# Don't pay for a vehicle again, new one every 5 yrs, using TFSA and existing vehicle



## cdnsteve (Jan 18, 2012)

I'm considering using a strategy I thought up recently.
My wife and I have a 2005 Mazda Tribute which we bought a few years ago for about $15k. We've been having a few issues with it and would like to get something new. I should not I already have my own direct trading account and my current vehicle has been fully paid off.

*Strategy*

AutoTrader suggests my vehicle is worth about $9-10k. (maybe less)
Sell tribute for $10k
Invest into TFSA account, with 5 year investment plan. Yes I have contribution room. 
Generate 15% per year, compounded.

5 years I'd have $20k, tax free, minus any fees.

The vehicle I"m looking at is $182 Bi-weekly or $26k.

If I can swing the monthly payments now, then in the long run I just pocketed a free car upgrade. Continue to do this every 5 years and you won't pay for a vehicle again.

*Downfalls?*


Subject to actually making 15% interest.
Time to manage investments
Swallowing the monthly payments for the new vehicle.


Thoughts?
Is this crazy or is it just no one else has considered this?


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## OptsyEagle (Nov 29, 2009)

The only part of your plan that is not mainstream is the 15% return ... so until we hear your plan to create that, it is just a bunch of words on a message board. The plan is not crazy, it is just not complete.


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## Four Pillars (Apr 5, 2009)

If you can make 15% annually, I suggest you borrow as much money as you can and get investing!!


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## andrewf (Mar 1, 2010)

If you can generate 15% returns, who cares about TFSA. Borrow every penny you can at <15% and invest.

Seriously, this is like the old joke about economists: 



> Three people are stranded on a small island. One is a physicist, one is a circus strongman, and one is an economist. After a few days of surviving on fruit, they discover a cache of canned food, and they have to decide how to open it. The physicist says to the strongman "Why don't you climb that tree, and smash the cans down on the rocks, and burst them open?"
> 
> The strongman says, "No, that would spatter the stuff all over. I can open the cans with my teeth!"
> 
> The economist says "First, we must assume that we have a can opener."


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## andrewf (Mar 1, 2010)

FP: great minds think alike.


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## Jungle (Feb 17, 2010)

Ugh, you guys should have a group hug or something. 

Anywho..

Andrew Hallam has a method. Buy and sell import cars every couple years. He claims to keep doing this, while making money off each car. He finds cars undervalued, buys them and sells them later for more. 

I have done this once, with a Honda Civic Hatch back. I bought it for $1500 and sold it for $1800. However the other 10+ cars I've owned, it was not really possible.


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## MoneyGal (Apr 24, 2009)




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## jwsmith519 (Dec 13, 2009)

Step 1 - Open TFSA
Step 2 - Invest proceeds from vehicle
Step 3 - ???
Step 4 - Profit!


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## Jungle (Feb 17, 2010)

1. Move closer to work. 
2. Ride bicycle
3. Take transit


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## somecanuck (Dec 23, 2011)

A slightly more realistic approach is to have a home business that you can write the lease and gas off to as an expense, and save on taxes.


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## uptoolate (Oct 9, 2011)

Please don't forget to bring us all up to speed on that 15% thing.

I think that was what MoneyGal was asking for in her cartoon. Yes definitely a little more explicit on Step 2! Great cartoon!


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## HaroldCrump (Jun 10, 2009)

uptoolate said:


> Please don't forget to bring us all up to speed on that 15% thing.


For that you have to first pay a $500 registration fee, a $500 annual membership fee, take a 5 day long online course for $3,000, followed by a test.
In order to pass the test, it is highly recommended that you buy the study material and motivational videos for $2,000.


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## uptoolate (Oct 9, 2011)

Some how I was afraid of something like that Harold! And then of course I have to find another 1000 people who I can teach the same miracle technique to!


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## colossk (May 11, 2011)

1) Your not going to make 15% year after year
2) Your still paying for a car no matter what logic you use


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## financialnoob (Feb 26, 2011)

I was going to suggest becoming a drug kingpin, but I'm not even sure they see a 15% return annually.


