When to Buy New vs. Used and is That Car Repair Worth the Cash?

Mindy:
Welcome to the BiggerPockets Money Podcast where we interview Liz Frugalwoods with special guest, my friend Jesse Johnson, and debate buying a new car versus fixing up your old one.

Liz:
All right, so we had this 2010 Toyota Prius. We bought it in 2016 for $8,995. We sold it in August, 2022 for $8,200. What is that? That’s a 16% depreciation rate. That’s absurd, but that’s what the market will bear. I’m in rural Vermont. This is not exactly a big market. If you have an extra car that you don’t need, this is a great time to sell it.

Mindy:
Hello, hello, hello. My name is Mindy Jensen and with me as always is my non mechanically inclined co-host, Scott Trench. But a little bit later, Carl Hobson to talk shop with Jesse. Scott and I are here to make financial independence less scary, less just for somebody else, to introduce you to every money story because we truly believe financial freedom is attainable for everyone, no matter when or where you’re starting or even if you’re buying a brand new car.

Scott:
That’s right. Whether you want to retire early and travel the world, going to make big time investments in assets like real estate or start your own business, we’ll help you reach your financial goals and get money out of the way so you can launch yourself towards those dreams.

Mindy:
Scott, I am excited to talk today to Liz and to Jesse about new cars. We have had so many people on this show whose biggest money mistake was buying a brand new car, but Liz Frugalwoods is here to talk about doing just that, consciously making a decision based on a lot of research and a real need, not just a want or I deserve it, but she is here to defend her choice.

Scott:
Yeah, I think it’s a great discussion. There’s a lot… buying car is challenging. It’s not buying a house, but it’s probably the second thing to second hardest of these life financial decisions that we got to make after your home purchase. So much research goes into it. So many different puts and takes. There’s transaction costs to buying and selling cars just like there are with housing. You’ve got to think through things like buying new versus used and risk factors, safety. The fact that in Colorado, if you buy a new car, the registration and the purchase price really makes a huge difference in the amount of taxes and fees that you pay to the county, for example, on an annual basis. So, there’s a ton of different points here. It’s a really hard decision. And hopefully, today’s episode will leave us all with a little bit more clarity on how to handle it if we have to make a decision on the vehicle front in the next year or two.

Mindy:
Today, we’re talking with Liz Frugalwoods, who first joined us way back on episode 10, where she talked about designing a frugal but luxurious lifestyle. Liz Frugalwoods, welcome back to the Bigger Pockets Money podcast or actually, should I say Liz Spendywoods since you just bought yourself a brand new car. Let me clarify, quoting you exactly, not a new to us car, not a nearly new car, an actual, factual brand new 2022 Subaru Outback. So, Liz Spendypants, welcome back to the show. What do you have to say for yourself?

Liz:
Thank you so much, Mindy. I’m honored and delighted.

Mindy:
So, you bought yourself a car even though, Scott, what is the number one biggest money mistake that people make on our podcast?

Scott:
Buying a new car. Is that right?

Mindy:
Liz, from episode 350, you are wrong, wrong, wrong. I’m just kidding. Okay, it’s actually episode 349. However, Liz, I actually approve of your purchase and there are a lot of reasons why. Let’s talk about why you even felt a need to buy a brand new car, a car at all.

Liz:
We live in the rural woods of Vermont. We live on 66 acres in the middle of nowhere. There is no public transportation. Mindy’s been to my house so she can well attest to this. There’s no public transportation. You’re not walking anywhere, you are not biking. It is the biggest downside to me. We used to live in the city, took the bus, took transit, my husband biked to work every day. That was fantastic. The tradeoffs are worth it, but we have a car bound lifestyle and we have to have two cars because we have two adults and two kids and you cannot have one parent stuck at home with the kids without a vehicle, which actually happened to us accidentally one time and was absolutely terrifying because we also don’t have cell service, don’t have great phone service. Anyway, we need to have two cars.
When we moved here initially, we started out with a Subaru Outback and a Prius. This was a 2010 Subaru Outback and a Prius. We tried to make that Subaru Outback work as a truck. It’s not a truck. It will not haul things. You cannot put things in the back in the way that you might want to, especially now when you have two car seats in the back seat. So, we sold that out back and we bought a used truck, a Toyota Tundra. This was back in, I want to say 2017 or 2018. So, we had the biggest and the smallest that Toyota offers. We had the Prius, it was as little tiny Prius, and we had the enormous Tundra.
The Tundra is a work truck. It is for hauling stuff, it is for farm equipment. It is for when we get huge loads of mulch or manure. It is for when you need to move a chicken coop around. It is for hauling tires, snowplows, I don’t know. Think of something else big, we’ve probably hauled it. Maple sugaring equipment, stuff that you got to get in the back of the truck. The Prius was the daily driver, which was fantastic because as I mentioned, we have to drive. So, having that 46 miles per gallon was ideal. What was the problem? You want me to stop talking so you can ask another question? Go ahead.

Mindy:
So, what was the problem?

Liz:
We love the Prius. I think it is a fantastic car. If we still lived in the city, I would absolutely keep that. However, we have to have all-wheel drive. We have to have ground clearance. I didn’t even know what ground clearance was. This is the distance that your car is off the ground. Literally, the space between your car and the ground. The Prius is so low to the ground that anytime there was an inch of snow or a little branch or a rock, it would get stuck on the underside of the Prius and the bottom of it kept falling off. We had to zip tie the bottom of the Prius back up there. It is not a rural car. It does not do off-roading, it does not do dirt roads. There are paved roads out here, but there are many more dirt roads.
We were constantly in a situation where we wouldn’t drive the Prius because we were afraid it would get stuck, so we were driving the truck. The truck gets four miles a gallon. This is completely defeats the purpose of having a Prius when you’re driving the truck all the time.

Mindy:
It sounds like this was a well thought out decision, which I think is a very important distinction that separates you from the people who have said over the course of 350 episodes, my biggest money mistake was buying a brand new car. When they bought the brand new car, they were buying a brand new car right out of high school, right out of college with no money, with no thought. Oh, I got a new job, I deserve it. This was much more, I need it. And I’ve done some research into what I’ve got now and it’s not working for me.

Scott:
That’s true except for the new car piece. She needed a new to her car piece, but you bought a brand new in general car. That, I think is really the interesting part here. It’s completely understandable. You need a four-wheel drive vehicle with some ground clearance in Vermont to make it through the snow and the dirt and the mud and whatever else you have out there in the woods with the Frugalwoods. But why did you pick a new car instead of a used four-wheel drive vehicle?

