A vehicle that’s just for fun – a motorcycle, a Jet Ski, an RV – is a luxury that a lot of people dream of affording. Because many of these vehicles can be purchased with easy financing and low monthly payments, people may be tempted to buy and tend not to do as much research as they should before buying their new grown-up toy.
In fact, many people simply head to the dealership to buy a brand-new version of their dream vehicle. The special financing and low payments sweeten the deal. Unfortunately, the end result is usually an expensive lesson: You should do your homework before you buy.
Most People Don’t Use Their New Toy on a Regular Basis
Before we get to the math of why buying new is an expensive mistake, let’s cover the typical usage pattern for this kind of vehicle: When you first bring yours home, you’ll be excited to use it. You’ll likely take it out every weekend possible and enjoy using it through the first season. Next season, you’ll probably use it a handful of times; after that, you’ll use your toy less and less until it basically sits in storage until you decide to sell it.
Of course, there are people that experience different usage patterns, but the one above describes exactly what happened to my wife and I with our motorcycles. We used them a lot when we first got them, but after moving a couple of times and changing our priorities, the motorcycles sat in our driveway until they no longer ran.
Buying New Sets You Up for Massive Depreciation
Fortunately, I didn’t buy my motorcycle new, so I avoided the huge depreciation that’s common with these vehicles. Someone else had already paid the upfront cost of buying new, and I still got a motorcycle with plenty of life left in it.
On the other hand, my wife’s parents bought her a brand-new motorcycle that cost $6,799. We sold it roughly seven years later for $1,500, or 78% less than was originally spent.
Here are a few other examples of just how bad depreciation is for different types of vehicles after just a year or less:
- According to CamperReport.com, you can expect 21% depreciation on an RV the instant you drive it off the lot. That means a $50,000 RV would be worth only $39,500 as soon as you hit the road.
- According to Kelley Blue Book, a one-year-old Yamaha VX watercraft’s retail value is $7,655, compared with the current model’s $9,599 starting price, an approximately 20% decrease in value.
- According to Kelley Blue Book, a one-year-old Yamaha YZF-R6 motorcycle can be traded in for $7,560, while a brand-new model starts at $12,199, a loss of roughly 38%.
You Might Be Underwater When It’s Time to Sell
The worst part about depreciation is what happens when you try to sell your newly financed toy. Let’s say you opt to unload it after a year or two. You look up the value and decide to bite the bullet and absorb the loss. Unfortunately, to be able to sell the vehicle, you have to pay off the loan in full in order to transfer the title.
If you bought the vehicle for $10,000 and financed the whole amount, you might owe more than its selling price. Let’s say you still owe $7,500 on it but $5,000 is the best offer you get. To be able to sell your vehicle, you’ll have to pay $2,500 out of pocket in order to get a clean title and transfer it to the new owner.
Renting Is Usually the Better Choice
In most cases, renting a vehicle of your choice is going to be a better deal than buying a depreciating asset. While you likely won’t be able to rent one every weekend, doing so once in a while gives you more options while avoiding the expense of owning many toys.
For instance, you could rent a Jet Ski one month and a pontoon boat the next, or you could rent a large RV one summer and a smaller RV the next. If you find you truly love the vehicle and would continue using it on a regular basis, you can buy a used version, save on the depreciation, and know you’re not impulsively spending a lot of money.
Here are some examples of how much it costs to rent the three vehicles cited above, compared with the amount of depreciation you can expect in a year:
- That $50,000 RV depreciated $10,500 in the first year, but you can rent an RV for about $1,000 a week, with 700 miles of travel included.
- The Yamaha VX watercraft depreciated $1,944, but you can rent a Jet Ski for $129 an hour.
- The Yamaha YZF-R6 motorcycle depreciated $4,639, but you can rent the same motorcycle for $120 a day, with 200 miles of travel included.
Renting seems expensive if you don’t compare it with the cost of ownership and depreciation. However, after seeing how much these vehicles can depreciate, renting might not seem like such a bad deal.
Of course, the numbers will vary greatly depending on where you live, the type of vehicle you want to buy or rent, plus other factors, but now you can evaluate the decision ahead of time if you someday decide to buy one of these grown-up toys.
Do you prefer to purchase new, used or go with renting? Let us know in the comments below!
This post was written by Lance Cothern for CentSai, a financial-literacy platform for millennials and younger Gen Xers to help them make smart financial choices.
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