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## Four Pillars (Apr 5, 2009)

andrewf said:


> FP: great minds think alike.


Yes, we certainly do.


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## Four Pillars (Apr 5, 2009)

Jungle said:


> 1. Move closer to work.
> 2. Ride bicycle
> 3. Take transit


Lol - most practical response ever!


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## Sampson (Apr 3, 2009)

colossk said:


> 2) Your still paying for a car no matter what logic you use


^ this

You are playing a bit of a mental game. Why not save $200,000, earn 15% a year, then get a free $30k car ever year.

The car is not in fact free, you have just used money/income generated from investing to buy a car.


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## tombiosis (Dec 18, 2010)

As others have pointed out...you're still payin'...!
BUT
A TFSA is a great way to save for a vehicle, because you can put withdrawals back in in the following year. Here's what I did for my last vehicle...
I invested 5k in each the first 2 years(09/010), which grew to 13,400.00 by Nov 2010. (Invested in a high MER gold MF) Luckily gold really took off.
Withdrew the 13+k (and added a bit more) and bought my newer vehicle for cash...with cash I feel I got a much better price, by finding a motivated seller. (Not hard these days it seems).
Sold my older vehicle and re-deposited the funds in my TFSA, which will hopefully grow nicely until my next vehicle purchase. 
I really need a reliable vehicle in my situation, and transit or a bike aren't options...(or I would be all over that!). By using savings and paying cash I feel I got a much better price for the vehicle, and I avoided any financing costs. Also, after the first year I could probably sell the vehicle for at least what I paid (maybe more actually) and I have a nest egg growing for the next vehicle down the road. Just avoid borrowing costs and make sure you get a great deal by doing proper research, and you are way ahead of all the sheeple getting hosed on cars at stealerships.


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## canehdianman (Apr 7, 2009)

IMO it would make more sense to up the expected return to 100%, then you can get a new car every year!


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## peterk (May 16, 2010)

cdnsteve said:


> Sell tribute for $10k
> 
> 5 years I'd have $20k, tax free, minus any fees.
> 
> The vehicle I"m looking at is $182 Bi-weekly or $26k.


Welcome to the forum Steve. I like your enthusiasm! I'm not sure how your math is working out here. If you invest 10K and earn 10K, how does that give you a $25000 car for free? Your investment has only earned 10K...

I think you need a slight reality check on you investment expectations. It's not so much the 15% that I'm worried about, it's the 15% with lack of risk - 5 years is NOT that long of an investment period. Yes you can absolutely earn 15% in 5 years, but you could also earn 0, or lose money even. The stock market over a LOOOONG period of time (20+ years) has historically earned 8-9%, but in a 5 year period, quite literally, anything is possible. Have you just read The Wealthy Barber, by chance?



cdnsteve said:


> I'm considering using a strategy I thought up recently.
> Thoughts?
> 
> Is this crazy or is it just no one else has considered this?


Again I like your enthusiasm, but you will soon realize that there is NO strategy that you can ever think up that hasn't already been done.
No it's not crazy, but yes, thousands or millions before you have considered absolutely everything that you could possibly think of.

Apologies if you are, in fact, some magical investing genius. But the sooner you can get out of your head thoughts like "I've just invented and/or discovered a new investing strategy that I don't think anyone else knows about" the better off you will be.

Welcome to the forum!


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## fraser (May 15, 2010)

My vehicle is fifteen years old. It is a high end, or was at the time, Japanese import. I was able to write off 60 percent of the capital cost off because of my employment and 60 percent of the the operating expenses for 6 years or so. It has been very reliable but I maintain it properly. Hope to keep it another five years or more. The operating costs are low.

We purchased my wife's car two years ago- another high end Japanese vehicle. We found that four year old cars, with low mileage, sold for about 55 percent of the original selling price of the current model. It took us three months to find the 'right vehicle' but I believe the payback was worth it.


