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Tuesday, 18 September 2012

Cars are not real estate: their resale isn't as lucrative


Most people can call the exhilaration of passing their driver's test, and the expected freedom that would ensue upon getting their license...but getting that license just moved them to the second phase of fantasy: dreaming of the day they would no longer need to borrow their parents' cars, and owning cars of their very own. Determination to make that dream a reality involved finding a car within budget, and then working to save funds in the amount of the car's sale price. For those who were long-term planners, the dream went as far as eventually re-selling the first car—the car that served as a modest beginning—and redirecting the funds towards a better car in the future. While the general idea behind this plan is prudent, determining exactly how much of your investment you will get back involves considering costs that are often forgotten in the tallying of car ownership expenses:

Sales Tax – like any other consumer good, new vehicles are taxed. In Alberta, this amounts to five percent; when you are talking about thousands of dollars, five percent is not a negligible amount. If you are buying a used vehicle, however, this expense may not apply, provided it is a private sale.

Insurance – Car insurance costs vary greatly, and you are likely aware of several of these variables such as age, gender, etc. However, what most people don't realize is that certain inexpensive cars actually cost more to insure. If there is a certain make and model of car you are considering, it would be worth getting in touch with your insurance broker to determine if your vehicle of consideration is such a car.

Fuel Costs – as gas prices continue to rise, so will the cost of using your vehicle, even after you have purchased it.

Maintenance and repair – oil changes, filter changes, tune-ups, paint jobs, unexpected brake replacements, etc, are expenses that you will have to budget for in addition to the initial cost of the vehicle.

Interest – if you are financing your vehicle, then you will be paying interest rates in addition to the actual value of the car.

Depreciation – if resale is your ultimate goal, you should bear in mind that the value of your vehicle will depreciate from the time you purchase it to the time you sell it. Unlike real estate, which usually increases in value over time, cars typically decrease in value over time.

It is important for you to consider your spending in these categories both in determining the affordability of buying a vehicle, and in discerning how much of your spending you will recover through resale.

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