We often receive emails from our readers about what exotic cars to buy, which are the best value and more importantly how much car can they afford. In our Luxury Lifestyle System we break down how you can drive the cars you want, wear the watches you crave, and end up losing no money, but in some cases even make money off your hobbies.
In the old days, we would answer that question with something along the lines of: if you make X amount of money, then you should spend Y% on your car, and you should finance it in 5 years or less. Then there is the other answer from conservative people that say be reasonable with yourself and buy a normal cheap car because if you can’t afford to buy it cash, then you can’t afford it at all.
Both of those are great but truly a waste of time in today’s new market place as supply and demand in the states for cars outweighs the laws of finance. Today I am going to teach you in detail and give examples of how our system works on just about any car and will make you stop asking “how much can I afford” and instead make you wonder “what kind of car would I like to drive”.
Everything you know about the car market is now a giant game to help the dealer sell to you, so all the tools you think you use or have access to these days like Kelly Blue Book and Carfax no longer serve the same purpose as before as the way you use these tools effectively has changed. The rules of financing has also changed and no longer are rates offered at the bank much better than at the dealership.
The rules have changed and here are some things you need to know before buying your next car:
- Carfax cannot be trusted for determining if a car has been crashed or not, but there is a lot of value in understanding how to read a report.
- Kelly Blue Book is useless. Most dealers use local auction listings that you don’t have access to so they can win when buying your trade.
- Dealers make big money from you financing your car directly with them, not buying it cash.
- Extras like detailing, paint protection, warranties and more are useless and overpriced at dealer.
Here is more you have to understand before we go in detail on how you can afford just about any car you want:
- Every new car depreciates, no matter how exclusive or hard to find.
- Supply and demand controls pricing more than ANYTHING else.
- The more expensive the car, the more impacted it is by financial markets.
- Financing a car is not evil or means you are poor, it actually makes perfect sense in today’s marketplace, even an exotic car due to the low rate environment we are in.
- A car with heavy options is easier to resell but doesn’t not mean you will get much more money for it.
- Unique colors are great but not for everyone. White, silver or black are always safe choices.
Here is how the history of a car impacts its value over the 1st 5 years a car model is released. Here are some important facts to know about depreciation:
- Cars depreciate when they run out of factory warranty.
- Also when the next model year car is released.
- If they have been in accidents or have paintwork done.
- When dealers offer incentives on newer models.
- The highest percent of depreciation happen in year 1 and 2.
- Most exotics don’t depreciate after 4 years; mileage is the factor at that point.
Here is the basic concept and how it works:
I’ll use the BMW M6 as an example because it makes good business sense and showcases this system very well. I will use real examples and numbers as we have covered this study in our How to Drive a Luxury Car For Free system.
The E63 M6 is an amazing all around GT car. From its 500HP V10 to the luxurious 7 series like cabin, the car is not only fun to drive, beautiful to look at, but loaded with options if purchased right. It ranges in price based on options but you can expect to pay $95,000-$120,000 for a new coupe, but it depreciates VERY fast based on 3 factors.
1. It’s accessible easily after 3 years as its not that unique.
2. Its expensive to fix if out of warranty.
3. BMW offer leases on them for 24-36 months.
These three factors alone mean that this car will depreciate over 50% in 3 years even if you keep the miles low, and therefore creates an amazing opportunity for someone else to pick up a $120,000 car for $55,000-$60,000 and yet still have the latest model M6. Most M6 owners care for their cars, and most of them baby them which means there are cars out there that look and run like a brand new car but yet cost 50% less, and yet in 90% of all cases can be found with some factory warranty left.
Here is why buying a used M6 makes more sense than a new M6:
1. Service history tells a lot about a car, especially after 3 years.
2. Depreciation between year 3 and 5 is mileage dependent.
3. Most cars look brand new even after 40k miles, if maintained properly.
4. You still have the same warranty and maintenance plan as a new one.
The whole point is to buy the right M6 at the right 3 year mark with low miles and high options, drive it up to the miles it should have, keep it in great shape and resell it before its warranty is up. By doing that, its like you bought it to resell it but since you drove it, you gave up the profits but at least don’t take losses. Understanding how to buy low and sell normal is the key to the way this system works and while most people think they are getting a deal buying at $120,000 car for $55,000, it still is too high cause the dealer has an $8,000 – $10,000 in mark up usually in that deal. Your goal is to buy as close to the dealer’s invoice as you can or no more than $3000 above it.