Liz:
I would’ve loved to buy a used four-wheel drive vehicle. And in fact, we tried for two years to buy a used four-wheel drive vehicle. However, thanks to my buddy COVID and my other buddy inflation, used car prices were up 42% at the time that we were looking. So, we were seeing 2017s, 2018s, 2019s that cost as much as a new car or in some cases they actually cost more. Due to these supply chain issues, if you need a car right away, you cannot actually get a brand new car in most cases. You cannot just drive it off the lot. You’re waiting a month, two months, six months for this car, hence the demand for used cars has risen precipitously. If you need a car today, you might end up paying the price of a 2022 for something like a 2017, with I don’t know how many miles on it.
So, we looked at that. We did a lot of considerations about the value of saving maybe a $1,000, maybe $1,500 on something used and said that that calculation just doesn’t make sense anymore. This financial wisdom that I have said, I’ve said it a million times, never buy a new car. No matter what you do, don’t buy a new car. It’s the stupidest thing you can do. I have said these words. But the problem is that when you’ve got this unusual market where used cars cost as much as new cars, you are not getting a warranty with a used car, you have mileage, you have wear and tear, you have unknown substances spilled inside of the car. Point being, the financial calculation is out the window. Then, we started looking for a new car that would really check all of our boxes and that would be reasonable financially. We didn’t buy a Tesla, we did not buy the most expensive thing we could find. We tried to find something that we thought would last us for a long time, but that would also serve the needs that we have.

Scott:
I am actually going through something very similar right now. In 2014, I bought a brand new Toyota Corolla, which is now eight years old and it’s been phenomenal. I’m probably going to have this car for another 15 years. My biggest complaint is that at some point, I would like to get a Tesla but I can’t get it until my Corolla is spent. That might be a very long time in the future off, in a general sense. It’s just that reliable. My wife, we want to get a four-wheel drive vehicle for similar reasons, but that’s because we want it for leisure in the mountains and to be able to go and enjoy Colorado year round and have that option available to us in a general sense. And we’re going through the exact same issue. The lot price is… we’re looking at a RAV4, for example. It’s 29, $27,000 depending on how you shop around.
We’re getting very clear on the price point for a new RAV4 right now. A used one can go for 36 or 30 or 32. 3 years old can go for the same price as a brand new one with 30, 40,000 miles. 10 years old, you start getting into lower price points like the $18,000 range of it has reasonably low miles and those kinds of things. That calculation is really hard for me to figure out what is the right choice here? I might as well just go new at that point. And there’s so many advantages, like you said. Now, there are some tradeoffs I have some questions about. When I bought my brand new Corolla 2014 or I guess, yeah 2013. It was a 2014 model. That’s how new it was.
I was shocked at how much it cost to register the car in Colorado. There was a $1,000 registration fee for taxes because it’s a new car and that price went… it was still high the second year but dramatically went down. It was 130 bucks for example to register it this year. I understand that, that is similarly going to be the case with a brand new model as well. But are there other considerations that are going into that calculation that we should be aware of besides the lot price, taxes and fees or registration items or anything like that?

Liz:
I think a lot of that is going to vary by state. For us, it is actually cheaper to ensure the brand new Outback than it was to ensure the Prius. So, cost less money because the brand new Outback has so many safety features that the Prius lacked, that you are so much less likely to be in an accident, that it is less expensive to insure. In terms of registration taxes, Vermont gives you a rebate for any difference between your old car and your new car, so I think it’s a wash. I think the consideration is opportunity cost of that money. What else could you have done with that money? What could I have done with that money other than sink it into this likely depreciating illiquid asset? I think it’s really the opportunity cost. But in my mind, if you have the cash to buy a new car, I don’t really see the point of buying like a 10 year old car, particularly because of the safety features that are now standard in cars.
The number of airbags, the backup camera. When I started learning the statistics on how much less likely you are to be in a crash, I was like, “This is worth a lot of money to me.” I have two little kids. This goes beyond the financial for me. But it really begs the question of again, why buy such an old car if you can afford something newer? Because I also think with an old car, it may have already hit its depreciation curve so it may not lose a whole lot of money. But it’s also… I’m not sure that you’re necessarily solving the problem that you need to solve. These cars are keeping their value at a tremendous rate. It was a great time to sell the Prius. We sold the Prius for not a whole lot less than what we had bought it for, which is unbelievable.

Scott:
I bought my Corolla for 17,000 in 2014. It is now worth 12,500, 8 years later. So, it’s pretty remarkable.

Mindy:
One of the big arguments against buying a used car in the past was, oh, I’m buying somebody else’s problem, which was mitigated by the fact that it came at such a reduced price. Well, I might be buying somebody else’s problem, but three years ago, that that car was 17,000 and now I’m buying it for 5,000, that’s a lot of money that I can gamble on fixing and repairing the car. But now with prices so close… in your article, Liz wrote an article at Frugalwoods.com called, Why We Bought A New Car. In the article you say the difference was $2,000. At that point, that is nothing. I absolutely would’ve done the same thing if I had all of the same scenarios that you do. I don’t. And I am stuck with my 2010 and my 2003 and it’s okay because they get the job done. I’m not really stuck. Carl wants a Tesla, but I’m like then go buy it.

Scott:
But let’s also acknowledge something here. The three of us talking about this issue, we are all millionaires. We have a luxury of being able to make a calculated financial choice with this scenario in a non-emergency setting. How do we think about the ramifications of this market and this choice for other folks that are looking to make a good decision here and need to get a car for whatever reason in a short period of time? I think you have three choices there. Buy used, buy new or lease. And maybe I’ll add in fourth one, a creative option that I’m not thinking of with this. What do you do in that position right now, if you don’t have 30 grand to drop on a new car or ability to finance 30 grand?

Liz:
I just helped some of our closest friends who all of a sudden needed to get a car and it was not optional. I took them through the process that I do when I work with people and their finances, which is like, okay, start at first principles. Do you need a car? Because there are people who live in circumstances, in cities, in places where you do not need a car. I lived in New York City, the car is more trouble than it’s worth. Out here, as I said, two cars are absolutely mandatory. So, think about your lifestyle. Is this something that you could delay for a year and hope that inflation and the supply chain settles out? If you can’t delay it, I think that in a lot of cases and where my friends ended up going is financing a brand new car, because I looked at used cars with them and again it was like, this is absurd.
You’re going to be pouring so much money into this used car that is not going to last you that long, doesn’t have the safety features you want, doesn’t have four-wheel drive versus finding a reasonably priced, a modestly priced new car and then doing the financing through the dealership. I don’t think that’s ideal. Anytime we finance something, we are incurring the interest rate. But if you have to have a car and you have to have it now, I do tend to think that, that’s probably your best option, which is so bizarre to say. Because in the past, I would’ve said, well obviously, buy a used car. But the thing is I don’t even know that you can find a say $2,000 used car that’s actually going to run. I’m not even sure what’s even available out there at that much lower price point.

Scott:
This is a market timing issue because there are used cars for sale that are cheaper than new cars. That is not a question. I can go out and I can buy a 2010 RAV4 for $15,000 with 125,000 miles. That is an option for me, but it’s just very unattractive because it doesn’t make sense that a new car would depreciate to that level and in the next 10 years. That’s a market timing issue is really what it feels like at its core. It feels like that cannot sustain. There will not be a future where Toyota is making new cars and selling them for 27,000. And the used version of it that’s one year old is selling for seven, eight, $9,000 more because of its inventory availability. That cannot continue. To your point, this did continue. It has continued for two years and forced your hand. How do you react to that scenario or that positioning of the problem?

