2022-12-08_How_to_Buy_a_Car_Part_5-The_Single_Best_Technique_to_Source_a_Quality_Used_Car
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00:00:30.600 | Welcome to Radical Personal Finance, a show dedicated to providing you with the knowledge,
00:00:33.240 | skills, insights, and encouragement you need to live a rich and meaningful life now, while
00:00:37.160 | building a plan for financial freedom in 10 years or less.
00:00:39.960 | On today's podcast, I want to share with you the single best technique for sourcing a quality
00:00:46.920 | used car.
00:00:48.760 | This episode, of course, fits into our how to buy a car series.
00:00:52.040 | In episode one of that series, I talked about how to decide whether you should buy a car
00:00:55.920 | or not.
00:00:56.920 | I want to encourage that if possible, without giving too much lifestyle, just skip having
00:01:00.920 | a car.
00:01:01.920 | Then, of course, acknowledging that most of us are going to choose to have a car for various
00:01:06.480 | reasons.
00:01:07.480 | We talked in episode two about how to decide what kind of car you should buy, and then
00:01:11.120 | episode three, setting a budget for that car, deciding how much you should spend on a car
00:01:15.960 | before you go and look.
00:01:18.000 | The natural outcome of the budget for many people is going to be that the decision about
00:01:22.800 | buying a used car or a new car is going to be fairly obvious.
00:01:27.200 | Remember that we're aiming for somewhere between around 10% of our annual income to as high
00:01:32.660 | as 50%.
00:01:34.640 | The lower the better for wealth creation purposes, as long as you can get a vehicle that's appropriate
00:01:38.560 | for your needs.
00:01:39.800 | That's our target in terms of overall spending, meaning amount of money to spend on a car
00:01:45.400 | across our household.
00:01:46.840 | Aiming for 10% if you're serious about wealth building, and up as high as 50% if your wealth
00:01:51.960 | building goals are more modest and you're trying to perhaps buy a vehicle that's not
00:01:56.360 | available at the lower end.
00:01:57.760 | If we think about these numbers, let's say you're earning $100,000, that 10% number is
00:02:02.080 | going to be about $10,000.
00:02:04.680 | If you're spending $10,000 to $20,000, you're going to be buying most likely a used car.
00:02:09.320 | On the other hand, if your annual budget, your income is $1 million a year, then of
00:02:13.120 | course you're almost certainly going for a new car to get all the benefits of a new car.
00:02:17.300 | Not really much of a reason to go for a used car at that budget.
00:02:20.940 | We spoke about in episode four, this question extensively about deciding if you buy a new
00:02:25.640 | car or a used car.
00:02:27.980 | Let's acknowledge the fact that especially in the early stages of wealth building, most
00:02:35.000 | of us are going to be buying used cars, not new cars.
00:02:39.120 | The problem is how do you find a good one?
00:02:42.320 | In the next episode, I'll talk about shopping broadly, buying from a private party, buying
00:02:47.880 | from a dealer, etc.
00:02:49.560 | I want to create a standalone episode and simply tell you how I do this.
00:02:53.040 | The technique is very simple.
00:02:54.760 | I want to make sure that I buy a car that I know the history of.
00:03:00.280 | The biggest fear or the biggest genuine problem with buying a used car is you're going to
00:03:06.760 | wind up buying a car that you don't know the history of.
00:03:10.140 | You can solve that problem in a couple of ways.
00:03:12.080 | A new car solves the problem because it has no history.
00:03:16.060 | It's coming directly from the factory, therefore you know it's delivered to me.
00:03:20.340 | I'm the one who's changed the oil every 3,000 miles or of course today, 5 or 10.
00:03:24.960 | I'm the one who has cared for it.
00:03:26.440 | I'm the one who's made sure that any mechanical failures are fixed properly with OEM parts,
00:03:31.880 | etc.
00:03:32.880 | I know the history of a new car.
00:03:34.760 | With a used car, I don't know the history.
