Maxim: Rent Theory

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I’m going to file this away with my other Vehicle Maxims but as the title suggests, it’s really more of a theory than a hard and fast rule.

I could have also called this “Swade’s justification for all the silly cars he’s bought” but I don’t want to give my wife any more ammunition than she needs 🙂

Rent Theory:

The difference between what you pay and what you sell for, along with certain costs of ownership, can be considered as rent paid for the pleasure of owning a vehicle. By avoiding big losses on selling (especially depreciation), you minimise your rent and maximise your pleasure.

It’s relatively rare that someone owns a vehicle for life. Most of us are simply caretakers who look after a vehicle before passing it on to the next owner. We effectively ‘rent’ the car with the rental costs comprising the difference between purchase and sale prices and any money spent improving the car. I put registration, fuel and servicing costs down as operational expenses.

My task (and yours) as someone who likes to own different cars, then, is to minimise the rent. That gives me a good vibe because I’ve preserved my investment in the vehicle, I’ve managed to enjoy a great car at very little cost over the period of ownership and I’ve (hopefully) left myself in the best possible position to replace one interesting vehicle with another when it comes time to change cars.

How do you do it?

You buy something desirable – the supply/demand equation is what preserves price. Buying something that’s regularly in demand isn’t hard – people are looking for Corollas all the time – but buying something that’s in demand and interesting can be a bit tricker. You have to go in with both eyes open.

You have to preserve condition – when you’re thinking about buying a car, you have to look to future when you’re going to sell again. You need to make sure the vehicle’s kept in superb condition so as to make it stand out amongst similar vehicles for sale. If you can get a diamond in the rough that won’t cost the earth to improve, all the better.

You have to buy smart and sell smart – identify the right car at the right time in its life cycle, negotiate the purchase well and know how to market the car well when it comes to selling. Good photos and an accurate description make a hell of a difference when it comes to getting your ad seen.

It’s not often that people make money on buying and selling a second-hand car in the open market. Dealers can do it because they pay rock-bottom when they trade a car in and they offer the convenience of an easy exchange. Private buyers like you and me are a different story. Bottom line: most of the time you’re going to lose some money on the purchase and sale of a vehicle.

The key is to minimise the losses and be philosophical about what they represent. Those losses are the rent you pay for the enjoyment of owning the vehicle that you choose.

Buyers of brand new vehicles pay a higher rent thanks to depreciation but they’re buying greater safety, fuel economy and lower maintenance costs. Buyers of classic vehicles should pay lower rent because depreciation should be minimal (if you’re buying smart) but they’re likely to take a hit with higher operational costs. They’re buying character and paying for the freedom to buy whatever they want from any era rather than simply what’s being sold by manufacturers right now.

It’s all a balancing act and mostly a philosophical one, but for those with a jones for the second hand car market, it’s a handy thought process that’ll help you make it through the night 🙂

Addendum: before anyone points it out, let me acknowledge that what I’m describing here is basically known as the theory behind leasing when it comes to new cars.

Your lease charge is the cost of depreciation, expected wear and tear, etc, over a specific term at which time you hand the vehicle back.

The difference here is that the car can be of any age, make, color or creed, the ‘lease’ cost isn’t determined until your ownership is done and you have some abaility to determine what that lease cost will be by the way you buy, sell, maintain and select the vehicle.

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10 Comments

  1. I wholeheartedly agree with this view. My recently departed 9-5 was a very cheap ‘rental’, even though my wife wouldn’t agree — see could simply NOT see repairs and maintenance as anything other than a negative. Almost eight years and the car ‘rental’ was probably around $1000 per year. Pretty cheap. (Note: in eight years I put only 25,000 miles on the car.)

    By the way, your theory of minimizing cost by maximizing desirability can also be flipped on its head — by minimizing desirability (thinking like a fleet owner) you afford yourself the newest, best condition car at the lowest price — a price that’s low just because the car isn’t much to look at or drive. Put a different way, you ‘double down’ on the ‘buy smart’ portion and dial back expectations. My 2001 Ford Taurus SES was a perfect example — no leather, no sun roof, base V6 engine. 3 years, 72k miles (which is why I chose the Taurus) and my rental cost was only about $2000 per year, which was a bargain considering the mileage!

