A finance question.

j_wilson · September 19, 2006, 08:14:58 AM

As a newbie, I was wondering about conversion financing. Let's say you found a very nice conversion with less than 100,000 miles, garage kept and in such good condition that it looks like it's never been used and it is a 1990 model coach(your choice here). Ok, now this coach isn't one of the high end models like Featherlite, Marathon, Liberty and the like. And it isn't a homemade conversion that someone built in their backyard (mind you some backyard models look better than some highend models). But this coach when new, was built by a conversion company with a good reputation in which they built entertainers and motorhomes. Are there lending instituions that will let you finance a motorhome like this or will you have to use equity in your home, lottery winnings or the like to obtain this conversion? I know some places will finance older highend conversions up to 10 or 15 years old, I think? Also, I noticed that some conversions might say "2001 conversion" but it looks like the bus used in the conversion was a 1975 GMC Buffalo. Was the title changed to reflect the newer year to be able to finance the coach? Thanks any help will do as I'm a little confused and was wondering how you guys did it.

J. Wilson

Paso One · September 19, 2006, 03:46:48 PM

Hi jwilson Everybody on this web site has buckets of money so nobody finance 's anything so you will be hard pressed for a answer.

...... just kidding. To answer your question with a Canadian spin when you import a converted bus the year it was converted is the year our gov't requires the bus to be brought up to standards. There is ways around this but thats another topic..

If I was you I'd use the year it was converted when your on your knees to the banker.

I bumped it to the top

gumpy · September 20, 2006, 05:13:55 AM

I don't have any personal experience here, because I'm paying for my bus as I convert it, but this question has come up many times over the years, and the concensus seems to be that you will be hard pressed to find a banker who will be willing to lend you money on an old converted bus. You may be able to find a banker who will lend money on a newer, conversion, if it was done by a professional, well known company (i.e. motorhome). You may also be able to find a banker who will lend you money on an unsecured personal loan, but probably only if you have a previously established relationship with them, and you'll likely pay much higher interest rates because of the risk.

The general concensus seems to be if you can't afford to pay cash, the best alternative is to tap home equity loans and deduct the interest. Granted, the interest you would pay on any financing you obtain to purchase the bus would be deductable as a second or vacation home, the problem just seems to be that you can't find financing to buy the bus, so the home equity line becomes a logical substitution and still provides some tax benefits.

If you have equity in the house, it might make sense to make use of it. Let your money work for you.

scanzel · September 20, 2006, 08:21:37 AM

J. Wilson this is my comment. If you do use equity in your house for a loan remember that if you should buy a conversion needing upgrades or a bus to convert and you loose interest in the project and then try to resell the vehicle, you will most likely loose money on the deal and you will still have a loan to pay off with nothing to show for it. On most equity loans you are only paying back the interest each month not the principal so you need to add extra dollars into the figure.
Good luck on your search but plan wisely.

Buffalo SpaceShip · September 20, 2006, 08:27:38 AM

I was able to get an RV loan this year for our converted bus, since we needed some cash for other things. They just used the appraisal that we had to get for full insurance coverage, and we didn't have any trouble at all. I'm sure it didn't hurt that the amount that we borrowed was less than half of the appraisal.

BTW, Mark Koch at Automotive Appraisals did a great job on our apprisal. Very thorough, although it came out way more than the market would probably bear.

FYI: my bus is a '78 GMC Buffalo and the conversion was finished in 2001 (not by me). Just a basic conversion, probably not near as nice as the ones you're describing. So I don't think you'd have any problems getting a loan. I can't remember which date (chassis or conversion) was used on our loan, but I'll try to find out.

HTH,
Brian

Ace · September 20, 2006, 01:36:08 PM

I'm on my 3rd bus and second conversion. The first bus we got for a pretty good price and paid for it out of of pocket. Before we got around to converting it over (we did strip it out to a shell), we purchased another partially converted different model bus and I was WARNED that ONE of them had to go!

I advertised the first bus and sold it pretty quick. To acquire the 2nd bus I had Susan tap into her 401k at her work. We were our own bank so to speak and we were able to make small very affordable monthly payments BACK into her 401k account. Well as time went on and the 2nd bus was completely converted, I git the itch (thanks to some dear friends) to get yet another newer (most recent) bus and did the same deal again. Bought the 3rd bus using the 401k account again but this time I was REALLY warned that if I didn't sell the 2nd bus byu the time the first payment came due that it was ME that was going to have to pay it. Lucky as it was, I sold the 2nd bus in just 6 weeks, a few days shy of that first 401 payment. WHEW! Anyway, the 2nd completed bus was sold with enough profit to pay for the recent bus we have even though it was just a shell when we bought it. Everything we have done to it up to today has been done with out of pocket money so when the conversionis completely done, the bus will be completely paid for and THAT time is getting really close! YEA!

If you have a source for a 401, use it! Your actually loaning yourself your own money and paying back to yoursef with no penalties. You DO have to be on time though!

Ace

belfert · September 20, 2006, 03:11:47 PM

Be warned that if you tap a 401k that you may have to pay it back immediately if you leave your job.

Brian Elfert

H3Jim · September 20, 2006, 04:25:37 PM

and of course the interest you pay yourself for a 401k is not deductible when you pay it, and you will pay income tax on that same $ when you withdraw it. So you actually pay income tax twice on the same $, that portion of the 401k re-payment that is interest. And you have to pay some interest, part of the regs I believe.

You also have lost opportunity cost - if the market goes up while you have the loan, you can really lose a lot, if it stays even or goes down, its not so bad.

