Sell $700,000 car and put money into retirement

Dear Dave: My wife and I are completely debt-free. We also have our emergency fund in place and a retirement plan. I love cars and have a classic 1966 Cobra in the garage that’s worth about $700,000. My parents helped me buy it when I was 17, and only 300 were ever made. Our other investments, house and all total about $800,000, and my wife is wondering if we shouldn’t sell the car and put more money toward retirement. What’s your opinion? — Tommy

Dear Tommy: Wow, that’s one serious treasure car! If it’s been with you that long I’m guessing at some point it stopped being just a car and almost became part of the family!

I’m a guy, and I like shiny toys, too — especially the ones that make lots of noise and go really fast. Obviously this little jewel hasn’t done what most cars do, which is go down in value like a rock. But chances are it’s not going to appreciate much more than it already has. So, from a financial standpoint you’re losing $70,000 to $80,000 a year by keeping the car and not investing the money. I can tell you’ve got some emotion wrapped up in this car, Tommy. But if it were me I’d have a hard time justifying a $700,000 car when my total net worth was about $1.5 million. — Dave

Home equity investments

Dear Dave: Right now our debt is keeping us from investing. Do you recommend making investments with a home equity line of credit? — Paul

Dear Paul: Let me answer this very, very carefully. No! Never!

You don’t borrow on your home, Paul. You never want to put something as precious and important as your home in jeopardy just for the sake of investing.

Follow the Baby Steps. First, get $1,000 in the bank to start your emergency fund. Second, pay off all debts from smallest to largest — except for your house — using the debt snowball. This will lead you to Baby Step Three, which is fully funding your emergency fund with three to six months of expenses. Once you’ve done all this you’re ready for Baby Step Four, which is investing in Roth IRAs and other pre-tax retirement. When you’re debt-free except for your house, you’ll find investing is easy because you’ve freed up your most important wealth building tool — your income! — Dave

Renter & mortgage

Dear Dave: I have an investment property with a mortgage of $1,200 a month. I’m thinking about renting it out. Is it all right if the renter covers only the monthly mortgage amount? — Mary

Dear Mary: No. You need to get more than that, and here’s why. As a landlord you’ll also have to handle repairs, taxes and insurance on the property. If the rent is the same as the payment you’ll probably end up losing money every year.

And pay that note back as quickly as possible, Mary. Wouldn’t you rather keep all that money instead of handing it over to the bank? — Dave

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