    1. i hear you on cost-effective buying for utility, eggs, but not sure that tugs on any heart-strings, unless you really are the kind of person who finds their joy in saving money (at which point i might mention MY wife, if I was being unkind..!)

      1. Dan’s summed it up in one. It does work in reverse and some people will like that, but it’s not for the cars I’m interested in, unfortunately.

  2. This is exactly how I think about car ownership, and part of the reason why I’d probably never buy a new car. I think your other maxim (buy best) does tie into this nicely.You just have to be careful when buying any car that you aren’t buying something that’s about to implode. In some ways I’m more wary of cars with 150k on the clock that 230k, because the 150 is about to let go!

  3. Sort of a twist on how I expense cars, I have always bought broken cars for cheap, repaired them, and drove them for a while.Eventually they are sold to finance the next affliction. But then I repair Saabs for a living so maybe I have an unfair advantage….
    However, my shop trash truck position is a perfect example. In 1995 I bought a ’58 chevy pickup for $500 worth of Saab transmission repair bill. Sold it in 2008 for $850 cash. In 13 years it got new tires and a speedometer and a driver’s door.
    Tax deduction every year for the business. Replaced it with a 1972 Chevy – $700 cash. New tires, water pump and chinese exhaust manifold and we are hauling trash. Any repairs are a tax deduction. Someone offered me $2500 the other day, but it’s time with me is not up yet. That old dirt simple 6 cylinder is just too good.

  4. I reckon if you are savvy and brave enough to do much of your own repairs to the vehicle you drive, then you can save heaps over the life of the car. Take that off the total ‘rental costs’ and amortize it over a lengthy period of time and you are ahead. I think you need to factor in how expensive it is to actually keep the thing going as part of the total expenditure. Diesel drivers are in denial with this one and live in a parallel world when costs are discussed. Sure, they might be getting better Ks, maybe, but those big expensive services and extra dollars at the pump doesn’t necessarily mean they are ahead much at at all. Over a 7 year period, where I have done nearly all the work on the 9-5 Wagon, with over 100,000km on the odo, the only thing I didn’t want to do was the gearbox when it lost its internal pump. Apart from that I have done all the scheduled amd required ABC services along with routine stiff like water pumps, alternators, fuel pumps, belts, DIs and every thing else a car of this age needs. When I hear friends of mine who have shelled out $350-400 just to get their oil changed, I am quite happy to get under the hood every 10,000k. You always lose when you sell the car anyway, with the prospective buyer beating you down regardless, or you get hammered on a trade in. So save money by servicing the car yourself if you can.

  5. I often wonder how to grade the expense of owning my cars. Your thoughts made me think it over again. I generally think P (purchase price) – S (sale price) = HGTDW (How Good the Deal Was). But if you factor in all repairs, parts, and maintenance I almost never come out on top (although that gift SAAB 9000 made me money even after shipping costs).

    Right now I could drive a demo from the dealership for a low cost per month. I could save money, have a newer car, and not worry about insurance, maintenance, or repairs. But what fun is that? I like repairing things especially when it is an unusual and enjoyable car. That’s the thrill of ownership that must be factored in. There does come a limit but it hasn’t stopped me yet.

    1. This is the point at which normal people look at you, thinking “is he stupid?”. Either you get it or you don’t. I’d rather spend 50% of the time underneath a 1960s Alfa doing running repairs, than driving to the shops in a 2013 Camry, and I’d wager that everyone reading this site would agree! But we’re odd.

    2. “if you factor in all repairs, parts, and maintenance I almost never come out on top”.

      Andy, you only maintain the ones you love.

      We’ve all met people who brag about how little they spend on maintenance. What I find is that their cars are almost always decrepit death traps. Bald tires, shaking brakes, loose ball joints, shredded interior, rust everywhere underneath.

      Who is coming out on top, really? You aren’t the one trading-in unloved cars at scrap value every few years (or even worse, paying $600+/mo lease).

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