00:03:38.240 | I think it's perfectly fine for you to buy a used car for which you don't know the history
00:03:43.800 | as long as you're careful about making sure that you buy a car that is known for quality,
00:03:49.240 | that has the features that you want, and you get it mechanically inspected before you buy
00:03:53.980 | it.
00:03:54.980 | We'll talk about that in the next episode.
00:03:56.620 | But there is a simple technique that I have utilized throughout my entire lifetime to
00:04:00.500 | buy high-quality used cars for which I know the history.
00:04:05.000 | The technique is this.
00:04:07.100 | Buy it from someone you know.
00:04:09.500 | This technique is rock solid.
00:04:13.040 | If your goal is to buy quality used cars, buy cars from people that you know, from people
00:04:19.000 | that you trust.
00:04:21.980 | If you do that, you'll buy used cars for which you can be confident of the history and either
00:04:27.560 | the car won't have any problems or you'll know about whatever those problems are.
00:04:32.440 | This plan is not perfect.
00:04:34.140 | For example, I've never intentionally chosen the color of a car myself.
00:04:39.620 | It doesn't really matter much to me.
00:04:41.860 | Car comes along, it's painted, no big deal.
00:04:46.040 | I've also often given up on some of those features that you might like to have.
00:04:50.400 | I've never gone to a dealership myself and ordered a car of a certain trim package so
00:04:55.000 | that I could get exactly what I wanted on the new car.
00:04:57.880 | I've given up some of those things that are fun.
00:05:00.400 | If you have the choice, take the choice that you want.
00:05:03.120 | But what I myself have gotten in exchange is a long history of owning high-quality used
00:05:09.320 | cars that I've operated very, very inexpensively.
00:05:12.960 | I've done this by buying the cars from people that I know.
00:05:16.840 | Let me expand on this technique because it's not just as simple as, "Hey, so-and-so's selling
00:05:22.280 | a car."
00:05:23.280 | It does matter.
00:05:24.280 | But here are the steps that you want to go through.
00:05:26.920 | It is that, but it's a bit more.
00:05:29.440 | I want to give you a few more things that you can do.
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00:05:45.920 | Ned's backcountry rally, you're not going to find a better deal on front row seats to
00:05:50.720 | a championship winner.
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00:05:55.720 | Visit Del Amo Motorsports in Redondo Beach and get yours.
00:05:59.240 | Offer in soon.
00:06:00.240 | See dealer for details.
00:06:03.120 | The first thing you want to really focus on is the kinds of cars that would be appropriate
00:06:07.600 | for your needs.
00:06:09.160 | The reason I spent so much time in the early episode talking about deciding what kind of
00:06:13.040 | car you should buy is to get you to think about what kind of car will fit your needs
00:06:17.400 | and fit your lifestyle.
00:06:19.960 | By thinking ahead and considering what your needs are likely to be in the next few years,
00:06:25.840 | you can start to keep your eyes out for a quality car.
00:06:29.960 | An obvious simple example is that I've been shopping for a bigger minivan for the last
00:06:37.740 | few years.
00:06:38.740 | We have a 7 passenger minivan.
00:06:39.740 | There's no urgency, no hurry, but with a 7 passenger minivan, our own family will fill
00:06:45.180 | it up and we won't have space for any guests.
00:06:47.280 | I always like to have space for guests, so I need to upgrade to a larger vehicle so that
00:06:52.320 | we have space for guests.
00:06:54.320 | This is not something that's urgent, not pressing.
00:06:56.480 | I can always rent a car, I can always borrow a car.
00:06:58.720 | There's always solutions, but I've been systematically shopping for a vehicle for the last several
00:07:04.840 | years.
00:07:05.840 | Here's the way my shopping works.
00:07:07.560 | If I know a friend or I notice somebody that I know, it doesn't have to be a friend, it
00:07:13.600 | could be a co-worker, it could be a casual acquaintance, etc.
00:07:16.440 | I simply say to them, "Hey, if you're ever interested in selling your car, let me know."
