Last week I posted about how we were thinking of getting a car, but at least for now we've decided instead to share a car with one of our housemates. They have a Honda Fit, and while it is important to them to have a car, they don't use it very often.
We're planning on dividing costs in proportion to mileage, though if that ends up being too much hassle we may shift to just splitting things 50-50. This includes repairs, gas, and damage to the car that is not the driver's fault. Damage that is the driver's fault will be covered by the driver. We'll pay half the cost of car insurance or the cost of adding us, which ever is more.
The Bluebook value is $5.9k and we're going to pay them half that up front. This compensates them for the opportunity cost of having some of their money invested in the car. At some point, when we're no longer sharing a car, they'll return half the remaining value. This is not quite right: if we put more miles on the car we should be getting slightly less back, but it's pretty close. If the car travels 30k miles over the next three years it will be worth $4.4k, while if it travels 40k miles it will be worth $4.2k, a difference of just $0.02/mile.
There is also some hassle associated with having the car. When it needs service, we'll take turns bringing it in. Our housemate prefers to leave it on the street, despite having to move it twice a month for street cleaning, and will plan to continue doing that. If we're returning the car within two days of street cleaning, we'll make sure to park it in a street-cleaning-safe spot. Our housemate will still be responsible for moving it for street cleaning if no one has used it in a while. If we choose to park the car in to avoid street cleaning, we'll be responsible for freeing it after.
For managing usage, we'll keep a shared calendar, defaulting to first come first served. If we want to use the car at the same time we'll talk and figure out what makes sense. If no one is currently using the car and it is not reserved, it's fine to use.
We'll keep our carseats buckled in, though if our housemate needs the backseat they are free to remove them or move them to the trunk. We'll make sure we have an extra set so we'll still be able to travel by car in an emergency if our housemate is out.
If this doesn't work, or stops working, we can go ahead with getting our own car, but it seems worth trying as an intermediate step.
This looks sensible and will probably save you money compared to buying a car, as long as neither of you use the car very often. One option to consider is to have them keep full ownership of the car and you pay a per-mile rate. Employers pay a standard rate of $0.56 per mile when an employee uses a private car for work. This is probably a bit higher than true cost, but they are taking the risks of unexpected repairs and such. That arrangement would be easier to get out of if needed: You just stop driving it.
Second this. The lawyer part of my brain says to draw up a written contract to make sure you get your share of the cars value back at the end, which just adds to the complexity and tension of the situation. But not drawing up that contract is placing a lot of trust in the housemate. A simple per-mile rate seems much simpler and easy to get out of, and the IRS provides a standard rate for that.
I think placing this trust in our housemate is justified, given how well we know them and our level of community overlap.
Yep, and the problem with these 'small deals' is $3000 is enough that an acrimonious housemate might not give you your money back. But it's small enough to not give you meaningful satisfaction were you to pursue this in court. (Because of overheads)
Paying 56 cents which is an overpayment vs the true cost which is about 20 cents is paying to avoid this risk. If you drove 5000 miles a year then you'd be paying $1800 extra.
Depends on mileage driven then. But the housemate should rationally accept 56 cents.
I think you are overthinking it. We (that is my ex-wife and I) used to car-share a car with my sister and her family but it turned out that a growing family and other considerations led to this being temporary in the end. This could be the case for you too and then not worth the effort you seem to go to.
For what it's worth: We cycled thru 5 cars since then. Always used cars (of monotonically larger size) and except for the last one always < 4000€.
What part do you think we are overthinking? For example, I think it is important for us to be on the car's insurance, and I think it is important for us to figure out a good system for who uses the car when.
I agree that you should make sure that the insurance covers your use. But my recommendation is to let the system of use evolve from actual use.
I think this is awesome and I like how you have accounted for all the costs properly.
The way non-rationalists would handle this problem is generally "hey can I borrow the car". "keys get tossed". "just throw me some money for [gas]".
