Buying horse with loan? Is this common?

[PlanB]

[QUOTE=fordtraktor;8587990]
I don’t think it is sound financially to buy horses with loans. Or ski-doos or ATVs or any other recreational hobby. When I travel, I don’t go unless I can afford to pay it all off immediately either. I don’t finance things at all, other than our home, and we are paying that off as we can.

I don’t believe in financing recreation. Many people obviously do, but many people are also not very financially savvy and have leveraged themselves through credit card and other debt in a way that would make me very nervous. I grew up without a lot of money and I feel financially insecure with debt. I have seen too many people in very bad situations as the result of poor financial decisions and I have a lot of anxiety related to that.

Be careful about finances, it’s all fun until it is very much not.[/QUOTE]

It really doesn’t mean that anyone is being irresponsible with their money.

People who HAVE money don’t generally leave it sitting in a savings account where it is easily available but making no interest.

It can often make more sense to finance things at a lower interest rate if your investments are locked in at a higher interest rate, or if you need to bridge the gap between purchasing your item and the term of your investment ending so that you don’t pay penalties for withdrawing it.

Obviously that would apply more if you are using a low-interest LOC rather than a credit card cash advance.

[fordtraktor]

I understand how and why people might choose to finance, and why people who make quite a lot of money still end up financing quite small purchases. However, it’s not the way I’ve chosen to run my finances and I still don’t think it’s sound.

I’ve been making a comfortable amount of money for quite a while and I’ve never found it all that difficult to set cash aside when I plan to buy a horse, travel, do a farm project, whatever. You have to decide what to do with it before it gets invested (outside the part that gets automatically invested in 401(k)s and 529s etc). but YMMV. I think it is certainly possible for most people that make decent money to purchase things outright if they choose to do so.

FWIW, I know plenty of people who did what you suggest, then lost their good jobs and had to file bankruptcy because their monthly commitments were far too high. again, it’s all fine until it isn’t. That is why I try to keep my monthly commitments low (and our mortgage could be afforded on one salary). Not everyone has to buy into a conservative financial approach but I think it is a sound and comfortable way to live.

If you know any accounts of any type making interest please post them, I was not aware they exist these days. You might as well leave money in a savings account as put it in a CD or money market the yield is so pitiful. My DH jokes that I would prefer burying money in Mason jars in the backyard, and at this point I believe I could convince him that is a sound investment strategy given its equal rate of return.

Things that are not sound: buying $150k ASBs leveraged against your home, I think we can all agree…

[Zipsmom]

[QUOTE=Halt Near X;8587955]
Out of curiosity, why were you ok doing installment payments to a seller but not to a bank?

Was it just the free interest that people tend to get if they go through the seller?

I’ll caveat this by saying I’ve done installment payments to buy a saddle with someone in the barn, and yes, the free interest was nice. She also knew me and we both knew it was a low risk situation for her.

I’d never ask the same of a stranger–I would always go through a bank if I felt the need to buy something else on payments (horse/saddle/whatever) because I don’t think the risk is fair to the seller otherwise. They are having to act as a bank with none of the rewards (interest) that a bank gets for assuming the risk.

I’m just curious about the other perspective on this.[/QUOTE]

She just said that she would take payments of XX/month on the balance- a handshake deal, till he was paid in full and then sign over the paper to me. If it makes it any clearer this was a deal between two friends (and yes, we are still friends).

[fordtraktor]

One interesting thing about money too is that it often doesn’t last. I used know someone with a company that was in generational wealth management – basically they help people try to manage their trust funds. One of the challenges is perpetuation. Many/most of those fortunes? gone in under three generations. “Old money” doesn’t flaunt it because that’s how you keep money in the family. The big spenders don’t continue, at least here in the US. It was pretty fascinating.

[meupatdoes]

[QUOTE=fordtraktor;8588023]

If you know any accounts of any type making interest please post them, I was not aware they exist these days. You might as well leave money in a savings account as put it in a CD or money market the yield is so pitiful. My DH jokes that I would prefer burying money in Mason jars in the backyard, and at this point I believe I could convince him that is a sound investment strategy given its equal rate of return…[/QUOTE]

People make money of the $$$ they have sitting in their brokerage acvounts.

Let’s imagine they have $10 million sitting in brokerage, earning $600k.

They want to buy a $5 million home.

If they take the full purchase price out for the home, their income goes down to $300k.

If they finance the house, the money still sitting in brokerage will continue to earn, ideally more than their home loan rate, and they will have 6% of it to continue to live off of while they pay off the house over 30 years.

