It's no secret that real estate is generally a good investment, while cars are almost certainly not. I say "generally" for real estate because it is very possible to turn real estate into a terrible investment. Flippers, sub-prime buyers who can't handle the payment reset, and someone who overpays in a hot market are cases where real estate could end up a poor investment. When is a car a good investment? Well, almost never. I knew a guy in high school whose dad was a mechanic. They used to buy used cars, fix them up and sell them for a profit. In that rare instance, or perhaps selective collectibles, a car might be a worthwhile investment.
Otherwise, while they are both "use assets," a house is likely to make you better off in the long run, and a car is not. Again, no big surprise.
I was listening to Dave Ramsey today, as I often do if I am in my car during the afternoon. A 25 year old woman called in. I don't remember her name, but we'll call her Kathy. Kathy asks Dave if she should get an apartment or build a small starter house. Naturally, Dave asks her two questions, "do you have any debt?" and "how much do you make?"
Not long ago she was debt free, but just recently purchased a new car, and financed the whole thing. Also, she bought a small piece of land on which to build a small starter house. The car was $31,000 and the land was $20,000. She owes $31,000 on the car, and $16,000 on the land (she put $4,000 down). Her income is $43,000.
You can imagine what came next. "Sell the car," Dave instructed in no uncertain terms. "Today."
"Well," she kind of pleaded, "does it matter what kind of car?" Of course, we all know the answer. It's really not difficult. Spending 72% of your annual income on a car is just silly.
With the car payments, she would have a difficult time financing the construction loan for the house. Essentially, she was sacrificing a house for a car. Dave put her situation into perspective very effectively.
"You're 25 years old today, right? Let's say you wake up tomorrow and you're 35. Let's pretend that you're still single for the sake of simplicity. You may be married with a bunch of kids, but that doesn't matter. At 35, would you rather have a house that you are ten years into payments on, or a ten year old car?"
Well done, Dave. We don't even need to wait for the answer.