MONEY CLINIC | I have R1.3m in savings, and no debt. Should I buy an SUV or a third property?

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A Fin24 reader considers how she should spend her R1.3m in savings. Looking to an expert for guidance, she writes: 

I am married in community of property and have two houses that are fully paid up. I have R1.3 million savings and two wishes: 1) to buy myself a R920 000 SUV and 2) to buy a third property of R1.5 million as I wish to live in a different province. 

I am debt free and have been torn on what to do.

I am inclined to buy the car cash, as it has high interest rates, and use the rest as a deposit for the property.

Your guidance on this matter is appreciated.

Hardi Swarts, director of Autus Private Clients responds: 

First of all, well done on having two fully paid up properties; it seems like you are well on your way towards financial freedom.

Based on the limited information; I agree that if you want to buy the SUV then it may be best to purchase it using cash because your interest rate on your car will most probably be higher than the rate you would pay on an additional property.  

However, I do think you should consider the following before purchasing the SUV: 

A vehicle is a lifestyle asset, and the costs include:

  • Maintenance and insurance
  • Depreciation 

Whereas a property is an investment asset and the gains include: 

  • Investment growth
  • Rental income

You could consider first buying the property and saving the rental income you receive until you have enough savings to buy the vehicle using cash or you could consider purchasing a second-hand car at a much lower cost. 

Unless you really need the SUV I would not recommend taking on debt especially considering that you are currently debt free. 

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