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## Eder (Feb 16, 2011)

You guys are all being to hard on OP. If he took the 10k and put it into YLO he could buy a new car & a Harley. I think it's yielding over 300 percent no?
Oops I guess they quit paying...go figure.


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## Sherlock (Apr 18, 2010)

This idea is actually not that crazy, except for the 15%. But do you really need a 15% return to make the idea work? Consider this: If you have 20k, you only need about 8.4% return to turn that into 30k in 5 years. So if you invest 20k in your car fund and never contribute another dime, you can buy yourself a 10k car every 5 years. Or if you already have a 10k car, then trade it in for a 20k car. In 5 years, that 20k car will be worth 10k, so you can buy yourself a 20k car every 5 years (assuming you start with a 10k car). Is an 8.4% annual return reasonable over 5 years? If not, you might have to wait 6 years instead of 5 before you trade in your car, while if you get a higher return you might be able to do it in 4. You would also have to stick to cars that hold their value well.


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## Syph007 (May 2, 2011)

15%? wow Not much can reliably yield that right now. I still think gold might do that over 5 yrs, but no guarentee.


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## the-royal-mail (Dec 11, 2009)

This whole thread is crazy. First of all, to sell your old car on autotrader for the top end price is a miracle unto itself. That is excessively optimistic. You need to be in the mid or low range of prices to attract buyers. If you ask for top dollar your ad will sit there for a long time with no emails while all the bargains in the other ads attract the buyers. 

Secondly, the cost of the new car is what it is. Sure you can shop around but there is still a range to pay and you need to add for fees, taxes, surcharges, levies, insurance and all other manner of taxes. These taxes need to be included in the price for the newer car.

Lastly, the biggest issue is not one of how to get a free car, but of speculative investing on an outrageous return of 15%. Because really, that's what the OP is asking us about. And while 15% returns may happen for some, they usually do not happen to the type of person that starts this type of thread.


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## Plugging Along (Jan 3, 2011)

I think the returns would be really difficult to get in such a short time frame. It is possible, but that would require some higher risks.

The question I would have is, if you do decide to go for the 15% returns, would you be upset that at the end of the 5 years when you wanted to buy the vehicle, and you actually had less money? If you would just wait it out, and it's not an absolute that you have to have the money, then it's not big deal. If you HAVE to have the money, then it's not a great plan.


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## crazyjackcsa (Aug 8, 2010)

Since the OP signed up, posted and never came back, I think we can safely file this away under "junk post".


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## KaeJS (Sep 28, 2010)

I think everyone here missed the big picture. 

The guy wants to get rid of a 2005 because it's been giving him some "problems". 

Why?

I drive a 2003 and a 1993. A 2005 tribute is not even that old. 

To buy a new car at this point is wasteful. 

Also, the OP more than likely will not make 15% per year. 

Is the problem the fact that the OP wants to look flashy in a new car? Cause it seems to me like there's nothing wrong with the Tribute...

OP should invest all of his current money and buy a new car in 5 years, when the Tribute is actually getting old. This will buy him some time to earn a decent return.


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## Oilers82 (Jan 17, 2011)

If OP could get 15% per annum steadily, there's no reason he'd be worried about a $10,000 car. BNN's next superstar? lol.


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## donald (Apr 18, 2011)

I have a employee who(might)draft up a plan for him to (rent) my truck for a yr and use the proceeds towards a lease(I don't think I'll do it)but we talked about it..light on the details and legal aspects,but it got me think if one one rented out a vehicle held the title...maybe charge 4k a yr for use with ironing out Kms ect...


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## donald (Apr 18, 2011)

Like being a landlord with a car...he doesn't have the best credit..sure this has been explored...almost like a in house franchising thing were both parties win...might be magical thinking and loaded with headaches.


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## the-royal-mail (Dec 11, 2009)

Shell games again? Don't get involved with that sort of stuff. When it comes to cars people need to look after their own affairs.


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## OhGreatGuru (May 24, 2009)

cdnsteve said:


> I'm considering using a strategy I thought up recently.
> 
> ...
> 
> ...


I think you have a promising career with the Greek Finance Minister's Office.

