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ALWAYS CONSULT YOUR INVESTMENT PROFESSIONAL BEFORE MAKING ANY INVESTMENT DECISION

August 8, 2018 | The Bus

A best-selling Canadian author of 14 books on economic trends, real estate, the financial crisis, personal finance strategies, taxation and politics. Nationally-known speaker and lecturer on macroeconomics, the housing market and investment techniques. He is a licensed Investment Advisor with a fee-based, no-commission Toronto-based practice serving clients across Canada.

She’s confused. Wealthy, happily. But still confused.

“But I thought you once wrote don’t HOARD your money,” she wrote me after reading yesterday’s pathetic blog entry, “…have some fun with it!”

The problem was what I said about boats. Don’t go HELOCing your house to buy one, my post warned. The reasons are simple: (a) the interest on a home equity line used to buy a boy toy is not deductible from taxable income the way funds taken to invest are. And (b) the best two days you’ll ever have with a boat are the one you buy, and the day you sell. Yes, just like horses. Or, especially, an RV.

In fact, that’s exactly what she wanted to talk about. She and her squeeze have apparently lost their minds. “We have just bought a Sprinter RV to be delivered next month for $200,000,” she says. “And I have been wondering how to pay for it.”

Yes, they can afford it. “Our situation: both 65 Recently Retired, No dependents. Just squeaking shy of 2M$ invested. The two of us have a 1M$ pension each, 1 federal indexed, 1 non-indexed.

“Home nowadays worth 1.7M$ (During the heyday a couple of years ago neighbours sold for low 2M$+), but we are NOT planning on selling anytime soon.

“But I am concerned about this RV. Do we just suck that money out of our Non registered accounts?  Your tutorial on Mortgages (mortgage yourself) last week got me thinking…since RVs can be “mortgaged“. Do we do that? (Hubby and our financial advisor both say the headache of this is just not worth it.)”

First, spending two hundred grand (or 10% of your investments) on a bed-on-wheels is a consequential decision. After a decade (if invested properly) that amount of money should grow to $400,000. But after ten years that RV will be worth… not much. The average depreciation on a bloated bus after 12 months is 18% and after just three years is almost 40%. After a decade (depending on the use), you’d be lucky to get ten cents on the dollar. So, the annual cost of ownership (not counting insurance, gas & repairs) is equivalent to more than $35,000. For that you can rent a two-bedder condo in downtown Toronto and do recreational snorkeling on King Street.

So if you’re going to buy, buy used. There are a zillion RVs around that people got tired of in the first year or two.

Another option is to finance the embarrassing asset, or (better) to lease it. Yes, you can mortgage an RV, just like your house. Most dealers will extend a 20-year amortized loan, which means monthly payments are lower but you’ll still be making them at 85. By then you’ll have paid twice the original price, given that RV rates are about double those for residential mortgages.

If you go that route, minimum down payments are typically between 10% and 20% of the purchase price, but it’s also possible to drive one away without any cash. Of course, you will pay dearly for this in the end. So, leasing is better. The monthly will be higher and you need to take good care of the bus, but you can return it and walk away after three years. More than enough time to fall out of love with peeing into a glorified bucket and living with bugs.

The smart thing is to cancel the order and break the RV salesguy’s heart. Why would you own, insure, license and maintain a recreational vehicle for 12 months of the year when you’re unlikely to spend more than one month actually using it? That’s as dumb as having a cottage.

Best choice: rent. For example, a 23-foot Class C, slide-out momma of a monstrosity which sleeps four can be rented for $184 a night – like a tawdry hotel room – or $5,540 for an entire month of driving around aimlessly burning unconscionable amounts of fossil fuel. The same $200,000 you’re considering forking out to buy the beast would generate almost three times that amount in cash flow if left invested. You’d still have the pile of cash, still see your investments grow and still be able to RV like a crazed gypsy or born-again hippie.

Give your head a shake, lady. You didn’t get wealthy doing such silly things. You also forgot to suck-up, by the way.

“Thank you for your blog! Yes, I have been reading you for years and side with Dorothy, ‘how do you spend so much time with whining dogs’?

“You can share us as an example of seniors that for 40 years worked and saved (too much time saved with bank and not INVESTED with a financial advisor as we are now.). Or if you don’t have time to respond that’s fine too…I just like the days you let the dogs advise, occasionally, I learn from them too!”

Well, here goes…

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August 8th, 2018

Posted In: The Greater Fool

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