00:07:21.360 | I notice that so-and-so has a nice 12 passenger van or a 15 passenger van or I want a four-wheel
00:07:27.680 | drive pickup truck and I notice that someone has one that I like.
00:07:31.040 | I simply tell them, "Hey, if you ever have any interest in selling your car or if you
00:07:35.120 | ever have any interest in selling your car, let me know."
00:07:38.720 | What this accomplishes is it simply puts me on their radar screen where they think about
00:07:42.960 | it.
00:07:43.960 | In most cases, that's all I'll ever say or I won't make an offer, I won't tell them what
00:07:49.920 | I'm willing to pay.
00:07:50.920 | I just simply say, "Hey, if you're ever interested in selling your car, please let me know.
00:07:54.560 | I'd like to have a car kind of like yours."
00:07:57.440 | In some cases, that will actually stimulate someone to go and get another car because
00:08:01.240 | they know they could sell their current car easily.
00:08:03.240 | I might be able to buy it soon enough.
00:08:05.840 | Most people are going to replace their car over the next, say, few years.
00:08:09.880 | By lodging that little seed in somebody's brain, they'll think of me when it comes time
00:08:14.520 | to sell their car.
00:08:16.280 | In some cases, I've gone beyond this.
00:08:19.240 | If there's a car that I have genuinely thought was a good deal, I've gone ahead and offered
00:08:23.960 | a price for the car.
00:08:26.600 | I'll do it something like this.
00:08:27.840 | I'll say, "Hey, I really like your car.
00:08:30.160 | Listen, if you ever want to sell your car, please let me know.
00:08:33.080 | I'll be happy to pay you the dealer price for it."
00:08:36.400 | Or, "I'll be happy to pay you the dealer price plus 10% for it."
00:08:40.760 | Something like that.
00:08:41.760 | What I want to assure the person, if it's a car that I really like or perhaps it's the
00:08:46.240 | kind of person that doesn't just want to give me a deal, I want to assure the person that
00:08:49.480 | I'm not looking for a big discount.
00:08:53.360 | When you're purchasing a used car, because the risk of buying a car that is poorly maintained
00:08:59.240 | is so high, I don't think shopping for a discount is generally the first order of business.
00:09:07.420 | If I'm buying, say, a $20,000 car, getting $500 off or $1,000 off is relatively immaterial
00:09:16.680 | as compared to the risk of very quickly having a $500 or $1,000 bill at the mechanic.
00:09:22.560 | I would rather pay an extra $500 or $1,000 more than what I could get otherwise in order
00:09:29.760 | to have a car where I know I'm not going to immediately be dropping thousands of dollars
00:09:33.720 | on mechanical service.
00:09:35.880 | As we've discussed previously, all cars are going to need service.
00:09:39.600 | But I want to know where that car came from.
00:09:42.360 | It's cheaper for me to "overpay" for the car than it is for me to have to go and fix a
00:09:48.080 | car that I got cheap because somebody was trying to get rid of a problem.
00:09:52.200 | So if it comes to a price, I'll often, I have said, most cases you don't need to, but I
00:09:57.520 | have said to people, "Listen, whatever the dealer offers you, I'll give you that plus
00:10:02.440 | 10%."
00:10:04.120 | And so this creates a win-win situation.
00:10:08.400 | If somebody wants to sell the car and they want to sell the car at top price, they're
00:10:12.720 | probably going to go through the hassle of marketing their vehicle.
00:10:17.280 | They're going to shine it up, spiff it up, put it out on every advertising method.
00:10:22.220 | They're going to meet at the set at their house.
00:10:24.000 | They're going to have buyers come through their house.
00:10:26.000 | They're going to meet with people.
00:10:27.000 | They're going to try to find people who have enough money, etc. to close the transaction.
00:10:32.120 | They're going to deal with a bunch of tire kickers and eventually they'll sell the car
00:10:35.680 | for top price.
00:10:36.800 | That's possible.