Liz:
Again, that’s where I landed with my friends, is what I think financing a new car is going to make the most sense. I think that’s probably not the choice that a lot of people want to make. That’s not what we feel like is necessarily the right thing. But if you are looking at, like Scott’s saying, really overspending the value on a used car, that’s a tough proposition because with the new car you are at least hopefully locking in what’s a reasonable value for it. Because Scott, like you’re saying that 2010 RAV4, it’s not really worth that. So, if the market normalizes, then you’re stuck with something that essentially you’re underwater on versus the new car where… Toyota’s not going to reduce the price of the RAV4 next year. So, if you buy a 2022, it’s hopefully going to hold at least that value commensurate with the cost of a new RAV4. If you needed to resell it, you’d probably be able to sell it for more.

Scott:
This will obviously depend on the price. But I guess I would ask then, is there a way to bridge that gap? I think that the market’s going to change and it’s going to be much more favorable used car market in a year or two. Now, we don’t time the market here, so I’m going to make a decision based on what’s presently the case, probably doing what you’ve said there and just buy a new car and hold onto it for 15, 20 years. I know there’s a lot of problems with that. There’re a lot of inventory or whatever. And I’ll probably finance it because the dealer rates are much better than for example, mortgage rates. Why would I not finance something at a lower rate than the mortgages that I have in my rental properties. Is there a bridge that you can do, a short term rental, other options for using a car when you need it, like Zipcar? Are there any things that you’re aware of that would allow you if you wanted to time the market and just wait and see if this market comes crashing down in a year or two?

Liz:
Right. I think those are all great options and it goes back to how badly do you need this car? In terms of timing the market, that’s what we did. We’ve waited a year and then we waited another year, surely this will go down. This is one of two ways. Eventually, it goes down and it quote-unquote normalizes or it just continues going up and you’re wishing that you had bought a car last year, which is how I feel. I’m like, “Ah, I just wish we bought it last year.” But it-

Scott:
Like the stock market.

Liz:
Yeah, I think that, that’s our fool’s errand. I think you’ll make yourself crazy. Again, how badly do you need the car? What are the priorities for this vehicle? Was the cheapest vehicle that you can get into that’s going to meet the needs that you have?

Mindy:
How does the Cash for Clunkers Program from 2009 play into the current issues that we’re having? It was like 11 years ago, so it seems like that wouldn’t play into this. But again, back when I was buying crappy old cars, they were not brand new. They were 11 years old and 15 years old and they were two or $3,000. But then the government came in 2009 and said, we’ll buy all these old cars and now there’s no old cars that you can put a couple 100 bucks into and get them running for another three months, and then a couple 100 more dollars and get them running for another three months. That, coupled with the chip shortage which is… the chip shortage is not going to go away. I keep reading articles about how it’s going to go away next year. And then the next year I read an article, it’s going to go away next year, it’s going to go away next year.
Biden just signed something into law, he’s allocating… I’m sorry, he signed something. I shouldn’t say he signed it into law. I don’t know if it’s a law, but he allocated 54 billion dollars to do research and maybe build a chip factory or something. 54 billion dollars is nothing when it comes to building a chip factory. But a chip factory is even… to build it is so expensive and takes years to build. You can’t just fast track it. I don’t see, and obviously I’m not a chip expert, but I don’t see this ending anytime soon. To your point, Liz, oh I should have bought it last year. You bought it this year and next year you’re going to be like, wow, I really am glad I bought it last year because the Fed is, I mean what was it? The CPI, the number just came out today when we’re recording this and it is better than expected, yay, which means that the rate is most likely going to be increased at the [inaudible 00:23:54].

Scott:
The CII report came in higher than expected, which is not a yay.

Mindy:
Well, it’s got to be good some way right?

Scott:
It’s great if you own a used car that you’re trying to sell.

Liz:
Yes. And I will tell you from experience. I looked up the numbers. All right, so we had this 2010 Toyota Prius. We bought it in 2016 for $8,995. We sold it in August, 2022 for $8,200. What is that? That’s a 16% depreciation rate. That’s absurd. But that’s what the market will bear. I’m in rural Vermont, this is not exactly a big market. If you have an extra car that you don’t need, this is a great time to sell it.

Scott:
It seems like the decision point is, do I really need a car? And that’s a long-term decision. Do I really need this car or a new one? Do I need a second car, one car, any cars, whatever? I got to make that decision. The best answer is no, I don’t need that. I can survive indefinitely because I live in New York or San Francisco or… in a place that doesn’t really require that. And I have other options the few times I do need the car around the year. The second best one is, okay, if I need one then right now, probably the best value play is buying a new car from a dealership and probably financing it, if you’re an investor and think you can arbitrage the 3.9% interest rate ish, that you’re going to be able to get if you have good credit and are a qualified buyer on a lot of these cars. That’s better than a mortgage I’m going to get on rental property right now. I can arbitrage that return with that.
If you’re going to buy on the used market, you’re going to need cash anyways to buy that because you’re going to have to pay the person in cash. You’re certainly not going to get financing from a Craigslist seller on their used 10 year old RAV4.

Liz:
Confirmed. I did not offer financing on the Prius.

Scott:
Really, everyone is going to be bottleneck, or not everyone, but a lot of people I think, are going to come to a similar conclusion and there’s going to be a bottleneck around these new cars pretty shortly here. I think to your point, what’s that going to do that’s going to increase prices in the future? And it’s very conceivable that new car prices just go up over the course of the next year or two. It’s very conceivable that used car prices stay flat. If you buy a used car, you’re not really winning in that scenario. I think you’re right. I think all the science point to buying a new car if you need a car right now in 2022, and I think it’s a big departure from the way I’ve thought about the world. I would’ve said that I should have bought a used Corolla when I bought my first one. But that ended up not being a very large high stakes decision over the last 10 years for me in a real sense. Today, I think that is the move, is to buy it new.

Liz:
I think the other thing, you mentioned supply. And that was something that we really bumped up against because we needed to have this new car in place before the winter and the winter starts September 20th, so we needed to… no, it starts in November and people do not really buy and sell during the winter here. So, we needed to have the new car, have the Prius sold before the fall and so we started looking. In the post, I include all the different cars that we looked at. But the wait time on, for example, a RAV4 was six months. And we said this is not tenable because then we’re looking at October, November, it’s getting dicey. What if there’s another delay? Then we looked at the Subaru Forester, it was like five months. The Outback was one month. And so I said, “Oh, I really like the Outback.”
In this way, I think there’s a lot of advantage to planning ahead because if your car dies and you’re in an emergency situation where you have to have a car right away, you’re probably going to have to buy something used. Like Scott’s saying, if your next best option right now is to buy new, I would plan ahead honestly. See if you can leverage your old used car, if there’s any value there and plan ahead so that you’re not stuck buying something used because you need a car right away or getting something that isn’t really what you want because you can’t handle the wait time for a new car.

Mindy:
That’s a really great point. The last thing I want to cover are your excellent tips for selling a used car. I thought these were… this whole article is amazing. If you’re in the market for a new car, if you’re thinking about selling your used car, you need to go read this article that Liz wrote on Frugalwoods, which we’ll include in our show notes. It’s really well reasoned and well thought out, but you have some great tips for selling a used car that I didn’t even know about.

