible.

As @timmsteiner said: "Save for retirement"

When the balance of your savings account is such that a decrease by the Model-S sales price changes only a decimal in a position you wouldn't notice unless you are paying close attention.

I say, if you can take on the additional financial responsibility without it putting your current financial responsibilities in jeopardy (i.e. can’t pay for basic necessities because of your new car loan) AND you can still comfortably save for the future then get it.

Some people are very conservative with additional financial obligations, saying you should have OVER $100-200k in the bank before you can even think about a new car. But if you have the disposable income available and are able to make the payments for the life of the loan, given you have a stable job, then go for it. You only live once. Your single, no wife or kids… do it now before you get these two things and financial decisions like this will be a lot harder.

BUT… given your current income, you will be paying about 19% of your monthly pay on a car loan… too much, regardless of how much you make. If you get that new job, it will be about 15% of your income, and that’s if you only finance $70k. My advice would be to get that projected car payment to be no more then 8-9% of your monthly pay before you pull the trigger. Don't want to be car poor!

I would not spend more than 5% of my net asset, if I pay cash,or more than 10% of my monthly income for car payment if I finance it. Like others said you are still young you will have a chance to buy an even better car when you're 35.

Another thought is to keep plugging away with the 18 month plan. About that time the X will be out. I'm guessing there will be folks selling their S and getting a newer S or the new X. You'd be getting a car that's a couple years old, but about 60% the price.

Exsedol - I lived in Baltimore for 8 years through college and grad school, lots of fond memories there (despite the yearly attempted muggings)

Sorry for being a buzz kill, but I have to agree with everyone else... you have much better financial sense than I did at your age and I commend you for it, but I still wouldn't pull the trigger in your situation. You're also assuming quite a bit with the flip and the rental. Real estate is a notoriously fickle beast, and I would never count on the cash for a flip or even rental income until it's in your pocket.

Definitely kill off that high interest debt, accumulate more liquid assets, and buy the p120+++ with the 750 mile range, huge front and backseat cup holders, self-drive option, and maybe even auto folding mirrors in 2020. We'll be watching you with envy from our ancient lithium-ion powered cars. (please just don't watch us with your NSA clearance)

I've read everyone's response to this very thoughtful, level headed young man and even though nickjhowe mentioned it's a little TMI there's one point either everyone is missing or they're just ignoring the reality.

Dump the girl and you're golden. ;-)

@jbunn - Thanks. I'm actually trying to become financially free where I could quit my job and do a real estate investing business. Decreasing my expenses by eliminating all debt, then increasing income through passive rental properties should allow me to do that. I believe in Elon Musk and Tesla. Apparently others do also because if you look at their stock trend for the past year, it's nothing but up.

I'm looking to eliminate all of the high interest debt in the next 3 months. One of those loans at $345/month allowed me to finish off the basement, add a bathroom, a kitchen, and a renter at $700/month.

Solar panels provide $130-140/kwh in SRECs in addition to tax incentives, rebates, electricity savings, etc. It would provide an ROI of 20-25% (I have 6 quotes on the table right now and have been working on getting the best deal). Yes, those SREC numbers could decrease, but I'm not too concerned since I won't be buying the panels until after 1. the house sells, 2. My high interest loans are paid off.

I suspect I'll do more wholesaling in the future than flipping, but I have access to $230k at 2 and 7/8% plus a good general contractor.

@jq5073 - You have a good argument here. However, when I'm a multi-millionaire in 40 years, what does $1.8M less matter? It's a trade-off and something to think about. Usually my gut tells me when a life event is out of line with my long term plans. Maybe when it comes down to signing on the dotted line, I'll remember the $1.8M and re-consider? :)

@Renegade - I tend to think along your path. Generally I hear you want your income to be 2-1 against the car, so if I'm making $100k then I don't want to finance more than $50k of a Model S. That means I'd need to put about $50k down on the car. If I can do that and still achieve my long term financial goals, then I can buy the car.

I like this young man's moxie!

So I guess we're just down to figuring out what this girls intentions are. ; )

This is kind of an interesting topic. 25 year old wants to go in deep to buy car of his dreams, older more established people advise against such craziness. Many different opinions, facts and ideologies coming from this thread. Now 25 year old in in state of confusion and depression. Exsedol, you must make your own decisions. Yes take advise, ponder it, then do what you do. Happily Elon did not think like most people here and he went in deep to achieve his goal. I agree with some, disagree with others. Personally I wouldn't buy unless it's with cash 100%. Best of luck to you young man, may your life be full of adventures. Have FUN!!!

If you become a multimillionaire, then sure, $1.8M won't matter. But what are the odds that you will be a multimillionaire, and if not, wouldn't that $1.8M be helpful.

On the other point about being single and not having to worry about a wife and kid right now, so spend away as long as your income can afford it:

Someday you might have a wife and kid, or even if just on your own, the money you spend now would have been your and their money in the future.

Everyone is failing to account for the fact that you no longer have a $2-300 fuel bill every month. No oil changes. No maintenance.

This doesn't negate the high purchase cost, but should offset a portion of what you consider in your TCO (total cost of ownership).

Finance through Alliant at 1.5%

Purchase a 60 without the frills. $70,000 instead of $100,000.

Sell your old/new car.

I agree with everyone else that it's a bit of a stretch, but it's also a hedge against rising oil prices and middle east instability.

FWIW, SolarCity has a Power Purchase agreement. No $$ down/no lease, just buy cheap(er) power from them. Not for everyone, but it can be appealing if you do not want to tie up capital or manage a system yourself. YMMV.

Unfortunately, until fuel prices hit >double what they are now, per gallon, they are a drop in the bucket of the total cost of ownership.

A few $ saved on electricity should definitely not sway the argument.

@jonlivesay : I'd argue that the reason many of the old, conservative guard are here in the first place discussing their purchase of a $70 - $120k luxury car is because they were financially responsible early on and recognized the benefit of deferred gratification and compound interest.

It's fine and dandy to say -- "I will make XXX." and "I expect to have XXX." The future tense is often very optimistic. But what happens when the markets don't perform as you'd hope and you now miss out on opportunities because you have $70k wrapped up in a rapidly depreciating "asset".

@SamoSam : Sorry, but for all the financial tweaking Tesla has done, there simply isn't a good financial argument for the Tesla for 99% of the folks out there. It's a fun mental exercise. If you want gas savings in a good, reliable, low cost to own vehicle -- buy a standard (not hybrid) Honda Civic.

The most rewarding thing in my life is financial liberty. Having enough (whatever that is) to weather poor decisions, have access to opportunities when presented, and the reduced stress that comes from having a couple dollars on the side to deal with the curve balls like medical expenses, home maintenance, etc.

That is a very good point.

Some dangers of hanging around people who have made it in life are:

-- you start to think that you are on their path, regardless of how true it is for you
-- you start to think that you should be spending like they do

Make your own prudent choices based on your life circumstances, not what you see of others (which may not show you the whole story, or be right for you).


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