Most dealers list cars at $7,500-$10,000 above what they bought it for, and over time lower their asking price to eventually end up at a list price right about $3,000 over their cost. They usually won’t list under that but will negotiate up to $1,000 above their costs if desperate to sell a car. If they can’t get that within 60-90 days, the car usually gets wholesaled to an auction or other dealer. The dealer would rather take the write off as it makes business sense to offset other gains. Every dealer negotiates, even the ones that say they don’t and ultimately their job is to sell a car at the maximum they can within its risk period. The way they decide when to lower is usually because of how long they kept the car. There are usually 4 times when the dealer re-evaluates its pricing or position in a car. The first is at the time the car is ready to sell, it looks at competing dealers locally, nationally in same climates, and supply available on market. The second is after 15 days the car has been advertised but not sold, the third at 30-45 days and finally lowers itself to its base price at 60-75 days if not sold, at which point it decided if to keep or wholesale vehicle.
Your best bang for the buck deal happens on cars sitting over 30 days in high volume dealers, especially the ones who don’t usually buy or hold those type of cars. A good example is a Ford dealer that traded an M6 because they just want to move it and often buy it very cheap because someone downgraded. If that car doesn’t sell, the dealer gets uncomfortable after 30 days.
That’s the best case scenario in case you are not a good negotiator, but again, I teach you how to negotiate in the How to Drive a Luxury Car for Free which takes the whole waiting for cars to be there 30 days out of the equation. Either way, once you identify the car you want at a dealer you want, you must understand all you can about the car itself which is the only thing the Carfax is good for.
Here are three things you must know about the car in question:
1. Look at the “in service date” or the first registered owner date which tells you if there is actually any warranty left on the car. Most luxury cars are 4 yrs /50k miles so therefore you’ll know how much warranty is left on there. For BMW and Mercedes, also look if the car was ever certified as it might have an additional year or two left past the initial warranty as a Certified Pre Owned vehicle. Keep in mind that not all CPO programs transfer and understanding them as I explained here is important.
2. Understand the service history of the car and how well maintained it was. Look to see if it was dealer maintained or not. If not, ask for service records but also look at how many times it went in under warranty for repairs. Problematic cars seem to remain that way. If the car had been in the shop 5-10 times for the same problem, it might be a lemon that no one followed up on and you should stay away.
3. Understand how long this past dealer had the car for sale. Look at the last “offered for sale date” and that will tell you how long the dealer has tried to sell this car. Also look at how many dealers passed the car on before it ended up here. If another dealer sold the car, it means they couldn’t sell it and you should use caution as other who saw the vehicle passed on it. This could be a great opportunity if the past dealers were just in bad climates or not good marketers but it could also be a major flag to not buy the car. Make sure you have the car looked at by another dealer or do further research online before jumping on the car.
Once you have identified the right car on paper, it is time to go see the car. Don’t limit yourself to local cars as you might miss excellent deals in climates where certain cars don’t sell and must be sold asap. Shipping can often be negotiated in the deal and even if the dealer offers shipping for $1,000, it might save you money off the car and that $1,000 might still be worthwhile. Each and every deal is unique and there is no universal formula in terms of pricing. Keep in mind that EVERY dealer will use lines like “I can’t discount it further” or “my manager has no more room on this car” and will tell you others have interest in the same car. It is often inaccurate and a way to do business, don’t fear asking for further discounts. Not every deal is meant to go your way and the more you practice, the better you become at getting lower and lower prices. Make sure to also look at the dealers reputation online on eBay, Google and more because in this business, reputation matters and good dealers are worth spending a bit more on because they stand behind what they sell and value their reputation.