Liz:
All right. Do your research on pricing. Not just Kelley Blue Book, not just what you Google. You need to look at what similar used cars are selling for in your area because your local market is going to dictate really what price you can expect. I always list at the very top of the market. You can always reduce the price, it’s really awkward to try and increase the price after somebody’s interested. People like to bargain. They love to feel like they’re getting a deal. So, when we listed the Prius, we listed it at $8,900, which as you may recall, is what we paid for it. We did not expect to get that. List the top. We then dropped the price to 8,400. A mechanic came, he wanted to buy it for his sister-in-law and he said, “Would you take 8,000?” And we said, how about 8,200? And he said, “Great.”
He felt like he got a deal. We felt good about it because we had priced it as such that we were ready to negotiate, willing to bargain. List at the top, you can always lower the price. Be really transparent about the condition of the car when you list it. I have the full list of all the little Prius’ problems that we included on the Craigslist and on the Facebook marketplace listing because it really engenders trust. It’s a used car. Everybody knows it’s a used car. I don’t know what people put nearly new condition, only 200,000 miles. It’s come on, be honest about what you can expect. I think that that helps the buyer to feel like, okay, I know what I’m getting. I can understand what the known issues are. It had a little bit of body damage. I included the pictures of the body damage. I pointed to the rust and included that photo.
So, when the person came to look at, he was like, “This is exactly what you said. I’m perfectly comfortable with this. I totally understood the rust issues ahead of time and I’m ready to pay cash.” Because he wasn’t coming on a fishing expedition. I need to try to figure out what might be wrong with this. We said, you’re a mechanic, do you want to look it over? He’s like, “No, it’s fine. You listed everything.” I think you’re not really doing yourself any favors if you try to conceal any of those issues. It’s like dating. I think you could probably deceive someone for a couple dates, but then they’re going to know. So, you might as well just tell them.

Scott:
What was your most embarrassing spill?

Liz:
In the car?

Scott:
Yeah.

Liz:
Oh gosh. You’re not a parent yet, so I don’t know if you want to know, but there were some… kids are just awesome. There’s a lot of issues. Car seats are washable. Also, you need to have a cover on your car.

Scott:
I actually am a parent at this point. We’re recording this on September 13th, but we have a baby girl due October 6th. So, by the time this releases, I think on Halloween, I will be a dad, fingers crossed, to a wonderful baby girl.

Liz:
Oh, you will have watched that car seat three times by then. Yeah, you’ll understand.

Scott:
Awesome. So, you recommend that little mats, the rubber mats at the bottom of the car necessary?

Liz:
Oh yeah, yeah, yeah, yeah, yeah, yeah, yeah. I include in the article a link to everything we got. And my kids are way older. They’re four and six. Still, the car is entirely childproof. There is mattage, every open surface. If you do not want it stained, cover it up. We had done that in the Prius, and so the interior actually looked really good. I washed it, I vacuumed it, I cleaned it very well before we listed it. I think one of the last things is, do not do a trade in with a dealership. Do not do a trade in with a dealership, pretty much no matter what. When we bought the Subaru, I was like, “Oh, can you tell us the trade in price?” And my husband was like, “Why are you asking that? We’re not going to trade in.” I was like, shut up, shut up, shut up, Nate.” Because I wanted the number to really illustrate my point, and Nate the whole time was like, “I don’t understand why you’re doing this.” I was like, “Because I write a blog and I need material.”
The poor dealership. They looked at it and they were like, well, for this Prius we will give you $3,000, which is a great price for a car so old. As you will recall, I then sold it for $8,200. People do not want to go through the hassle of private sale. That was worth $5,200 to me, to spend a couple hours… The kids and I washed it, we vacuumed it. I took some photos, wrote up a description. So, I made $5,200 in an afternoon essentially. That works for me because it was also a child activity. They had a great time. I think it’s very tempting to do the dealership trade in because you just…

Scott:
Yeah, to undo all their damage.

Liz:
Oh, yeah. They had to. They were like, wow, this car is dirty. I was like, “In fact, I wonder why?” I think those are my used car selling. My husband and I have sold three used cars over the years I think. And we’ve always done it in private sale like this and it works out.

Scott:
I hope to never sell a used car. We’ll see if that’s true.

Liz:
You’re just going to have a little car graveyard?

Scott:
I’ll sell it when it is totally done. To a-

Liz:
See, I don’t know.

Scott:
For parts [inaudible 00:33:55].

Liz:
I don’t know because I think there is some value, and somebody needs to make a chart and a graph. I think there’s some value in capitalizing on the remaining years of an older car that you no longer want to drive, a higher mileage older car. But-

Scott:
That’s true.

Liz:
… going ahead and cashing out on it versus having a true clunker, which we’ve had in the past and is really annoying and very hard to get rid of a car that no one wants.

Mindy:
Yeah, I’ve got one that will eventually just go to the graveyard because nobody wants it. This is the problem driving a stick, which is one of my tips. But I want to highlight that you sold it by yourself for $5,000 more. Most people don’t want to go through the hassle of selling their car, but I think also most people don’t take your tip to be honest with the condition of the car. Barely used, only 200,000 miles. And then people come out and they’re like, what about all the rust and the front end damage and it smells like gasoline on the inside and all of these things.
When you are super honest, the people who want to brand new car are going to be like, I don’t want to drive that car. They’re not going to come. It’s way less hassle because then you’re just getting the mechanic who wants to come out and buy it for his sister-in-law. He sees all the stuff that you listed and he’s like, they listed everything. There’s no way that there’s anything else that’s wrong because why would you show all of this? What else could you be hiding?

Liz:
I had the full folder of all the maintenance records. I keep everything. My husband made a spreadsheet of everything. The guy didn’t even want it. I was crushed. I was like, “I have this whole… ” He’s like, “No, I’m a mechanic, I don’t need it.” I was like, “But I have its little birth certificate, I have it all” Because I do feel like it’s like, what am I trying to hide from you? I’d for you to be able to see all the work we’ve done so that if you have an issue in the future, your future mechanic can refer back. Again, I just see no reason to not be transparent in this interaction.

Mindy:
Yep. My last tip is, because I drive a stick, it is a stick shift car. My husband once advertised a manual car. Do you know how many people know what a manual is? Only people who drive manual cars. So, he put manual in there and all these people are coming over and they’re like, it’s a stick. And I’m like, “Did you not put stick in the car?” He’s like, “Yeah.” Or in the ad. He’s like, “I said it was a manual.” I’m like, “Nobody knows what that means.” So, I made him write stick shift in there and we still got a couple of people. But if we’re giving you all that information, then that’s on you, but nobody knows what a manual is. If you’re trying to sell a stick shift car, sell a stick shift car, don’t sell a manual car.

Liz:
That’s right. That’s right.

Scott:
Awesome. I love it. The takeaways from today are if you need to buy a new to you car, probably unfortunately, you’re going to need to think about buying new. And you’re going to have to wait a few months, but it’s going to probably be a better bargain, all things considered, than buying used unless you really get a smoking deal in the used market or get lucky. But Liz was not successful in her trials. I have not seen anything come close in my shopping the last couple of months. I just generally agree with that assessment. If you’re going to buy a new car, consider getting financing because the interest rates are much lower for that than they are for a lot of other types of purchases, especially if you’re into real estate. You’re going to get a six or 7% interest mortgage on a rental property. You can get a three or 4% mortgage on a new car.
Crazy financial advice coming out of us today in the context of the last 10 years, but I think it’s the right move on that. I am going to put out an audience shout out because in spite of myself, and I think in spite of many folks listening to this ourselves, advice to not to try to time the market. I think some people are going to try to put off the decision to buy a car in the craziness of the current car market and try to combat it even longer than Liz did for two years. I would like audience help. If you have any ideas, how can you bridge the next year, two, six months, 18 months, whatever you think it is in order to have access to a car that you need for your family without having to buy new, buy used or lease.
We’d love to hear it. Are there Zipcar things? Are there other creative avenues to bridge things? You can delay the need for a car purchase, if you think that the market’s going to come crashing down. I’d love to hear your opinions. And we’ll post that into the BP Money Facebook group. Liz, thank you so much for coming on today. This was a fascinating discussion.