00:10:38.240 | But I think most people who are selling cars in the price range that you and I are likely
00:10:45.160 | to buy are probably not interested in dealing with that.
00:10:50.200 | If you're selling cars at the very low end, a $5,000 car, a $3,000 car, etc., there are
00:10:55.560 | many people who can just pull out the cash and buy that.
00:10:58.080 | If you're selling cars in that high value, mid-range used car space, $25,000, $30,000,
00:11:05.680 | $35,000, $15,000, that range right there, your pool of potential buyers is much smaller.
00:11:12.560 | Very few people are going to show up to your house with $30,000 in cash.
00:11:18.360 | So then you're often dealing with bank checks.
00:11:20.360 | You're dealing with people who might need to get financing.
00:11:22.800 | And frequently the people who have that kind of money and who just want to do a cash deal
00:11:27.660 | will often be shopping at a dealer rather than private party.
00:11:31.420 | Or they'll be the kind of person that's tempted to upgrade to a new car instead.
00:11:38.000 | After all, if you're going to spend $35,000 on a used car, why not just go ahead and spend
00:11:42.200 | $50,000 and get exactly what you want?
00:11:44.080 | That's the way that many people look at it.
00:11:45.940 | So in this kind of middle-range space, $15,000 to $25,000 just to make up some numbers, the
00:11:52.320 | normal way that people dispose of those cars is just trade it into a dealer because it
00:11:57.080 | eliminates the hassle of trying to sell it.
00:11:58.940 | It eliminates the hassle of them trying to make sure most people aren't comfortable taking
00:12:02.800 | $20,000 of cash.
00:12:03.800 | They don't know the risks of taking a bank check or a wire transfer, etc.
00:12:09.780 | And so it's just more comfortable for them to go to the dealer.
00:12:12.520 | So if I make them an offer and I say, "Listen, I'll pay you the dealer price plus 10%," then
00:12:17.600 | I can get a price that's a very fair price and I can solve their problem for them.
00:12:22.840 | They know me, so they'll be happy to take money from me directly.
00:12:26.380 | They probably will take a personal check, certainly take a bank check.
00:12:29.240 | I can just hand them cash and we can be done with the whole thing.
00:12:32.340 | We have an agreed-upon way of setting a fair price.
00:12:34.720 | Take it to the dealer, get the quote, I'll pay you 10% more of that.
00:12:37.760 | They'll make 10% more than what they would get trading it into the dealer, which they'll
00:12:41.120 | be happy about, and they can sell their car quickly with no hassle.
00:12:44.480 | I, on the other hand, win as well.
00:12:47.120 | I get a car that I know where it came from, I know the history of it, I know if it has
00:12:52.040 | any problems.
00:12:53.040 | I know the person, so the person's going to be honest and disclose them to me.
00:12:56.900 | And I get a discount on what I would have to pay for that car at a dealer.
00:13:03.920 | And again, this is all built upon the benefit that I get of knowing where that car came
00:13:07.960 | from.
00:13:08.960 | If I go buy a car from a dealer or a private party, I'm not going to be sure of the history
00:13:13.600 | of that car.
00:13:14.600 | Especially at a dealer, I'm not going to know the history of the car very well.
00:13:18.160 | And from a private party, while I can know the history of the car, I'm not going to be
00:13:21.120 | sure of it.
00:13:22.120 | I've got to look out for scammers and people lying to me.
00:13:25.120 | So that's a huge value to me.
00:13:27.120 | And yet, I'm still probably, the dealer cost or the dealer offer for a trade-in, plus 10%,
00:13:32.520 | is still probably cheaper than I could get the car, certainly at a dealer or in the private
00:13:37.920 | market.
00:13:38.920 | And regardless, as I said, the cheapness of it saving $1,000 or $2,000 is not particularly
00:13:44.560 | important when we're looking at the total life cycle of the car.
00:13:48.360 | To boot, in many cases, you can actually get it cheaper.
00:13:54.400 | So frequently when we sell something to a friend, we like to give our friends deals.
00:13:58.740 | We like to give our friends discounts.
