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Gabrielle Olya
BUYING a car and buying a home are both major investments.
Although saving for a down payment on a car is easier to achieve, is that money better being put towards a down payment for a home?
Is it better to buy a car if you are still years away from being able to afford a home?
Which is the better investment?
We posed this question to a number of financial experts.
Here is what they had to say.
It depends on your goals and lifestyle
Jay Zigmont, the founder of Unitesd States-based Childfree Wealth, said there is not a straightforward answer — it really depends on the individual.
“To start buying a house is not a requirement in life,” he said.
“For some people, particularly those who are a bit more nomadic, renting may be a better option than buying a house. There are other ways to get exposure to real estate investing than buying a house.”
If you are in the camp where you eventually want to buy both, it is important that you think about utility, rather than “investment” potential.
“A car is not an investment,” Zigmont said.
“Your car is a tool that allows you to do things. For many people, a car is a requirement for getting to work and living their life. Cars go down in value over time and with more miles. A house can be an investment, but often the house you would buy as an investment is different than the one you would buy to live in.”
If you need a car, buy a car first
“If you need a car to travel to/from work, then the car makes the most sense to be your first purchase,” said Joel A. Larsen, principal at American company Navion Financial Advisors.
“On the other hand, if you live in a city where there is reliable public transport, then the home becomes your first choice.”
Larsen also said that while a home is a better investment, that does not mean you need to prioritise buying one first.
“Neither a car nor a home are investments in the sense that you would sell them without buying another,” he said.
“They are both ‘use assets’ until sold. A home could very well increase in value, while cars seldom do. In either case, if you plan to finance the purchase, make sure your emergency fund is sufficient to continue making payments for six months to a year in the event you become ill and can’t work or lose your job.”
Todd Stearn, founder and CEO of TheMoneyManual.com, also recommends buying a car first if you need one.
“As they say, you can sleep in your car, but you can’t drive your house,” he said.
“Not everyone has access to public transportation or can work from home. If you need a vehicle in order to make money, prioritise it. Just be smart about it. Consider purchasing a used car brand that has top ratings for reliability.”
Stearn warns against prioritising buying a home no matter what, as it may not be the best choice for you.
“For many people, buying a home is a serious financial commitment,” he said.
“In addition to the down payment, closing costs, monthly mortgage payments and cost of inevitable repairs, you are counting on being able to maintain or increase your income. If you don’t feel stable in your career, you might want to hold off on planting roots. Remember, your home is not guaranteed to increase in value beyond the rate of inflation.”
Buy a home first, if you can
“Real estate typically appreciates over time and should be prioritised over a vehicle, if possible,” said Michael Gifford, a real estate expert and CEO at Splitero.
“Vehicles usually depreciate the minute they are purchased and driven off the lot. If a consumer is deciding between buying a car or a home first, a home will be a better investment for them in the long run.”
However, it’s important not to rush the process and only buy a home if you are financially ready.
“Buying a home is complicated and should start with loan qualification,” Gifford said.
“After the pre-qualification process, buyers can start the search for their home. Potential homebuyers should consider long-term scenarios, considering a change in employment status, income and the property’s resale and rental potential.”
Online Reporter