Liz:
Thank you for having me.

Mindy:
Thank you, Liz. It’s always lovely to see you and I was just kidding about the Spendywoods part, if anybody has any complaints.

Liz:
Oh, I think it’s [inaudible 00:38:30].

Mindy:
If anybody has any complaints about that, you can email [email protected]. Liz, where can people find out more about you?

Liz:
You can find me at frugalwoods.com. I am on Facebook, Instagram and Twitter, @Frugalwoods.

Mindy:
Awesome. Thank you so much Liz, and we’ll talk to you soon.

Liz:
Thank you. Bye.

Mindy:
Okay. We just heard from Liz Frugalwoods about why she chose to buy a brand new car. Now, I’m about to bring in my friend Jesse, who is a mechanic of more than 20 years to talk about getting the most for your car. When it’s time to repair, when it’s time to throw in the towel, how to find a good mechanic, et cetera? Joining me is my co-host Carl Jensen, my husband, who knows more about cars than I do, but less than Jesse does. Carl, welcome.

Carl:
Thank you.

Mindy:
Jesse. Welcome to the BiggerPockets Money podcast.

Jesse:
Thanks for having me.

Mindy:
I am super excited to talk to you. I have a quote really quick, from my producer, Kaylin’s boyfriend Tom. He says, “The cheapest car you’ll ever own is the car you already own.” I really like this quote because it’s true. You already own the car. If it’s a paid off car, you don’t have a car payment. You might have car repairs, but you don’t have a car payment. If you do have a car payment, you probably don’t have car repairs because it’s a brand new car. Hopefully, it’s a brand new car. But let’s get back to Liz. I know Liz personally. I know that her decision did not come lightly, and I also know that her husband is very mechanically inclined. So, they did all the research and they decided that they didn’t they didn’t want to own this car anymore. It wasn’t working for them.
They ran all the numbers, they did all this stuff. They’re super huge nerds. If you know the Frugalwoods, you know that they are spreadsheet nerds. But not everyone has someone in their life who is mechanically inclined. This is where Jesse comes in. Jesse, I have heard, as I am sure you have cringy comments from people who are like, my car needs $800 in repairs, I’m just going to buy a new car. Sometimes, that $800 in repairs is going to get you to five more years of driving on this car. But sometimes, that $800 is going to get you to next week’s $800 repair. Let’s talk about some issues that are worth repairing and some issues that are not worth repairing.

Jesse:
I think when it comes to repairing a car, it’s going to come down to safety and reliability, I think are the two biggest repairs that probably should be done. If you can’t safely drive your car, that’s going to be the top thing that needs to be repaired. If your car is safe but can’t move, that’s going to be the other side of it. Those are the two big ones. Brakes, suspension, steering, that’s all safety stuff. Depending on your comfort level, whether you not you want your airbags to work or not. That’s a pricey repair, if an airbag breaks, which all modern cars have many airbags and many different devices that can fail, but that doesn’t make your car technically unsafe. Some people, it’s a must. Other people, I see they don’t care and will drive their car that works just fine, but have airbag light on.
If your car’s not moving, that’s where it could get expensive. You could have everything from a fuel pump that’s going to be expensive but worth repairing, or if you have an engine that fails, that’s going to be where you’re probably going to have the biggest debate on doing cost comparison and figuring out if it’s going to be worth fixing or not because there’s no way around that. The engine and transmission are the two biggest repairs that you could possibly have mechanically on the car. It’s going to vary widely, between brands, and between cars, even in the same brand, whether it’s a gas engine or a diesel engine. I think that’s where people are going to have to start making the biggest choices on repair versus replace.

Mindy:
What kind of warranty comes with a repair like this? If I replace my whole engine, I would assume that I would be getting more than a five day warranty on this.

Jesse:
That’s going to very widely depending on what engine you get. If you get a new engine or new reman, you’ll never get a new engine let’s just… there’s no such thing as a brand new engine. If your car that’s a 2022 comes into a dealer and the engine has to be replaced, it’s getting a reman, which is a engine that is pretty much brand new, that’s been completely overhauled by some company that the manufacturer uses to rebuild the engines and then they get resold as remans. They usually come with pretty decent warranties on them. I think from GM, a lot of them are three year, 100,000 mile warranties. That’s a pretty good chunk of time and miles. If you are getting a junkyard engine, which is a cheaper option, which I have… my current vehicle I bought, I put a junkyard engine in. It came with a 60 or 90-day warranty. There’s different grades of used engines in the market. There’s different ways you can find them. Some will have warranties and some will be like, this is just an engine, you can take it. We’re not responsible for anything.

Mindy:
Okay. That’s interesting. Okay. That’s a good bit of information to know. If I don’t know what I’m doing and I want a warranty, then I need to ask the question, does this come with a warranty? Nope. This is just an engine. We’re not responsible for it. If I want a warranty, that’s not the engine that I should be buying. If I do want a warranty, then I need to go… It sounds like I should go to a dealership if I want some sort of warranty with an engine replacement.

Jesse:
Yes and no. Besides the new remaned from a manufacturer and the junkyard ones, there are companies, they take engines and rebuild them and sell them and they actually have good warranties on them as well. They’re technically remans, but they’re not made by a manufacturer. I don’t know. There’s a big company called Jasper, they’re nationwide. A lot of aftermarket or independents have access to Jasper engines. If you have a Jasper engine put in, you can have a warranty at that independent or any independent that is certified to put Jaspers in.

Mindy:
Okay.

Jesse:
That’s another way to go if… for a big item, they do engines, transmissions, and some driveline components. They’re probably one of the biggest players in the market for engines and transmissions that are remanufactured like new, that also hold pretty decent warranties on them. Sometimes there’re… it depends on the engine again, but they have different packages. They’re usually a couple years and they’re usually 100,000 miles as well.

Carl:
I have a question for you, Jesse. I’m curious because our Mazda just passed 200,000 miles two days ago, which is amazing and it’s never had an issue. I want to pose this question to you. If I drive a car and I drive it, generally I’m not going to drive aggressively. And if I follow the maintenance, how many miles should I expect out of a modern engine?

Jesse:
I would say a gas engine, two to 300 thousand’s pretty common.

Carl:
Okay.

Mindy:
Wow, that’s common. I thought I was doing good. Just common.

Jesse:
We have multiple customers that have… they’re not Ubers, but they have transport companies. They have Yukons and some of the bigger Cadillac sedans and they drive those things 24/7. Most of have over 300,000 on them. And they’re 20 sixteens and newer. Most of them are on… they have the original engine in them still, but they do maintenance like crazy. They change their oil once a month because they put 6,000 miles a month on their vehicle sometimes. That’s not uncommon.