"There ain't no free lunch"

Your "free" car cost you:
a) the $10K capital you put in 5 years ago, from selling your old car;
b) the $10k in earnings over 5 years (which can't be done anyway);
c) the cost of leasing for the last 5 years at $26k.

And how do you intend to repeat the process when you have spent all your capital on the new car?


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## Saniokca (Sep 5, 2009)

and I thought that I was being harsh on this forum...


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## OhGreatGuru (May 24, 2009)

I don't think it is harsh to point out the logical and practical flaws in someone's "free money" scheme, especially when they asked our opinion of it.


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## Saniokca (Sep 5, 2009)

OhGreatGuru said:


> I don't think it is harsh to point out the logical and practical flaws in someone's "free money" scheme, especially when they asked our opinion of it.


Hahaha I agree with you 100% - that's why people were telling me that I'm being too harsh.


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## Sasquatch (Jan 28, 2012)

As others have stated, there is no free money and the basic idea of the OP isn't all that new either. 
We have been buying our cars with cash for the last 20 years or so. 

Buy a good used vehicle that is a few years old for a reasonable amount and start saving for the next one immediately. Even small monthly amounts will add up quickly.

When replacement time rolls around, you will have enough cash to buy another GOOD USED vehicle and the cycle can repeat itself.

It may sound simplistic and too easy but if you are serious about making it work, it will the job for you. It has worked for us and it will continue to do so.

The last new car we bought was a 97 Civic , after which we smartened up and started buying only used vehicles, where the previous owner was generous enough to take care of the major part of the depreciation for us 

Our 2 present vehicles will probably need replacing in another 3 to 4 years and we have over 80% of the projected replacement cost laid aside now.

A 2 or 3 year old vehicle will be almost as good and just as reliable as a new one and cost you about 1\4 to 1\3 less, depending on make and model.

The fact that we keep our vehicles for about 7 to 10 years also plays an important role in making this strategy work for you.


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## Sherlock (Apr 18, 2010)

Sasquatch said:


> A 2 or 3 year old vehicle will be almost as good and just as reliable as a new one and cost you about 1\4 to 1\3 less, depending on make and model.


I agree! I think there is a common misconception out there that only new is reliable and anything used, even if only 1 year old, is not reliable. But I guess if everyone thought like us, the prices of used cars would be higher, so I hope people continue buying new cars so I can get good deals on lightly used ones.


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## GreenAvenue (Dec 28, 2011)

Cars? I personally hate them, I think when it comes to purchasing cars you a. buy a longtermer, something like Toyota or Volkswagen
b. use it up. Completely.


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## Rusty O'Toole (Feb 1, 2012)

There are other angles on this. These days it can be as cheap to buy a new vehicle as a used one.

My brother was in the market for a used pickup truck, 2 to 3 years old. The ones he found on dealers lots were only a few thousand less than new, and with high miles or beat to death.

So he bought a new one. The price was not much more, and the interest rate was 0. So the payments were the same or less, as if he bought used and financed it through the bank.

Someone who did this and invested their cash could make money as long as they are getting more than 0% on their money.


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## Sherlock (Apr 18, 2010)

That phenomenon must be unique to pickups then, because I've definitely observed huge prices differences between new and 2 years old with cars that I've looked at.

Also, 0% financing usually comes at a cost, ie there is usually a cash purchase price which is several thousand less than the financing price.


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## Sasquatch (Jan 28, 2012)

Be very careful with the "zero financing" gambit. 
I would guess that in 99 % of cases you pay a premium price for the vehicle with zero financing. Don't ever forget that nothing is free...ever, no exception !!
Also, even with a good price on a new vehicle compared to a used one, you loose an arm and a leg the second you drive the thing off the lot.
If you don't believe it, go buy a new vehicle and then try trading it in 1 month later on another new one.
The low price you will be offered for your month old vehicle will make your eyes water 
I don't think you can beat the price of a 2 or 3 year old vehicle, no matter how many " new car dealer incentives" and such they offer. 
But that's just cheap .. I mean frugal  old me.


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