First, let’s start with why I got a Tesla. My family literally drives about 850 miles a week to activities. Mostly hockey games and practices, a lot of Disneyland trips. We are probably awake in a car more than we are awake at home. We wanted to lower our over $600 a month gasoline bill while getting a car that is comfortable to ride in. We have a Mini Cooper that gets great gas mileage, but it’s not the most comfortable car. For the Tesla to go 930 miles would cost us about $60 in electricity a week, so $240 a month for a pretty great savings. The more you drive, the bigger the benefit of going to electric.
I wasn’t sure about the price though. I’ve gone back and forth over and over on the price. A Tesla is an expensive car, to be sure, and if it wasn’t for the way I purchased it, I wouldn’t have bought it. Throwing $57,581 at a car is nothing to sneeze at, even if it’s not a large percentage of your net worth. It’s twice what I’ve ever paid for a car before. But, compared to something like a Prius, it’s bigger, it’s the safest car on the planet, has more storage (we have lots of hockey bags and sticks to lug around) and it has auto-pilot which will really, really improve our travels through the Los Angeles traffic.
So, I got the long range rear-wheel drive Tesla in black and added the Auto-Pilot feature. I did not get the autonomous driving package yet. I figured I didn’t want to pay $3000 for something that I might never get to use.
I pulled the trigger yesterday (October 11, 2018) because I wanted to get in on the $10,000 government tax rebate before it was gone so that I could take out a lot of my capital gains this year. I’ll just sell enough shares of Apple and WWE to get myself a $7,500 tax bill and I’ll use the $2,500 California rebate check to pay for superchargers or something. I believe the last day to get these rebates is October 15th. After that it drops way down to $3750? Something around there. I’ll take a few thousand dollars for free, thank you.
So, originally I was just going to pay cash for the car and be done, but then I got to thinking. If I was going to buy a house that would be a horrendously bad idea to pay cash for it, so why do that with this car? Every car I’ve ever owned I’ve paid cash for before now btw, and I’ve never spent more than $20k on a car. I decided the best path was to do what I do for a living, make my cash work for me.
So, I got to work. What if I created a brokerage account with 100% of what I owed on the car and invested it in 10% dividend REITs, taking out a years worth of my payments at a time. Yes, there are REITs that pay 10% or more in dividends. You have to do some work to look for them. I’d suggest making sure that the company carries no debt before you buy them. I’m not going to share what I found here, but if I can find them, you can find them. I don’t want to get in trouble for market manipulation or anything.
Note: I took out a years worth of payments ahead of time in this example just to make the math easier, I’d actually just take out my monthly payment each month AND reinvest the dividends monthly rather than yearly, so I’d actually make a lot more than is in the spreadsheet, but I didn’t want to go through all that coding. This also doesn’t include any gains the REITs will make over the course of 72 months.
So, the amount to finance on my car was $56,304 at 3.85% and I chose over 72 months because you will make a better return. Again, this is a LOW end estimate. If you reinvested dividends as you went along and only took out one month of the payments at a time you’d make more.
Here’s the spreadsheet I made. As you can see, by not paying off the car in full and investing the cash instead, I’m making quite a bit in dividends each year. (Again, I’d be making more than listed in this spreadsheet, but this is a general return calendar.)
At the end of the 72 months I’d have the car paid off in full and have $20,102.36 left in cash. The government would give me $10,000 to buy the car on top of that. That would more than cover all the charging that I would have done in the 72 months with a ton left over. After my dividend income and the government tax credits, I’ll have paid only $31,201.64 for the car (plus tax and license, which I would have paid had I paid cash or financed.)
So, that made the Tesla affordable to me. Go test drive one. It’s mind blowing how futuristic they are. It’s like driving a car from the Jetsons.
BTW, I just want to point out, this entire exercise is essentially how FIRE (early retirement) people live. You take your cash, invest it in dividend paying assets and live off the dividends. It’s pretty simple once you build up enough cash. Let the power of compounding work for you.
Invest in peace…