Mindy:
That leads me to a very interesting story. Carl’s sister who shall remain nameless because he has two, once went something like what, 20 or 40,000 miles without an oil change. When his dad finally caught up with her, he is like, “We have to change your oil.” He opens up the oil pan and it’s just like, it’s just so sludgy and gross. How frequently should you be changing your oil for those of you who are not changing your oil frequently?

Jesse:
I will tell people, follow the owner’s manual. Your owner’s manual will tell you how many miles or how long to go between oil changes. Bare minimum is once a year. Almost every manufacturer will tell you once a year. It’s changed so much in the market since I started. When I started it was 3000 miles, three months. That was the standard. But the oils have changed. Those are all conventional non-synthetic oils. The engines were very basic. They were the same technology they’ve been using forever. Engines have drastically changed in the last 15 years and 10 years mainly due to emissions. It’s become even more important to keep up on your oil changes. But these oil changes have now gone quite a bit longer. On average, I think most of our oil changes are around 7,000 miles, but they’re also using a full synthetic oil, which costs three times as much as a convention oil change.
So, you’re spending $90, $100 to have your oil changed at a dealership, but it’s not going to be that much cheaper even if you do it on your own. Oil has gone up in price so much as well. But that’s the biggest thing that’s changed I think, in the last 10, 15 years, is the complications inside of engines that people don’t understand. Besides just changing oil, is checking your oil regularly. Everyone should be checking it 1,000 miles because engines are using oil. Just because you have a new car does not mean it’s not using oil at all. And you need to check it because oil level and oil pressure is so important always. But it’s even more critical because they’re using oil to control things for emission purposes inside of your engine. Now, that’s become that… it’s critical.

Carl:
You would say that’s probably the most important thing to pay attention to, to [inaudible 00:49:28]?

Jesse:
Yeah. So many places or lube places are pushing… they’ll just put a mileage on their stickers or whatever. Follow your owner’s manual. Almost every new car now has an oil life index where it starts to count down and it’s based off an algorithm that, I have no idea how it works, but it’s based on engine run time. They can detect how you drive. So, you can get two people the same car. And that oil index life may change between the two people driving it, because if one’s person’s towing and it’s always being used for towing and in the mountains like it is in Colorado and one person’s just driving around town, you’re going to have those two oil lifes go down at different rates. But GM tells people, once it hits 20%, you need to start scheduling your oil change.

Mindy:
You’ve mentioned owner’s manual a couple of times. Is that, that book that I’ve never opened that came with a car in the glove box?

Jesse:
No one who’s ever bought in a car has ever opened that thing before.

Mindy:
He has.

Carl:
I love to read that. It’s great. Yeah, all the chapters. I love it.

Mindy:
Okay. It’s super boring. But what Jessie is saying is you need to open up that book that came with your car. It’s in the glove box that you’ve never used. Open it up and find out where the oil change frequency is and do that. Also, check your oil pressure, check your oil levels every 1,000 miles. If you haven’t done that, stop this podcast, put it on pause, go outside and check your oil levels. If you’re not in the right… there’s a little gauge, right? Does your owner’s manual tell you what it’s supposed to be?

Jesse:
Yeah, it should tell you how to check your oil. It also will tell you all the maintenance that is recommended by the manufacturer. This is an important point, what the manufacturer says for that vehicle, not what any independent, even dealers, because everyone tries to upsell everything. So, there may be services that are being recommended to you that you may not technically need or are being done prematurely. There is maintenance schedules in every manual that I’ve seen. It’ll lay out at these miles or time that these either needed to be replaced or checked.

Mindy:
Okay. Let’s look at this for a minute. This is a 20, 30, 50, 80, $120,000 purchase that you have made. Invest a little bit of time and figure out when you need to put in $100 into an oil change so that you don’t have to then buy another 20, 30, 50, 80, $120,000 vehicle because your engine blew up because you never changed the oil ever.

Carl:
I’ve got one other thing to ask you, Jesse. I mentioned our Mazda five, I call it the Mindy van, because it’s like a micro minivan. And our Honda Element both have… I think the Element has like 196,000 miles on it. Both of them are stick shifts and both of them are still on the original clutch, and with no sign of that clutch dying because we drive them gently. How much value… You always hear about highway miles versus city miles. And you alluded to maybe an aggressive driver needing oil changes more frequently. I liked it and I’m going from my own bias and perspective, but we drive our cars pretty gently and I like to think that, that extends their life. Do you think there’s any value to that or am I deluding myself?

Jesse:
I think, how you drive your vehicle does impact the way that it wears. If you’re aggressive on it, if you don’t keep up on maintenance, you don’t check your tire pressures, you can… That’s the one thing I now understand is just the simple things that people can do. Tire pressures are super easy, especially on pretty much every new car in the last 10 years has a tire pressure monitor. You can usually scroll through on the screen and see all your pressures. But an old car, you have to get out a gage and check them, but tires aren’t cheap. Even a cheap set of tires is 500 bucks. If it’s a decent set, you’re spending almost $1,000 and checking tire pressures is just as important as checking your oil pressure or your oil level.

Mindy:
How much is the tire pressure gauge? Five bucks.

Jesse:
Yeah, but most people don’t have a compressor. But this is another thing, is building a relationship with a shop can be very beneficial. At our shop, any customer, even if you’re not a customer, you just know you can come into our service drive, they will check your oil level, top off your tire pressures or check them for no costs, right there on the drive, takes five, 10 minutes. And then they’ll wash your car. Lots of places will do this. It’s customer retention is what they’re trying to get. They want you to keep coming back. But if you don’t know how or can’t, if you have a relationship with a shop, it can be very beneficial in getting stuff easily checked if you don’t know how to do it.

Mindy:
That’s interesting. I didn’t know that. Okay. Let’s talk about finding a good shop or a good mechanic. What are some tips that you have for finding somebody? There’s always this… I know you’re very honest, Jessie, but you can’t be everywhere to everyone. You want to sleep. How does somebody find a good mechanic when they don’t know, Jessie?

Jesse:
This has been a very tough issue across the industry. It’s always had a negative connotation, but what’s gotten worse lately is so many technicians have left the industry. Most have been aging out. They’re retiring and no one’s coming in. There’s shops that are just shutting down because they just don’t have the personality keep them staffed or they’re just filling it with a lot of younger people that aren’t being trained properly and don’t know how to do everything properly. It is hard to find shops. The only thing I can say is look. The app, Nextdoor Neighbor, seems to be really good about calling out people when they’re not doing things right. But also, they recommend shops that do very good jobs and take care of people. At least locally, I’ve seen it happen.
There’s a number shops in Longmont where we live, that get high praise because they seem to take care of their customers, but there’re also shops that have been around for 20 plus years. I think longevity, finding a shop that’s been around for a while is probably the number one thing, because if a shop is not doing the right thing, they’re not going to be around very long because especially now with social media and Facebook, they are going to be hit pretty hard if they’re not doing the right thing.

Carl:
Have you ever looked at the… there was that show, I think it might have been on public radio called Car Talk and I think they had a mechanic finder on there or something like that. Are you familiar with that? Have you ever [inaudible 00:56:31]?

