If you read very much personal finance literature, you might think that owning a car is a bad thing. These things have been said so many times as to have become cliches. And while there is some truth in old adages like “cars lose tons of value as soon as you drive them off the lot” or “a car is just a depreciating asset”, this is not the fully story, particularly for people who know more than the average person about cars.
For one thing, a car doesn’t have to be just a depreciating asset. An asset, technically speaking, is something that can be improved so as to increase its value. Most people don’t know how to work on or fix cars, so their vehicles just age away into dust as the years go by. But for people who know and love cars on a deep level, it’s possible to maintain and improve any car in your garage.
Many is the car owner who buys a pre-owned vehicle and turns it into a stunner with blood, sweat, and tears. This way, cars become more valuable over time, with a minimum of money spent to achieve this end. This is known as “sweat equity” – the value you gain over time for having put lots of work into a home, vehicle, or other depreciating asset.
Equity has more than one kind of value wrapped up in itself. If you were to sell a car that you had added tons of value to, this money would come back to you as cash. But equity isn’t just about some future payday, it’s also a foundation on which to leverage yourself into borrowed money. A car collateral loan is leveraged against the equity you hold in your car. You don’t lose this equity (as long as you pay back the loan, of course). When you pay back the principal on your loan, you get your equity back. You can do it again later!
Another common critique on car ownership is the depreciation that happens when you drive a car off the lot. While this value loss can be considerable, people who are in the know understand how to overcome it. Buying a car that is two years old is a good idea, because value loss will have slowed down considerably. Another tactic is to buy a new car and trade it in every 6 to 12 months. This largely preserves your buying power and keeps you in nice new cars in the meantime.
In many ways, people who love fixing up used cars get the best of all worlds. They get to have the car of their dreams, make money in equity in the process, and profit when the car is eventually sold. If you love cars but don’t have mechanic chops just yet, try your hand on your next vehicle. Watch Youtube videos and talk to your friends who know about fixing cars. In the end, you will be able to create the best vehicle experience of your life, while making very smart financial decisions.