Not all leverage is bad leverage.
Imagine you inherit $100k
You can use this money to purchase two $50k rental properties in full, and they might net $20k per year (10 each). (Purchase price/net ratio not hypothetical, I am currently buying something close to this.) Not a bad return.

Now, if you do a 25% investor mortgage on eight houses, you will get roughly $70k (not quite 8x of $10k because now you are paying down notes). Same money gets you 7x. That is the beauty of leverage.

In the beginning you need debt to create (or preserve) income. Later on you don’t need so much leverage.

[meupatdoes]

[QUOTE=fordtraktor;8588023]

If you know any accounts of any type making interest please post them, I was not aware they exist these days. You might as well leave money in a savings account as put it in a CD or money market the yield is so pitiful. My DH jokes that I would prefer burying money in Mason jars in the backyard, and at this point I believe I could convince him that is a sound investment strategy given its equal rate of return…[/QUOTE]

People make money of the $$$ they have sitting in their brokerage acvounts.

Let’s imagine they have $10 million sitting in brokerage, earning $600k.

They want to buy a $5 million home.

If they take the full purchase price out for the home, their income goes down to $300k.

If they finance the house, the money still sitting in brokerage will continue to earn, ideally more than their home loan rate, and they will have 6% of it to continue to live off of while they pay off the house over 30 years.

Not all leverage is bad leverage.
Imagine you inherit $100k
You can use this money to purchase two $50k rental properties in full, and they might net $20k per year (10 each). (Purchase price/net ratio not hypothetical, income properties like this exist if you know where to look.) Not a bad return.

Now, if you do a 25% investor mortgage on eight houses, you will get roughly $70k (not quite 8x of $10k because now you are paying down notes). Same money gets you 7x. That is the beauty of leverage.

In the beginning you need debt to create (or preserve) income. Later on you don’t need so much leverage.

[PlanB]

Thank you for providing some great examples, mvp.

The people who have those types of investments are often the types that are buying the $150,000 horses.

[AirForceWife]

I guess I’m a little different considering I’d never finance something I couldn’t afford in the long run. This purchase was going to happen with or without my financial payout coming it just coincides with everything and the loan won’t stay active more than a few months. In my situation, the monthly payments and care for the horse was still very affordable.

[fordtraktor]

I understand perfectly – it isn’t from not understanding leverage that I don’t choose to leverage myself highly. I think it’s funny that you seem to think it’s from a failure to comprehend how it works that I don’t think it’s great. Far otherwise. I don’t think your last example is “the beauty of leverage” at all. having been involved in real estate and done deals with other people, NO THANKS! never again. Some go well, some don’t and when they don’t, it’s stressful for me even when I don’t have a lot at stake. I don’t want to make fortunes, just enough. I want to be happy more! Making lots of money to the maximum degree possible is not everything. nor is buying $150k horses. I want my family to be comfortable and safe and provided for and to have opportunity, and that’s enough.

I’m not saying that people ought to ascribe to my perspective and I hope I made that clear, just that this is how I like to do things.

Brokerage accounts aren’t the kind of cash account I meant, but the rate of return on those may or may not be better depending on the stock market. This year most of those haven’t done so hot. A risk-free account with a decent rate of return no longer exists like it used to.

[DMK]

I could see some leeway for a loan to buy a horse, but not much. My personal criteria would have to run something along this logic:

1. Significant down payment so loan exceeds depreciation for life of loan (you know, normal depreciation, not unexpected depreciation).
2. Do not assume appreciation of the asset - if at the end of the term the horse is worth original cost + interest, minus depreciation.
3. The interest rate is as low as possible (see #2) - this is a toughie, there really are no good interest rates on horses unless you are going into a HELOC…
4. If it all goes sideways I have investment income that could cover the loan, but there are compelling reasons not to touch that money at this time.
5. I could pay this off in a really short time, like 12-24 months
6. I could easily increase my loan payment by 50% (sure I might want to hold that money aside for vet bills or investing, but I could do it).

Which pretty much guarantees I will never ever ever take out a loan to buy a horse.

[Halt_Near_X]

[QUOTE=Zipsmom;8588087]
She just said that she would take payments of XX/month on the balance- a handshake deal, till he was paid in full and then sign over the paper to me. If it makes it any clearer this was a deal between two friends (and yes, we are still friends).[/QUOTE]

I understand that part of it–but then why wouldn’t you do a bank loan in a similar situation?

[BigMama1]

I guess I did use a loan to by my “regular priced” horse (2k-20k). Our mortgage was up for renewal at the time and we were taking out some equity to do some much-needed renovations. We took out enough extra to cover the purchase price of my horse.