Jesse:
I’m not familiar with that. I’ve heard of people talk about it, but I have not heard anything about it or used it.

Mindy:
Didn’t we find one in Monona there, around the corner from our house?

Carl:
Yeah, we did. Yeah, it was right by our house, but I’m not sure how good they were. They were very expensive.

Jesse:
Yeah, word of mouth is probably the next biggest thing is just talking to people who’ve had their car service somewhere that have had a good experience.

Mindy:
That is a really good point. Ask your friends, ask your neighbors. Honestly, if you had a really bad experience with the mechanic, you’re going to let your neighbor know, hey, do you know any place where I can get an oil change? Don’t go to Bob’s mechanic shop on Main Street because they ripped me off, or you should go to Bob’s mechanic on Main Street because they were amazing. They checked my tire pressure, they checked my oil and they washed my car after they did my oil service. People will talk about what they really love and people will also let you know when they didn’t really love somebody. That’s a really good point.

Carl:
Yeah. One point I want to make, and this surprised me. We bought a car and it needed a timing belt and I got a bunch of quotes and by far the cheapest one was the dealership. I’ve always thought in my mind, don’t go to the dealer because they’re going to charge you more. But they were probably, I think they were like 25% cheaper than the next highest quote. My advice to that would be don’t discount them immediately. They might be okay.

Mindy:
Okay.

Carl:
They were great. Jesse, I’m curious. We have ancient cars. I think our oldest car now… what is our oldest car? From 2000, right?

Mindy:
That doesn’t really count because we got that from somebody. Our oldest car is a 2010 that we have… No, the element is a 2003. We bought it brand new, which is a sin in the personal finance world although you just heard Liz Frugalwoods talking about buying a new car. But this was way back when you know could get a used car for super, super cheap. We bought a brand new 2003 Honda Element and we have driven all 196,000 miles combined. It’s running great. I would never consider trading it out. When should you consider trading out a car?

Jesse:
I think it comes down to your… Honestly. I read the article you sent me from Frugalwoods and I think that was more… their decision was more than just mechanical. I think that if they lived in a city, I think they would’ve fixed their car on they’d still be driving it. But the picture of their driveway, that is not a Prius driveway.

Mindy:
We’ve been to that house, that driveway never ends and it is like lumpy, bumpy. It’s Vermont, they get a thousand feet of snow every year.

Jesse:
Honest, it’s going to come down to your personal preference on repair versus replace. But I think you got to be smart about it. Some people just don’t like their car and they’re just like, ah, I don’t want to pay this anymore. So, they just want a new car. That’s a gut preference. Not probably the smartest money preference. Even if you have a car and you can replace it with that exact same car, say the engine goes out and you find the exact same model you have, same year and you buy that car. It was probably more beneficial to replace the engine than it would be to buy that other car because you know the history of the car that you have.
If you’re going to spend $8,000 replace an engine or $8,000 to replace it’s, probably worth it to replace the engine. If it’s a car that you had for a long time because the history of that car, you do not know the history of another used car. That’s going to change if you’re going to a brand new 2022. There’s not really a comparison but then you need to add another zero to that $8,000 and make it 80,000.

Mindy:
That’s a really good point. In the past, not in the last couple of years, but in the past it made sense to buy a used car because you were getting such a deep discount that it was okay to quote, take on somebody else’s problem. But right now, like we just heard Liz say she was going to get what? A $2,000 discount to take on somebody else’s problem versus buying a brand new car. So, she opted for the brand new car because you’re not getting a discount on used cars right now.

Jesse:
No. The market has completely flipped right now. Most people are still fixing their cars not because they want to, because they have to, because there is no available option to replace that car with even at a reasonable price, whether it’s new or used. One, we can’t get new cars. It’s been two years and our dealer usually stocked like 60 to 80 new cars. I think we’ve had 10 new cars on a lot, is the most we’ve had on the lot for new cars because every car that’s coming in is already sold. If you want a car, it’s taking six to nine months, a lot of the time if you want something specific. And used car prices are just outrageous right now and that’s why a lot of people are forcing themselves to fix their car, I guess, and keep it a little bit longer. It’s not a good time for anything right now, buying or selling or fixing.

Carl:
Sounds like a good time to buy a bicycle or walk or take a bus.

Mindy:
Delivery time was one of the reasons why Liz chose the car that she chose because there was another car she wanted a little bit more but the delivery time was six or nine months and she said, “No, forget it. I need it now.”

Jesse:
We have a lot of customers who have been waiting months for cars that they ordered. I don’t understand exactly how new cars come to the dealership, but sales can see when they’re put on trucks and are heading to the dealership. And then they start calling customers saying, hey, these cars that are on their way do you want them? Most people are just buying them before they even see them. If you want a truck or a large full size truck or an SUV, which is what we sell the most at our dealer, you’re paying full price and you’re waiting… one guy waiting nine months for his truck to show up. People are just getting in line and just putting deposits down just so they can have that vehicle.

Carl:
Have you seen excitement with electric vehicles? I know the brand you work for produces EVs. We just ordered one actually. But the new tax credit, I think there’s going to be a $7,500 tax credit in 2023. That’s why we ordered one actually because of that. Have you seen excitement around that segment?

Jesse:
Yeah. We still don’t have… a lot of EVs are in the pipeline coming. The Hummer was the first big one. We’ve had two of them. They were already sold before they even got to our dealership. It’s hit and miss, I think. There’re some people that are all about it. There’s still a lot of people are like, I will never have an EV ever. I don’t know if that’s going to play out, but it seems to be a mixed market.

Carl:
How do you feel about warranties? This is something I’ve never bought into. I never buy an extended warranty for everything. I’d rather buy a quality product and take care of it. But I know some people… there’s a lot of value to them in knowing that they’ll be covered if something goes wrong, like an extended warranty. How do you feel about those?

Jesse:
The market for extended warranties is also another whole genre. You can buy really bad warranties. A lot of these, when you get those phone calls or emails about your car’s warranty is about to expire, those are the ones who do not want to buy from.

Carl:
I get those five times a day, those robocalls.

Jesse:
We sell, I think, a few extended warranties that you can buy. Most of the ones you buy through a dealership are usually pretty good, meaning the coverage is good. Some are very specific, only internally lubricated parts and that’s very, very narrow in what they’re going to cover. Those are a lot of the third-party ones you’re not buying at a dealer. Dealer ones usually cover very similar to whatever the original manufacturer’s warranty covered. Some are actually sold by the manufacturers as certified pre-owned, which is technically an extension of the warranty, which is also a pretty decent way to get a car with a warranty that has good coverage. You can take to pretty much any dealer in the United States to have it fixed. But as for whether you should buy an extended one or not, it’s hard to say. If you have the money, because they’re pricey to begin with and people just roll them into their loans thinking they’re just getting these warranties but they’re costing… most of them are thousands of dollars now.
Unless you have a big repair, it’s probably not going to pay for itself. The other thing is, the warranties on a lot… You’re usually getting a warranty on a newer car anyways, which most of the newer cars have pretty good, long warranties. If anything major’s going to happen, it’s usually going to happen in that time period. I think Cadillac is seven years, 60,000 or 70,000 miles. They’ve changed them up a lot lately. But you’re usually getting at minimum five years, 60,000 miles, which is pretty decent coverage. If there’s an issue, you’re going to have it in that timeframe.

