How much did I pay for my car?

I have a sort of philosophical question for you guys... Here are the facts:

1. I had a really clean 1998 Honda Prelude Type SH that I bought not-running. I fixed it myself and owned the car for $5000 when it was all done.

2. I then found a 1997 Boxster for sale for $8000 but I talked the owner down to $7800. In the process, he mentioned that he was looking for a Honda Prelude... In the end, we swapped cars. That was four months ago.

3. Recently, the new owner of my old Prelude sold it for $7500.

By my logic, I paid $5000 for my Boxster, because that is how much money I had to earn and pay out of pocket, for the Prelude. I swapped the Prelude for the Boxster, so to me, I paid $5000 for the Boxster.

My wife disagrees. She says that because the Prelude clearly was worth $7500 (as evidenced by the new owner's subsequent sale price), I have to consider that I effectively paid $7500 for the Boxster, as that is how much "automotive equity" I gave up in order to own the Boxster in question.

To me, I paid $5000, because that is how much money actually came out of my bank account and the $7500 is purely theoretical. What do you guys think?

you spent 5000 on the prelude. some of the work you did (probably the part where you got it running) caused the car to appreciate in value. you could have sold the prelude for 7500 but instead you traded it straight up for a boxster. the dollar value of the car you traded for the boxster was 7500.

sorry, you didn't somehow magically talk the guy into selling his boxster for 5000 bucks. kinda makes sense that he didn't go from 7800 to 5000, right? if you had only traded him 5000 worth of car for the boxster, he either ripped you off, or did some nice upgrades to make it magically worth $2500 more in 4 months.

$7500 theoretically, but any business person will tell you something is only worth as much as somebody is willing to give you for it.

He could have also turned around and sold the prelude for 3500. Would it then be a 3500 boxster?

I think you are right. You are 5 large lighter, and one boxster heavier. You paid 5000 for the car. Take it to extremes. What if I had a 1000 dollar car, and some schmoe traded me for a 100k house. Is the car now worth 100k? No. So, your right. Is your wife mad because you spent 7500 on a car?

Joey

You paid $5K for the Boxster, as you mentioned, becuase that is what came out of the bank. You however, traded essentially $7500 for the Boxster.

So while she is right, in that you paid $7500 for the Porsche, effectively, with your work and elbow grease, you created $2500. So be proud that through your own skill and effort, you reduced your cash outlay by 1/3. So you didn't give up "automotive equity," you cashed in $2500 of "sweat equity."

Now KBB tells me, in my zip code, a Boxster is worth $7400 in trade in "Good" condition. So you didn;t get ripped off either. I would venture private retail on that Boxster is a little more than that. Here, KBB says $9,300. So if you follow her logic, which is solid, you have actually created over $4,000 in automotive equity through effort, work and some decent bargining.

So tell her she is right, and then tell her that according to her logic, you (use the collective you, as in the both of you) now have 4,000 in automotive equity. and even if you stick with the $7K in the porche, you are still$2K ahead.

Then treat her to a nice Sonic meal in your cool convertable, tell her how great she looks great in it and enjoy your automotive savvy.

Good show.

joey48442 wrote: Is your wife mad because you spent 7500 on a car? Joey

No, we just disagree on the finances...

Mental wrote: So if you follow her logic, which is solid, you have actually created over $4,000 in automotive equity through effort, work and some decent bargining. So tell her she is right, and then tell her that according to her logic, you (use the collective you, as in the both of you) now have 4,000 in automotive equity.

Mental, you are brilliant! I may have to quote you when it comes up again...

actually, the way i see it, if you factor in actual driving,you may have paid nothing for the boxter, unless you didnt get 5k worth of driving out of the prelude...

i bought my civic for $500, put $400 into so far, but also have logged 35,000 miles on it since i bought it, it paid for itself in the first three months or so in reduced fuel costs. if i turned around and traded it today for a $2500 car (which is around what my civic is going for around here) what ever car i got would be a freebie really, as just driving the civic has put $200-$400 extra in my pocket a month (depending on gas prices) compared to what i was spending pre-civic. when i trade or sell it, whatever i get will all be gravy as far as im concerned, of course ill want as much gravy as i can get, but still its all gravy...

so tell the little lady anything spent on the prelude was just the cost of having a normal car, which you would have spent anyhow, and by trading it you got a free Porsche, congrats!

I like to think in out of pocket terms. You spent $5000, because you spent $5000. You can speculate all day long on how much stuff is worth, and the number will be different for just about anyone you ask. If you wanted to get really technical, to determine how much you actually spent, figure how many hours you spend on the prelude, determine how much you are worth per hour, and add it to the $5k. If you had fun working on the prelude, you spent $5k. Years ago I bought a friends Escort for $50 because it needed a head gasket. I fixed it, then traded it for a bad ass '71 CB750 that came with two parts bikes, but needed a little work. Now I'm riding a bad ass CB750 that I have about $450 invested in, $50 for the Escort, $100 for parts to fix the Escort, and $300 for a Dyna ignition and coils for the bike, because I hate points. I could care less what any of it is worth, I'm riding a totally sweet bike that I've got only $450 in!

Well, it's $5000 adjusted for inflation since the time you owned it.

But yeah, good jorb!

joey48442 wrote: He could have also turned around and sold the prelude for 3500. Would it then be a 3500 boxster? I think you are right. You are 5 large lighter, and one boxster heavier. You paid 5000 for the car. Take it to extremes. What if I had a 1000 dollar car, and some schmoe traded me for a 100k house. Is the car now worth 100k? No. So, your right. Is your wife mad because you spent 7500 on a car? Joey

you have it backwards in your example. if he had traded a 1000 dollar car for a 100k house, isn't the house worth 1000 dollars? thats his cash outlay, so that must be what its worth, right?

if we were going to fmv the car, i dont think we could just ignore the recent sale of the car for a known value because it doesn't make us look as smart. you added value to the prelude to the tune of 2500 dollars. you said you bought the 'lude not running and had 5000 in it in parts and repairs at the end. the same thing happened with it that happens when people DIY a deck or bathroom or kitchen upgrade. value added through sweat equity.