If you track your expenses, you probably already know that cars are pretty expensive things to own. After you account for depreciation, gas, maintenance and repairs, property taxes, and everything else, you can easily be spending between $2,000 to $15,000 per year. I think we have done a decent job at optimizing our vehicle choices and even then each of our vehicles cost more than $2,000 per year. Use the links below if you want to see the breakdown of those costs for our own cars:
Back in September of 2017 I replaced my old 2000 Hyundai Tiburon for a 2014 Nissan Sentra. The Tiburon had over 130,000 miles on and it was nearing its 18th birthday. Also the fact that it was a coupe made it inconvenient to get the child safety seat in and out of it. All in all, it felt like the right time to let the Tiburon go. At first, there was no plan to purchase another vehicle. Since we both live close to our jobs we wanted to experiment with having just one car.
The experiment went on for about three weeks. One of us (usually Elisa) would bike to work and the other would take the car. Our daughter’s childcare is very close to our house so walking there is not a problem. I even worked from home on a couple of rainy days, and an Uber/Lyft was only a few finger swipes away if we ever needed it.
So… why in the world did I get another car?
- Convenience and weakness – it is probably not hard to see how having a second car can be convenient. I might not be able to work from home every single rainy day. Also, September’s weather is usually great. Would we be able to bike to work as much in the freezing temperatures that were sure to come? Less daylight during the winter days was another problem. Last but not least, having a 1 year old baby makes life somewhat unpredictable (diaper accident when you are already late for work, anyone?). So it is nice to have a powerful, climate-controlled gigantic wheelchair ready to go in the garage. The weakness part is my own self-deprecating way of saying that we succumbed to lifestyle inflation in this area of our lives. We have lived with two cars for so long that going down to just one was difficult. Difficult enough that we didn’t do it this time around. Maybe we will try again in the future.
- Current financial situation – our efforts to spend our resources intentionally during the last few years are paying off. We are in the fortunate position of being able to buy a car in cash and only take a minor hit to our net worth. So at this point, buying the extra convenience of a second vehicle wasn’t very painful, financially speaking. If we had faced this dilemma earlier in our journey, the outcome would have been different. As you know by now, spending all of your money or more than all of your money (i.e. getting a loan) on a car is not a great idea.
With the why out of the way, let’s explore at how we tried to optimize this decision. Hopefully, you can take something away from it and use it next time you need to buy or sell a car.
Selling a Car
Getting the most for your current vehicle is just as important as not overpaying for your new one. Probably the biggest pitfall to avoid here is to trade-in your car at a dealership or a place like CarMax. Fun story, I first took my Tiburon to CarMax about 5 YEARS AGO, they offered me $750 dollars for it (spoiler alert, I sold it for more than that a few months ago). So when I got a quote from them this time around I wasn’t expecting anything great but I was still a little offended when they offered a whopping $350! I could have probably gotten more than that by selling it to a junk yard. I wasn’t going to accept that offer so here is what I did instead.
- Understand what your car is worth: Kelly Blue Book is a great place to start. All you need to do is enter your vehicle’s information (make, model, year, mileage, features, options, etc.) and get an estimate. You can also search Craigslist for local listings of similar vehicles if you want additional data points. Ultimately, a car is worth what someone is willing to pay for it but the two sources above are good starting points. When you have a good feel for what your car is worth, set the price a bit higher than the minimum amount you are willing to sell it for since the buyer will probably try to negotiate the price down. I ultimately set my price at $1,300, and I would have probably sold it for close to $1,000.
- Create a solid ad: doing so will help you sell your car quicker and for a better price so make sure to invest a little time here. Make sure to keep the ad short and to the point, bullet points work great. Disclose everything you know about the car and be honest. Not only it is the right thing to do but it will also save you and the potential buyers a lot of time. Last but not least, take good photos of the car from every angle, one of the odometer, and a few of the inside. You don’t need to do anything particularly fancy, just make sure the pictures have good resolution, are not blurry, and take them outside with good daylight. While you are doing this, you are probably going to be looking to buy a car yourself and you will notice that there are great ads and terrible ads. Emulate the good ads and learn what not to do from the bad ones. Again, no need to sweat it too much, I took mine with my phone and my car sold quickly and for a good price. Here are a couple of the pictures I used on my ad:
Once you have your ad you can post it to several sites. I personally posted it for free on Craigslist, Facebook Marketplace, and Car Gurus. The guy who bought the car found me through Craigslist, but I also got leads from the other two places.
- Meeting with buyers: if you have priced your reasonably and created good ads, buyers will start contacting you soon. Make sure to promptly respond to questions, and set up appointments with people who are interested enough to come see the car. Have a “minimum I’d sell this thing for” price in mind so that you can turn down low ballers and be ready to move when a good offer comes in. I had set my price at $1,300, and I was willing to sell for about $1,000. I ended up selling the car for $1,150 to a father who was buying the first car for his teenage son.
- Closing the transaction: before is all said and done, make sure to understand what it takes to legally transfer the title to the buyer. In North Carolina you have to sign and notarize the title before handing it off to the buyer. Your state’s DMV website should have all the information you need to know. Last but not least, make sure to only accept cash or a cashier’s check. If the buyer insist on paying with a personal check, let them know you will not hand over the title until the check clears. Or, even better, meet the buyer at their bank with the personal check and have them cash the check. You can then accept the cash or have a cashier’s check made out to you.