Carl:
Jesse, I know you through the financial independent space. What would you say… I’m coming up to you and I say, I’m 22, I just graduated from college. I really want to minimize… the two things you hear about that screw up people money wise are housing and cars and we’re not talking about housing here, so we’ll talk about cars. I’m 22 years old, I need to drive to work. I definitely need a car, a bike and a bus is not an option. What should I do to minimize my transportation expense? I want to become financial independent as soon as possible. Financially independent as soon as possible. So, I want to minimize my transportation costs, even though I need a car. What would you tell someone? What kind of car to buy and how to take care of them? I realize this is a very broad and general question, but yeah.

Jesse:
I would definitely say buy used, pay cash if you can. I’ve worked for a General Motors brand dealership, so Chevy for a number of years, then Cadillac, GMC Buick. I’m biased because I know how to work on them. But if I wasn’t at a dealer, I would probably look at Toyota or Honda because they have a very good reputation. They also have very good selection of cars that usually last a long time are easy to maintain. Lots of people, independents and how to work on them. Try to look for that entry level car. I did the wrong thing. I bought a BMW when I was 22.

Carl:
Which on did you buy? I’m a car person so I’m curious.

Jesse:
I had a 330i back in 2004. I moved out on my own to my first apartment. My car got stolen the first week I lived there and turned around and bought a BMW because that’s what I wanted. It wasn’t a good financial decision whatsoever.

Mindy:
Okay. Let’s say I have decided to sell my car. What do you have to disclose when you sell your old car? What do you have to disclose if you’re selling to a dealership and what do you have to disclose when you’re selling to a person?

Jesse:
Nothing.

Mindy:
Nothing? Okay.

Jesse:
I don’t believe there’s any law that says you have to disclose anything whatsoever.

Mindy:
Okay. I am going to give a suggestion. If you know something is wrong with the car, tell the person that you’re selling it to. If it’s a dealership, maybe I’m going to get in trouble for saying this, but if you’re selling it to a dealership, they have mechanics. It’s not like they’re going to be like, oh, it’s perfect of course. We’re just going to put it on the lot. I bet they have a mechanic look it over and be like, it’s not perfect.

Jesse:
I’ve had a customer find out he had something very serious wrong with his car, but it was still drivable. And turned around and went to another dealer that didn’t know about it, so he could trade it off and get rid of it as quick as possible for it failed.

Mindy:
That happens.

Jesse:
It does.

Mindy:
I would imagine that dumping garbage cars on a dealership happens frequently. Which is why you would think they would drive it to the mechanic department to be like, hey guys, check this out before they give the person some money.

Jesse:
Oh, rarely ever. I’ve never been asked to inspect a car that is being traded in.

Mindy:
Really?

Jesse:
If it gets traded in, it will get inspected. But if you come to a dealer and you’re going to trade it in, we never look at them before. They get physically looked at, they walk around, make sure there’s no dents in it. But it does not go back to the shop to be inspected first.

Mindy:
Okay. That is the most surprising thing that you have said. I am absolutely shocked that you said that. I thought for sure they would drive it to the auto repair department and have you guys look at it.

Jesse:
I’ve worked at four dealers and that’s not common practice.

Mindy:
Wow. Okay.

Jesse:
A lot of the times, if it’s an older car, it doesn’t even stay at our dealership. They turn around and sell it to an auction company and it leaves our dealership within a few days. This current dealership I work at usually doesn’t keep high miles or older vehicles. They get turned around and sold to… there’s companies out there that, that’s all they do is buy these used cars from dealers that do not want them. And they usually go to auction.

Mindy:
Buyer beware at the auction.

Carl:
I guess, one last question from me. If I’m that 22 year old person and I see you said Honda, Toyota, if I see the old Toyota Corolla on Craigslist and I go look at it, what should I do to verify that I’m not buying something that’s going to break down next week? Should I take it in for an inspection, or what specifically should I look at to make sure I’m not buying a problem?

Jesse:
That’s the number one thing that people do not do, is they just go and they look at a car on a Facebook marketplace or Craigslist or even an independent lot, drive it, pay for it, leave, and then something happens to it. There’s no guarantee that the place will stand by anything because they don’t have to. You bought it as is. I tell everyone, no matter what you’re buying, take it to have a pre-inspection done. Our dealer has… we have a menu item line in our computer for if someone wants to bring a car in for a pre-inspection, I don’t remember how much it is, around 140 or 50 dollars. We will look it over fairly well. Meaning, it gets lifted. We do scan it just to see if there’s any codes in the system. We don’t diagnose those codes just to write them down and tell you, hey, these codes are in the system. It’s something you need to be aware of. We will check break suspension, check it over for leaks, just do an overall good inspection on the vehicle.
I’ve had it come where people have brought us a vehicle, I inspected it and it’s usually two things. One, it’s like, it’s perfect, it’s great, no worries, buy it. And then I’ve had people like, you know that, there’s pieces missing from the AC system and it doesn’t work. And they’re like, what? I’m like, “Yeah.” It was used more as a bargaining chip or not to buy it at all. If you were to take it, I recommend the dealer first of the manufacturer that you’re trying to buy. If you’re buying a Toyota, call a Toyota dealer and ask them if they do pre-inspections, ask them how much it is. And then most buyers, if they’re comfortable selling you the vehicle, they will be comfortable, either… Usually, it’s the seller will drop it off at the dealer or both people will come to the dealer at the same time, like on a test drive and have it scheduled.
Dealers are going to have, I’m biased, we see these vehicles all day, every day for years. So, we know what things to look for that could be small issues that turn into bigger issues before other people even see them, or if you can find an independent that specializes in Honda or Toyota because they also, that’s all are working on day in, day out.

Mindy:
That’s a really good point. They know what issues are coming up. They know what to look for. I love that. That’s an excellent tip, Jesse.

Carl:
My other tip is, have a really good friend like Jesse, [inaudible 01:13:42] you can drive your car over to his place.

Mindy:
Hey, Jesse, Share your phone number with everybody.

Carl:
The pre, pre inspection.

Mindy:
Jesse, thank you so much for your time today. This was so much fun and this was super informative. I really appreciate you sharing your knowledge with our listeners.

Jesse:
Yep. Thank you.

Mindy:
A big thanks to Liz Frugalwoods at the top of the show for sharing her tips on buying a new car and the thought process that she used to determine that yes, despite my ridicule, a brand new car was the right choice for her. I’m teasing her of course, but I do really like how she considered her purchase. She didn’t just jump in with both feet. If you have a new purchase coming up, a new car purchase, you need to read the article that she wrote on her website. It goes into a ton of detail about her very conscious thought process into how she determined that yes, I’m going to buy a new car, not a used car. And how she compared the different cars and her different options and ultimately determined which one she was going to use or which one she was going to purchase. Her website is Frugalwoods.com.
A big thanks to Jesse for sharing tips about how to keep your current car running until our wampy supply chain issues work themselves out. Thank you so much for listening to this episode of the BiggerPockets Money Podcast. This is Mindy Jensen, signing off.