Brian's comment about having to pay a 401k loan back if you leave your job for any reason is also true. If there is any risk of getting laid off, its a double whammy, no job, and have to pay back a loan right now or incur penalties and taxes that can end up being close to 60% of the outstanding balance. Its really punitive.

A home equity line can also be just as flexible, but without as much downside. As Scanzel suggests though, make sure you pay lots of principal down on the loan too.

But you knew all that...

belfert · September 20, 2006, 05:27:43 PM

Quote from: H3Jim on September 20, 2006, 04:25:37 PM
and of course the interest you pay yourself for a 401k is not deductible when you pay it, and you will pay income tax on that same $ when you withdraw it. So you actually pay income tax twice on the same $, that portion of the 401k re-payment that is interest. And you have to pay some interest, part of the regs I believe.

I just checked the regs for a loan from my 401k online. They only tax the loan amount as a distribution if you default on the loan.

I wouldn't consider a 401k loan for myself since I am almost certain of a layoff in a few years. The newspaper business is going straight downhill in a hurry and though the business is still very profitable today, the stockholders are eventually going to want to see more expense cuts unless there is an unlikely turnaround. (Newspapers make WAY more profit as a percentage than oil companies, but nobody complains because the sheer dollar amounts are several orders of magnitude lower.)

Brian Elfert

Busted Knuckle · September 21, 2006, 12:24:59 AM

Quote from: belfert on September 20, 2006, 05:27:43 PM
Quote from: H3Jim on September 20, 2006, 04:25:37 PM
and of course the interest you pay yourself for a 401k is not deductible when you pay it, and you will pay income tax on that same $ when you withdraw it. So you actually pay income tax twice on the same $, that portion of the 401k re-payment that is interest. And you have to pay some interest, part of the regs I believe.

I just checked the regs for a loan from my 401k online. They only tax the loan amount as a distribution if you default on the loan.

I wouldn't consider a 401k loan for myself since I am almost certain of a layoff in a few years. The newspaper business is going straight downhill in a hurry and though the business is still very profitable today, the stockholders are eventually going to want to see more expense cuts unless there is an unlikely turnaround. (Newspapers make WAY more profit as a percentage than oil companies, but nobody complains because the sheer dollar amounts are several orders of magnitude lower.)

Brian Elfert

Darn Brian, I always wondered what type of field you were in, but news paper wasn't even close to what I'd imagined! Of course nobody suspected Clark Kent of being Superman either ! LOL! I just had figured you were into like engineering or something in the airplane or simular industry with the rocket projects an stuff! LOL ! I guess I way off ! BK

gumpy · September 21, 2006, 04:48:18 AM

Another option is the Roth IRA, if you have one. Since the principal investments are made after taxes, you are able to withdraw the principal amount without incurring penalties or taxes, even if you have not reached age 59 1/2. I think it has to have been in the account for 5 years to qualify for this, though. Any earnings that money has generated must remain in the account, or you will be taxed and penalized heavily on that (if you are not 59 1/2 or older), but the initial principal might be available for you to use on a bus. This is not a loan, and cannot be put back into the account once removed.

Personally, I don't advocate using retirement savings in this manner, though, unless you have a considerable amount of $$$ locked up in retirement funds.

belfert · September 21, 2006, 04:56:57 AM

Quote from: Busted Knuckle on September 21, 2006, 12:24:59 AM
[Darn Brian, I always wondered what type of field you were in, but news paper wasn't even close to what I'd imagined! Of course nobody suspected Clark Kent of being Superman either ! LOL! I just had figured you were into like engineering or something in the airplane or simular industry with the rocket projects an stuff! LOL ! I guess I way off ! BK

I'm not a reporter or anything like that. I work in the IT department supporting the servers that make everything run. Nothing too much different than working in the IT dept at any large corporation other than generous benefits.

Brian Elfert

Ace · September 21, 2006, 06:01:41 AM

I agree that using your 401 is, or could be a little more costly than your normal loan but... being in a company going on 26 years and being fully vested for quite some time, there was a considerable amount in the account doing really nothing and I might add, there was NO chance of being layed off! As long as you make the payments or in our case ONE payment (due to selling of 2nd bus) the money is easy accessible and you really don't have the banks or loans officers to deal with. A simple phone call and go buy your bus or whatever it is you want! We borrowed it and returned it, all within 6 weeks, just shy of making the very first payment. Lucky for me!

FYI, all the money that was used from the 401 has been returned, in full, with NO penalties and a nice 1992 H3 Prevost sits out front of our house on the parking pad! Taxes? Yea, but who doesn't pay them one way or another anyway? Someone has to keep the nations account where it's at so it can keep sending checks to those that can work, but choose not to!

Ace

j_wilson · September 21, 2006, 08:18:56 AM

Well, with our 401K once I pull it out, I can't put any money back into it until a year later, so I think a 401 is out for me but in two years the company is making me retire and they are giving me a 25K bonus to leave early. (My job is going south of the border....) That is why I am asking about financing or if there is a way to do it if I get a conversion. That way I hope it won't hurt to bad on the wallet. And it would make my life a little bit easier. I was hoping to find a descent conversion and use the bonus as a good down payment and finance the rest. Any other ideas would be great, so if you guys know anything else please let me know.

Busted Knuckle · September 22, 2006, 11:53:52 AM

Hey Wilson,

DO it yer way! But if it were me an I knew I was going to be forced into retirement or laid off I'd do it now! Banks and lendining institutions are hesitant to lone $ to someone who's just lost, or left their employment recently. As they don't have any history as to how the person can handle the bills on a "fixed" income verses what they've been making! FWIW! BK