THE BEST RV VALUE: DEPRECIATION IS THE MAJOR REASON TO SERIOUSLY CONSIDER A USED RV
By: Bob Gummersall firstname.lastname@example.org
Chief Technical Editor (03/05)
[Ed Note 02/14: While this piece was first published several years ago, except for a different interest rate environment the factors relevant to purchasing new or used are as valid today as when first described below.]
INTRODUCTION My intuition has led me to believe for several years that used previously loved, RVs represent the best value in the market today. I have performed a study using NADA and Kelly Blue Book prices to understand the effect of depreciation. I have studied luxury, entry level diesel, Class A, Class C, and Class B motor homes as well as travel trailers, fifth wheel trailers and campers. The results showed all RVs depreciate following this same curve. The value of any RV has to include many other items that affect the ownership cost. Cost of money (interest on loan or lost investment interest), cost of maintenance and cost of insurance and licensing are other factors. This article outlines how I recommend evaluating these parameters. This will allow you to decide which RV provides you with the best value. The link to download a spreadsheet is at the end.
The total cost of ownership of a 3 year old, used, RV is approximately half of the cost of owning a new RV. Most 3 year old RVs have a lot more value than half of the cost of a new RV. This argues that if one is concerned about ownership cost, you should seriously consider buying a previously loved RV. The total cost of ownership will be about half what driving off the lot in a new rig will cost.
DEPRECIATION - Starting with MSRP the depreciation is 30% driving it off the lot, another 10% at the end of the first year, and 6% for each year following. We all know that no one pays MSRP for a new coach with typical discounts of 15 to 25% depending on the model. So heres a typical actual depreciation schedule.
Thus at the beginning of the 6th year of ownership the RV is worth approximately one half of its net purchase price. The NADA and Blue Book prices are followed closely by dealers to establish any deal. Obviously they use all the techniques to make you feel like you are getting a good deal if you are trading in your old RV. I have tried to normalize this effect by using wholesale prices or low-retail prices in performing the analysis. As shown in the table, depreciation stops when the scrap value equals the depreciated value. In the case of RVs this happens when coaches get very old and require significant investment to keep running. For example, a 20 year old Winnebago or Fleetwood is going to be worth about $6000 for the foreseeable future, as long as it is running well and most of the features are working. Evaluating depreciation as related to value means you have to consider the yearly depreciation as an absolute expense. Money that is lost the same way it would be if you spent it on a vacation. The money is gone and has no possibility of increasing in value.
If the asset you purchase with cash is appreciating then this is new money equal to what you might have made in salary on a job. We invest in the Stock Market because we believe that our investment will appreciate. There are few, if any RVs that appreciate in value so they can not be considered an investment any more than the cost of going out for a nice dinner and movie. A classic RV, like the FMC or GMC coaches, may have reached a point where they may be appreciating and therefore can be considered and investment.
COST OF MONEY Understanding the cost of money requires an evaluation technique called present worth. Whether you finance or pay cash for your RV, there is a cost of money that must be considered. Paying cash requires you to theorize how much interest the cash would have made if you had not spent it. The lost interest or appreciation of the alternate expenditure is considered the cost of money. If you finance your RV, you must consider two components to find out your cost of money. First the down payment must be treated as above in the cash method. Secondly you must add to that, your interest cost on the loan. Each year as you pay off the principal of the loan, your equivalent cash value must be increased and depreciated.
COST OF SERVICE AND MAINTENANCE The cost of owning an RV must include the cost of service/maintenance, repair and refurbishing. These costs increase as it gets older. Repair and refurbishing increase significantly as the RV gets to be 8 or more years old. Depending on the type of RV the repair cost can be very significant. For example, gas V8 engines like the Chevrolet 454 or Ford 460 typically need to be rebuilt after 50,000 to 70,000 miles. For a typical gas motor home that translates to about 10 years. The engine rebuild cost can be $4,000 or more. Automatic Transmissions last about the same length and can cost $2000 to rebuild. Diesel Engines and heavy-duty transmissions are just getting broken in at 50,000 miles so their repair or rebuild costs are moved out in time. Things like tires, brakes and filters are directly proportional to mileage. Cost of Batteries is dependent on use, maintenance and time.
COST OF INSURANCE AND LICENSE Liability insurance cost are proportional to the mileage and drivers record. Casualty and comprehensive costs are proportional to the price of the RV. Licensing cost is usually a flat fee, except in States where RVs are taxed as property through the licensing process and then the license is proportional to the value of the RV.
A SPREAD SHEET TO USE - The author has prepared a MS Excel spread sheet to use asking the what if questions. You can plug in the numbers that match your situation and see what it really costs to own and use a Recreational Vehicle. If interested, please request a copy directly from Bob.