I don’t keep that kind of money sitting around in my regular bank account, and it wasn’t a purchase I had necessarily planned and saved up for (right horse, right time, couldn’t pass up the deal). So my options were cash in some investments or use equity in the house. The investments are currently making anywhere from 7-10%, depending on the year, while the interest rate on our mortgage is 2.25%. Easy choice for me.

I got a part boarder and found a part time job doing stable work, which combined pays for my board and lessons.

In general I’m not a fan of buying things you can’t afford to pay for outright, but I’m also a believer that life is short and should be lived with joy. If you can find a way to do that and pay the bills go for it - whether it’s a boat, motorcycle, trip of a lifetime, whatever.

[clanter]

[QUOTE=PlanB;8588187]
Thank you for providing some great examples, mvp.

The people who have those types of investments are often the types that are buying the $150,000 horses.[/QUOTE]

and often these are grand parents buying for dearest granddaughter, we had a horse that became the target of multiple unsolicited offers while not a150K but six figures … they were dumbfounded when repeatedly told this was our kid’s horse not mine to sell… we kept her for her whole long life

[Zipsmom]

[QUOTE=Halt Near X;8588236]
I understand that part of it–but then why wouldn’t you do a bank loan in a similar situation?[/QUOTE]
This was easier. I certainly could have done a personal loan but since this was offered, I didn’t need to. But in general, I most likely would not get a loan to buy a horse. I would just keep looking for a horse priced in my budget

[fordtraktor]

Yeah, clanter, the people I know who bought $150k horses didn’t do it putting together petty real estate deals. They owned much bigger assets like coal mines, chemical factories, a few dozen car dealerships…and didn’t get em yesterday either. But I am sure lots of types buy expensive horses.

[meupatdoes]

[QUOTE=fordtraktor;8588223]
I understand perfectly – it isn’t from not understanding leverage that I don’t choose to leverage myself highly. I think it’s funny that you seem to think it’s from a failure to comprehend how it works that I don’t think it’s great. Far otherwise. I don’t think your last example is “the beauty of leverage” at all. having been involved in real estate and done deals with other people, NO THANKS! never again. Some go well, some don’t and when they don’t, it’s stressful for me even when I don’t have a lot at stake. I don’t want to make fortunes, just enough. I want to be happy more! Making lots of money to the maximum degree possible is not everything. nor is buying $150k horses. I want my family to be comfortable and safe and provided for and to have opportunity, and that’s enough.

I’m not saying that people ought to ascribe to my perspective and I hope I made that clear, just that this is how I like to do things.

Brokerage accounts aren’t the kind of cash account I meant, but the rate of return on those may or may not be better depending on the stock market. This year most of those haven’t done so hot. A risk-free account with a decent rate of return no longer exists like it used to.[/QUOTE]

It doesn’t make much difference to me what you choose to do or what you think is a good idea.

I am simply providing a counter example so the other people reading the thread can see another side of the issue.

People will always make their own decisions and I am not sure why you seem to feel, after you have just posted (several times) how you like to do things, personally offended when other people post how they like to do things. It is ok when other people post different ways of doing things and participate, as you did, in an open thread.

One of the clients I do business management for buys everything in cash and left $750k in checking for months. One wire could have sent it to the brokerage account to earn in the meantime but nope. Not what I would do at all but her money, her call.

[fordtraktor]

I’m not offended. I was explaining why someone might be fully aware of those facts and not want to leverage themselves like that. but take it personally if you want. I don’t really see the point.

[PlanB]

[QUOTE=AirForceWife;8588191]
I guess I’m a little different considering I’d never finance something I couldn’t afford in the long run. This purchase was going to happen with or without my financial payout coming it just coincides with everything and the loan won’t stay active more than a few months. In my situation, the monthly payments and care for the horse was still very affordable.[/QUOTE]

Did anyone here say they have financed something they couldn’t afford in the long run?

[right_horse_at_the_right_time]

What Meup says.

I borrowed money “from myself” to make an “investment” in myself.

Best move I ever made.

Best financial decision? Who’s to say? Work myself to the bone and not enjoy life until I can have x amount in savings/assets and never touch it?

Lol!!

Spent some time with people who are terminal and get back to me.

[PlanB]

[QUOTE=right horse at the right time;8589148]
What Meup says.

I borrowed money “from myself” to make an “investment” in myself.

Best move I ever made.

Best financial decision? Who’s to say? Work myself to the bone and not enjoy life until I can have x amount in savings/assets and never touch it?

Lol!!

Spent some time with people who are terminal and get back to me.[/QUOTE]

Cheers to that. And let’s not forget you only have so many riding years in your life.