00:14:00.040 | "Hey, the dealer could give me 20 grand, but I'll tell you what, I'll sell you this car
00:14:03.160 | for $18,000."
00:14:05.420 | And so you don't always have to overpay for what the dealer would give to you.
00:14:10.160 | You can underpay a little bit as well and often get a great deal.
00:14:14.920 | This is a technique that I have used again and again.
00:14:18.020 | Not all of the vehicles that I have personally purchased have been purchased using this method.
00:14:29.560 | I have gone out and purchased various vehicles from a dealer, from private parties, etc.
00:14:35.200 | But usually when I have been forced to do that, it's because I've been looking for something
00:14:38.660 | specific that I couldn't access in my network.
00:14:42.800 | I was looking for, in one case, I bought a 15-passenger van.
00:14:45.520 | I bought an RV from somebody.
00:14:48.200 | I bought a couple of big diesel pickup trucks, but I was looking for trucks that were older
00:14:51.520 | that somebody didn't want to sell, etc.
00:14:53.840 | So I had to go and source those from different people.
00:14:57.320 | One case, I went and bought an SUV from a dealer.
00:14:59.680 | So it's not that this always works, but the best vehicles I have purchased have always
00:15:05.440 | come this way.
00:15:07.160 | And it's something that you can repeat again and again and again.
00:15:10.940 | It's extremely low risk and it works.
00:15:13.940 | It allows you to get a high-quality used car where you know the history of it, you know
00:15:19.080 | where it came from at a very fair price, and that is the key of what you are looking for.
00:15:25.280 | So what are the last few factors that you need to be prepared for to make this technique
00:15:30.440 | work?
00:15:31.440 | The most important one is you need to have money.
00:15:33.400 | And you need to be ahead of the game.
00:15:35.860 | So many people go shopping for a car when you need a car.
00:15:39.800 | Generally speaking, a good rule of personal finance is don't shop when you need something
00:15:45.120 | or you're going to pay whatever price is demanded by the person selling it to you.
00:15:52.040 | Always shop when it's convenient for you to shop and you can get the best deal.
00:15:55.880 | So a couple of silly examples.
00:15:58.220 | If you go to Costco, you can buy a flat of 30 half-liter water bottles for $3.
00:16:05.440 | So $3 divided by 30, if my math is right, you're paying about 10 cents a water bottle.
00:16:10.600 | That's a great deal, right?
00:16:11.840 | 10 cents a water bottle is your cheapest deal you're going to get on a bottle of water.
00:16:16.400 | But if you don't bring water with you and you're at the airport boarding area for your
00:16:23.240 | plane and you're dying of thirst, you're going to go and you're going to pay $6 for the same
00:16:28.720 | 10-cent bottle of water.
00:16:30.480 | So this is the difference between buying something when it's convenient for you versus buying
00:16:35.440 | something when you really need it.
00:16:37.680 | If you want to buy a lawnmower, one of the best times to do that is in the fall and winter
00:16:42.480 | when everything is discounted after the summer season.
00:16:45.180 | If you want to buy a winter coat, one of the best times to do that is in the spring and
00:16:48.600 | summer when everything is being cleared out.
00:16:51.400 | And it's the same whether you're buying new from a store or whether you're buying from
00:16:55.300 | a yard sale, etc.
00:16:58.000 | Buying things at off-peak prices is usually your best way to get the lowest possible cost.
00:17:05.120 | But in order for that to work, you have to be thinking ahead about your future needs
00:17:09.160 | and you have to have the money that you can comfortably use to pick up a lawnmower in
00:17:13.600 | the wintertime knowing it's going to sit there for some months before you ever fire it up.
00:17:17.480 | So the same thing applies with cars.
00:17:19.840 | You need to be thinking ahead about what you need and then you need to buy it before you
00:17:23.960 | need it.
00:17:25.060 | If your current car breaks down, let's assume that you have a catastrophic breakdown or
00:17:28.920 | you have an accident and your vehicle is totaled, then you're immediately forced into what I'm
00:17:33.960 | going to call the retail price world.
