At some point in your life as a business person, you may grapple with the question of, should I buy a house first or a car? Incidentally, this is one of the most divisive debates out there.
To questions like these, there are no definitive answers. It all depends on several factors such as your financial capabilities, most pressing needs, and outlook on the future.
Considerations To Make Before Buying A House Or Car First
As someone whose decision will hugely impact your business, you need to consider a few of the following things before answering the question, should I buy a car or house first?
Appreciation or Depreciation of the Asset
Of arguments in favour of buying a house first, this is the strongest. In fact, that is why an overwhelming majority of personal finance experts prefer starting with a house first.
Like many other real estate pieces, a house keeps increasing in value. Even though the markets fluctuate from time to time, the value of houses usually keeps going up with each passing year. And so, with time, you will find yourself building greater equity with each mortgage payment that you make.
By the time you complete the payment, your house will be more worth more than you paid for it. Therefore, if it is a business asset, you can see what that will do to your balance sheet.
The opposite is true for the car. A car is a depreciating asset. And the rate of depreciation is significantly high. Usually, a brand new vehicle sheds about 11 percent of its value when it leaves the showroom. After a while, the same car will be worth roughly 37 percent of its original cost.
So even if you have it in your business books as an asset, its equity keeps dropping as the value inevitably edges closer to zero.
The maintenance costs of these two assets are different. Maintaining a house is not as expensive as maintaining a car.
Houses do not require regular repairs like cars. And if anything, most home repairs can be taken care of by the owner without professional help.
This keeps the cost down. Most experts put the annual maintenance cost of a house at between 1 to 4 percent of the value of the home.
Also, any update or improvement you do to your home works to your advantage. For example, upgrading or expanding your kitchen or adding an extra bedroom only increases your house’s value. In other words, any dime spent on your home is money well spent.
With cars, the cost of maintenance is more. For example, a vehicle needs to be fueled and serviced regularly.
Furthermore, the older the car gets, the more of a liability it becomes. You might find yourself forking out a lot of money on servicing, repairs, and replacement of parts because of the wear and tear.
Also, you cannot recoup them later. Worse still, some upgrades may even make your car harder to sell when the time comes to dispose of it.
So, if you have to get money from your business to maintain these assets, you can already see which option will hurt your balance sheet more.
A house is an avenue to build long-term wealth. To begin with, with a house, you can take equity in the property and use that money for other things.
For example, if your business needs capital for expansion, you do not have to look further than your house. Actually, you can even use that money to buy a car if it becomes an absolute necessity. So it makes sense to buy a house first because of the potential it offers.
Also, there are very many lucrative ways to generate income with a house. Today, for example, you can take advantage of the short-term rental market to make money. You can list your house on sites like Airbnb, and reap handsome rewards. With this new income stream, you can use that money to pay off your mortgage and even keep some money to support yourself and your business.
While it is also possible to generate revenue with your car, the fact that it is a depreciating asset means that the revenue potential is lower than that of a house. For example, you can join ride-sharing and cab-hailing services like Uber. However, this will only make you some money in the short term. But as the car ages, you may find that sometimes you are spending more on maintenance.
So Should I Buy a Car First or a House?
Before making any decisions on what to buy first, you need to you ask yourself the following questions first;
Are There Better Alternatives?
Before buying a house or car first, you can find out whether there are better alternatives. For example, is it easier to rent business premises or live with your family instead of buying your own house? Or, is it better to get your own place and start paying your own mortgage instead of paying rent on someone else’s property?
It is important to note that a car offers convenience and ease of mobility. These are important things for someone doing business. But, the emergence of ride-sharing and cab-hailing services like Uber means there are other cheaper and convenient options. You can still use them for things like deliveries and fetching supplies.
Which One Makes More Financial And Business Sense?
Before you get into any financial commitment, you need to establish the impact it will have on your liquidity and that of your business. For example, a house requires a bigger down payment compared to a car. Also, buying a home may mean getting yourself into a long-term financial commitment that may take very many years to accomplish. Are you able to do that?
On the other hand, purchasing a car is a shorter and less scary financial commitment. And you do not need a lot of upfront cash to purchase a car. It is even possible to pay it all off at once in some cases. But will it add value to your business?
How is My Credit Standing?
A final thing to keep in mind when deciding if you should buy a house or car first is your credit score. This is if you plan to acquire your house or car on loan as most people do. It is important to consider your credit standing.
Can it allow you to get what you want? For example, to get a mortgage loan approved, you need a very good credit score.
On the contrary, getting a car loan is much easier. So if your credit standing is not good enough for you to get a home loan, you may start with getting a car loan to boost your credit score.
A healthy credit score is important for someone in business because it allows you to access financing. Also, with a better credit standing, it becomes easier to buy a house.
Again, whatever you choose to do, make your decision based on hard facts and not emotion. The option you go for should impact both your life and business positively.