Here’s how we bought and drove our BMW M6 for free:
For our M6, we bought a 2007 M6 in 2010 that had a late 07 in service date, but further more, we bought the car from a BMW dealer who certified the car. So we bought a 2007 car with 1 year of factory warranty left and 2 years of CPO warranty left. We bought our car with 40k miles, which means decent miles considering the car was 3 years old but found a very well optioned car at the same time with unique options like soft close doors, carbon trim, HUD and much more. Our car had an original MSRP of $124,000 for a coupe, which was a very loaded car and was very mint in condition. We picked it in a Silverstone 2 metallic option, which was highly desirable. The trick was we found a car that was sitting in New Jersey at the Circle BMW dealership during winter and had been sitting there for 60+ days. We negotiated using our SYSTEM and walked out of there with our CPO M6 fully loaded for $49,000 including Virginia taxes (3%) and tags, etc…
If we looked at Manheim or Riverside auction listings, which is what dealers use to value a trade, most cars were sold with similar mileage in our area for $47,000-$51,000 meaning we were buying the car at what a dealer would pay at auction plus maybe $1,000 or so. This does not mean Circle BMW made no money on the deal but rather that if we were to trade the vehicle at the time and had less options and higher miles, we would get what we paid minus $1,000 or so. We never know what the dealer bought the car for, but rather assume an educated way based on the deal they are willing to make and auction data. Also keep in mind that our car had a warranty for 3 years, and most auctions cars probably didn’t and still were being sold for that same amount. It takes time finding the right car, so you must be emotionally disconnected and learn to wait for the right car and deal to align.
Despite our mileage being a bit higher than we liked, the deal, the car and options, were right on making it hard to pass on it, especially due to the warranty having 3 years left on it.
Here is how we bought our car and not even in cash:
We got a 84 mo loan from our local credit union at 3.49% which is pretty much FREE money if you understand finance. We put no money down except taxes and tags so financed about $46,000 at $650 and change per month. So we ultimately owned a $120,000 M6 for the same cost as a Jaguar lease however there is more to this and by the end of this you will understand how much cheaper than a VW Jetta lease this car really was. We spent about $650 x 11 for the duration of how long we had this car which equaled to about $7,000 in the car but only $1000 of that was interest, the rest went to the principal which meant we now only owed about $39,000 for the car by the time we sold it.
We enjoyed our car as a daily driver and accumulated a total of 65,000 miles on the odometer prior to listing it for sale a year later. Our goal was to list it so a private seller would buy it from us rather than trade it in.
The leverage we held after we enjoyed it for a year was that it still had:
1. 2 years of warranty left.
2. Same amazing condition.
3. Was being sold in a warmer climate at the right season.
4. Had attractive options, and color combination to the majority of buyers.
We drove our car with a full warranty, peace of mind, and with some of the best options out there. When it was time to sell we listed it for $51,000 which was similar to how much other dealers listed their cars, and we advertised it on just about every relevant car forum, eBay, AutoTrader and more. We kept asking price same across all channels except on forums where we lowered the car to $49,000, then $48,500 a month later only to accept an offer of $47,900 on our car from a local buyer. We advertised the car through great photography and put those photos just about everywhere. We paid $39,000 to the bank and kept the $8900 difference, which we invested in a different exotic car, which we made money on as it’s a bit of a different system.
Now let’s go back and see what this car really cost us.
We paid $49,000 including all taxes and paid $1,000 in interest on our loan over 11 months before the car was sold. We sold the car for $47,900 which means we lost just under $2,100 on our investment after driving it 11 months and about 25,000 miles as a daily driver. I originally said we had a car for about the cost a Jaguar lease, but if you account the true cost of the car itself once you sell it, then consider that we paid $2100 over 11 months or about $190 a month for a $120,000 BMW M6 with full warranty which is less than a standard VW Jetta during one of VW’s best promotions.
So technically if you think about it, just about everyone can afford an M6 over a Jetta but there are a few risks associated with this that I share in our system including what to do if you get in accident, put too many miles on your car, or simply pick the wrong car. I also analyze for you the best car makes and models you can use this system with, how to negotiate and break down all the processes between buying and selling. The best part is that for those of you out there that actually use this you can make money by understanding the tax write offs associated with luxury cars so your $190 a month can actually turn into $190 in your pocket a month instead.
Please keep in mind that you need good credit and the ability to comfortably afford the $650 a month payment in this case to make this work comfortably. It is also preferable to have a few $1,000 in the bank to put a few dollars down, even though not mandatory it is good to keep your monthly cash flow/expenses low so buying a car doesn’t change your life all together. For cars without warranty, you can read a bit more about costs of ownerships of luxury cars and exotic cars but you should look for cars with good history and some warranty left. It does help resale and peace of mind. Make sure to learn about specific makes and models and the more detailed break down in our lifestyle series course.