00:17:36.000 | You have to go out and whatever car prices are at this very moment, you have to go and
00:17:40.840 | pay those.
00:17:42.120 | So this is what happened to many people over the last two years.
00:17:44.360 | We've had a very unusual used car marketplace caused by supply chain disruptions, especially
00:17:51.120 | chip shortages, etc.
00:17:53.040 | And so anybody who needed to go out and buy a car over the last couple of years has paid
00:17:56.560 | a very, very high price.
00:17:58.660 | But if you could just afford comfortably to keep your vehicle going, then you can reach
00:18:03.200 | back and you can buy the car when you're at a normal market.
00:18:06.640 | And I think we're close.
00:18:07.640 | If we're not there already, we're back to a pretty normal market in many vehicles.
00:18:11.360 | Not all, but in the vehicle market has changed dramatically in the last six months.
00:18:16.480 | So you don't want to be forced to shop.
00:18:19.800 | So that means a couple of things.
00:18:21.440 | Number one, you need to be prepared to replace your current vehicle before it ends its life
00:18:25.720 | cycle.
00:18:26.720 | Now, remember, we're usually talking about years where this is perfectly reasonable.
00:18:33.000 | Vehicles have such a long life cycle compared to other consumer items that we use that you
00:18:37.920 | can drive it for an extra year and generally you're not going to have any trouble with
00:18:42.040 | that.
00:18:43.040 | But you need to be thinking ahead.
00:18:44.040 | Hey, the car that I have in my driveway is nearing the end of its useful life cycle or
00:18:50.280 | nearing the end of its reliable life cycle.
00:18:53.360 | So I need to be looking for a replacement.
00:18:55.920 | And looking for a replacement using this technique might take a couple of years to appear.
00:19:00.400 | The other thing that you need is you need to always have money available to do the deal
00:19:04.940 | when it's offered to you.
00:19:06.700 | So if I've used this technique and I get a call from someone saying, "Hey, you mentioned
00:19:15.760 | to me that you might like to buy my car.
00:19:17.400 | Would you like to buy my car?"
00:19:19.200 | Usually I have a couple of days to decide to buy it or not.
00:19:22.680 | Now, if I choose not to, it's no big deal.
00:19:25.440 | No harm, no foul.
00:19:26.440 | I haven't harmed anybody by expressing interest in buying a car that they're selling.
00:19:32.800 | But if I'm going to act on it, I need to be prepared to act quickly.
00:19:37.000 | So I need to have stockpiles of money set aside, ready to go quickly.
00:19:41.120 | I don't need to go, and I also generally going to avoid financing, of course.
00:19:44.480 | We don't want to finance a depreciating asset.
00:19:48.280 | That's dumb.
00:19:49.520 | But I just need to have money available.
00:19:51.000 | I need to have liquid money where I can say, "Absolutely, I want to buy that car.
00:19:54.760 | Let's work out a price and let's make it happen quickly."
00:19:56.800 | I believe that's everything that's important for me to share with you.
00:20:01.260 | This simple technique is, in my experience, one of the most reliable ways for you to consistently
00:20:08.640 | purchase high-quality used automobiles at fair prices and basically minimize the hassle
00:20:15.400 | of maintaining a fleet of vehicles.
00:20:20.480 | I've identified the areas in which it won't work, specialty cars, specific things that
00:20:25.640 | you want in a car, but it is an effective way of having transportation.
00:20:32.120 | I'm not a car guy anymore.
00:20:33.120 | It's a transportation.
00:20:34.120 | If it goes down the road and it does what I need it to do, I don't care what color it
00:20:39.680 | is.
00:20:40.680 | Your mileage may vary.
00:20:41.680 | You might be in a different situation, but that is the technique.
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00:20:49.880 | can be thousands and thousands of dollars of savings over the course of a lifetime,
00:20:55.000 | which can really make a big impact of helping you get on the road to wealth.
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