That sounds complicated, is all the above worth my time?
That is an excellent question! In most cases I’d say yes but do your own analysis. Here is mine: I got an extra $800 from selling the car to a private party over selling it to a dealership ($1,150 – $350). The whole process took me at most 5 hours, which means I made $160 per hour by going through this process. As of this writing, I make way less than $160 per hour so it seems like a win to me. As a bonus, I now know how to sell a car, can share the knowledge with you, and benefit from it again whenever I need to sell another car.
Let’s move on to the buying side of the transaction.
Buying a Car
Hopefully you are already aware of how buying used cars over new ones can save you gazillions of dollars (seriously) over your life time. If you don’t believe me, see the numbers for yourself:
Based on having just bought my third car, here are the key lessons and takeaways.
Understand your needs and do your homework: begin by writing down what you need out of your car. Here is my own list:
- Safe and reliable transportation
- Efficiency and low maintenance
- 4-doors (for ease of getting a child seat in and out of the back seat)
That’s it. I wasn’t looking for a status symbol, a toy, or high maintenance gas guzzler. Once you are clear on what you need, narrow down your search to make and models who satisfy those requirements at the total lowest cost (A.K.A. consider maintenance, depreciation, etc. and not just sticker price). If your needs are similar to mine and your trust my research, here are some the models that best achieve all of the above:
- Honda: Fit, Civic (5 to 9 years old)
- Toyota: Yaris, Corolla, Prius (5 to 9 years old)
- Nissan: Versa, Sentra (4 to 8 years old)
- Mazda: Mazda 3 (5 to 8 years old)
- Hyundai: Elantra (4 to 8 years old)
Research reliability ratings and owner reviews of models you are interested in, and narrow things down to list similar to the above.
Take your time: buying a car is a fairly big purchase, don’t rush it. Start searching on Craigslist a month or two before you actually need to buy your car. This will allow you to get a feel for the local market and be more confident when the time to move comes. For example, I learned which local dealers tend to offer better value. I have also noticed that private party sales where the ad says something like: “I’m moving out of town, need to sell ASAP” are worth exploring. Quick word of caution on Craigslist: look out for scammers. Some major red flags include prices that are too good to be true, and sellers from out of town who ask you send them money before you can even see the car. If you are buying from a local dealer, you can look them up online, check reviews from customers, etc. I was able to narrow my list of best dealers to just three local ones. I also kept an eye of private party listings.
Look at the CarFax, Autocheck, or similar report: most used car dealerships provide these reports online for free nowadays (private sellers may provide them too if you ask). Here you are looking to eliminate cars that have been on serious accidents, floods, etc. (unless you are a seasoned mechanic who can exploit this to your benefit, I am not). I also tend to avoid cars that have previously been owned/driven far up north since the constant salting of roads can lead to cars rusting faster than southern counterparts. Last but not least, car reports can provide valuable insight into a vehicle’s maintenance history (or lack thereof).
Test drive and get an inspection: After doing the above for at least a couple of weeks you will have a great feel for the local market and be ready to move when a good deal comes up. Your next step would be to go see the car in person and take it for a ride. Test driving a car can uncover potential problems. I like many of the tips included on this list. If you can’t disqualify a vehicle solely based on the test drive, your next step is to get it inspected by a mechanic.
Many auto shops will offer this services for $25 to $100 depending on the place and on how in-depth the inspection is. I was actually on my way to a $75 inspection for my new Nissan, when my wife spotted a small mechanic shop on the side of the road. We decided to stop and ask. After talking to the owner he said he would do the inspection for free if we would consider them for future business. After the inspection was all done he said the car was in great shape and that the only thing that the car would need in the short term is new motor mounts. It is common for the mounts to wear off every 60K-80K miles so no big deal. He was able to print me a quote that said the car would need ~$300 worth of work soon. I thanked the mechanic and gave him $20 as felt guilty not paying for his time. Even if the inspection costs $100 is an expense worth making as it could save you lots of money and headaches down the road.
Negotiate: with all the knowledge you have gained from doing all of the above, you will be on solid grounds to negotiate. Not only because you want a lower price (the seller doesn’t care about what you want), but because you are confident what the car is worth. For example, I was able to reduce the initial asking price of the car by $300 because of the results of the pre-purchase inspection. I also negotiated the price down by another $100 because the car had been up for sale for over 60 days, so the dealer was probably eager to get it off the lot. After all of the above I walked away with a 2014 Nissan Sentra (76K miles) for $8,300, including all taxes and fees.
I’m by no means a car expert. There are people who have lower costs of ownership than mine. There are even people so skilled that they can own a car for $0. My point in saying all of this is that you don’t need to do things perfectly to come significantly ahead, so don’t be intimidated by not knowing it all right now. I had no idea how to sell a car before I started this process. Take it one step at the time and don’t be afraid to push yourself out of your comfort zone.
Hopefully you can use some of the knowledge and tools from this post to come tens of thousands of dollars ahead of the average American. When people ask how my wife and I have amassed a six-figure nest egg while most of our peers live paycheck to paycheck, I can confidently say our car choices are responsible for about $65,000 of the total. And remember, this is just over a 6-year period, the amount over a life time is easily in the millions of dollars when you account for the compounding returns of investing those savings.
Thoughts, questions, anything to add? Would love to hear from you in the comment section below! 🙂