But as you probably have researched, gas is actually under half the cost depending on location. It's probably about [$2.75/gallon [approximate 5-year average] / 35 mpg [2013 fit combined]] = 7.8 cents a mile. Maintenance has high variance but I use 5-10 cents/mile to account for this. [3-5 cents is what consumer reports says, 10 cents allows you to pessimistically account for very expensive repairs like a blown engine or transmission].
Mileage depreciation at 2 cents is quite low, but anyways 10 cents (maintenance) + 2 (depreciation) + 8 (fuel) = 20 cents per every mile driven, while paying just 'gas money' is under 40% of the true costs.
If you live in California, add $1 to the cost per gallon, which will increase costs by 3 cents.
We had previously borrowed their some car some, more informally, and reimbursed them approximately based on what it was worth. The main change here, though, is moving to a system where we can use the car without asking first, which is pretty useful to us.
Yeah. Thinking about it more, if you assess the probability that they 'defect' with your money as low ('you know them well'), then you're coming out ahead over renting the car from them at 56 cents a mile. I just recommend you at least text or email the details of this agreement and make the payment via a traceable means. Not the same security as notarized with multiple attorneys as witnesses but good enough for this transaction. (or to provide evidence to support your side in small claims)
They reviewed a draft for this post over email, which seems reasonably close?
Probably. Main thing is to not have any agreement backed up by "I thought you said...". It needs to be written, and specific, and make a small claims judge think there is at least a 51% chance it's true.
When I did math for commuting I used (15 years ago):
$0.10 / mile depreciation - based on buying a $13,000 used car and expecting to sell it for $3,000 in 10 years after driving 100,000 miles: number should be higher today.
$0.10 / mile for gas - based on ~28mpg and ~$2.80 /gal.
$0.03 / mile for oil/tires/normal replacements - based on spending ~$60 / 3,000 miles for an oil change and ~$200 / 20,000 miles for new tires.
$0.25 / mile for my time - assuming it's mostly driving 60 miles an hour for a California commute at my at-the-time wage of $15/hr; adjust for your time value if using this to calculate commuting costs
Then I rounded it off to $0.50 / mile one-way, which is conveniently $20/month/mile for commuting. This let me easily compare potential rentals - and led to me moving in to apartment closest to the office, even though it was the highest nominal cost.
Ok, so the '10 cents a mile for maintenance', back checking, would be:
today it's $400 for a tire change and you can get tires rated for 70k miles, let's say they last only 60k.
Oil is now about $70/10k miles, or 0.7 cents.
1.337 cents for consumables. So 8.663 cents for unforseen events, or each 100k miles, $8,663 in repairs.
A hybrid battery can be swapped for 2k, an engine can be replaced with a low mileage junkyard engine for about 2k-2.5k. A transmission can be swapped for about 2k as well. (for a low mileage one from a totaled vehicle)
It does sound like the repair cost is an over-estimate. Still, sometimes the simplest repair can be extremely pricey, I had leaking oil pan that cost $700 to get repaired in a hurry.
Those repair prices seem low, but we may just have an expensive mechanic and no inclination to try and DIY car stuff.
Personally, I'm on my third car (bought used from a dealer, so ~3 years old) in 20 years with a pattern of replacing the previous one the second time it has a repair bill over $200 (without doing the second repair), and having a 30 minute commute for most of that time.
Location and market dependent. There are large "engine swap" shops in some metro areas with specialists who advertise low swap prices. Bigger engines are more expensive.
I don't like your algorithm. The design lifespan of a car is around 15 years, that is most parts are designed to last that long. More if a higher quality brand or low mileage. But mistakes get made - even highly reliable vehicles like a toyota prius have a couple of mistakes in their design. In the case of the prius, it has 2 main issues:
Blown engine head gaskets Eventually, failed hybrid battery
The engine head gasket repair costs $1-2k. The hybrid battery is $2k if you swap it yourself for a new one, it's straightforward given it's a battery.
Point is you can see either failure at a point where every other component is in tip top shape. Like euthanizing a 25 year old because of a broken leg.