The initial purchase price is the obvious upfront cost considered when you are buying a motorhome. But the other costs associated with ongoing ownership should also be taken into consideration. Depreciation is one of those costs, which for many people, is often a hidden factor.
Motorhome Initial Purchase Costs
Before you get caught up in the excitement of a motorhome purchase, it’s important to keep in mind that there are a number of costs associated with the purchase of a motorhome besides the initial purchase price. These include insurance, annual WOF/COF, vehicle licensing, road user charges for diesel vehicles, maintenance and repairs, depreciation, fuel, caravan/holiday park fees and even long-term storage if needed.
Some of the costs can easily be anticipated and researched. However, others like depreciation and resale value are often either forgotten or not really understood. For many motorhome owners, depreciation is not considered until they’re ready to sell and that’s when some get a bit of an unpleasant surprise. It’s then that the capital cost of motorhome ownership can be calculated – that is the original purchase price minus the sale price. That’s why depreciation is often considered the hidden factor because all of the running costs as well as the fuel and maintenance costs that have accrued during the period of ownership are known. Well at least they are if you are a good record keeper.
Motorhomes are no different from any other vehicle on the road in that depreciation starts almost as soon as you drive your brand new vehicle out of the sales yard. Depreciation, by definition, is the reduction in value of an asset that is caused by wear and tear.
There are actually two types of depreciation. The first is one that accountants and the Inland Revenue Department use for vehicles associated with business use. This one is very formula driven. The second type is dictated by market forces and is far less formulaic. Market based depreciation depends on a number of factors. Since most people buy their motorhomes for leisure use, then guess which form of depreciation applies?
Know the value of your motorhome once it's been used.
What affects motorhome depreciation?
Whilst depreciation is inevitable, all kinds of factors affect the rate of depreciation. Certainly, the make and model are important but age, kilometres driven, general condition and the availability of service and parts all have an effect. Supply and demand of course will affect resale values at any given time. Also, more expensive motorhomes will have a higher depreciation factor than cheaper models.
Motorhome brands that are well known and have a strong presence in the market will, for the most part, depreciate slower than those less well known and less popular.
How the motorhome has been used during its lifetime will affect the depreciation rate. For example, a rental motorhome would have depreciated more than a similar motorhome which has been in private ownership for its life. However, the lower purchase price of an ex-rental will usually reflect the higher depreciation rate.
Over the last ten years, the majority of cab chassis used for motorhomes have come from Europe and to a lesser extent from Japan - particularly with campervans. However, in more recent times some motorhomes have been built on Chinese manufactured cab chassis. Although these are a cheaper purchase initially, the motorhomes do depreciate faster than those based on European and Japanese models.
Fitting of aftermarket products
Depreciation is an important thing to consider when you are making a decision about the fitting or installation of aftermarket products. Accessories of a lower specification than the other equipment in the motorhome or accessories installed DIY style, for example an extra shelf or a light fitting, may be detrimental to the appearance and then have a negative effect on depreciation. Particularly for newer motorhomes, a professionally done job is so much better from a financial point of view long term, even though it may cost more initially.
Significant market events and economic issues can change the depreciation cycle from time to time. When the volume of motorhomes imported into New Zealand increased substantially in the early 2010s, the total number of motorhomes in the market grew which had a detrimental effect on the depreciation rates of locally built motorhomes. However, after about three or four years, the market settled back to what it had been previously. The jump in demand for motorhomes while New Zealand’s borders have been closed this year has also had a positive impact on depreciation rates for motorhome owners. The slight increase in motorhome resale values appears to have been triggered by excess demand and tightening supply.
Occasionally, and I mean occasionally, if you hold on to a motorhome for long enough, some motorhome values will increase rather than decrease in value - but don’t bank on it (pun intended)!
Depreciation Calculations - A Rough Guide
Motorhome depreciation rates are somewhat lower than other vehicles. For instance, a car that has been purchased new may well have depreciated 45% - 50% after four years. Scary hey? The good news is that for the most part, motorhome depreciation isn’t nearly that bad. There are some factors that affect depreciation of course but on average depreciation currently works out at something like 8% per year, except for the first year. The depreciation on a brand new motorhome is more like 10 -15% depending on the make and model.
Here’s how you calculate how much you can expect a new motorhome you are considering purchasing will depreciate over four years. Let’s say the purchase price of the motorhome is $140,000. At the end of the first year, its value will have dropped to $126,000 (assuming 10% depreciation). By the end of the second year its value will be $116,000 (8% drop), the third year it is worth $107,000 (8% drop) and by the fourth year, the motorhome’s value is likely to be around $98,000 (8% drop). Depreciation rates slow over time so the longer a motorhome is owned, the less it depreciates.
Calculate how much you can expect a new motorhome you are considering purchasing will depreciate over the next years using our Motorhome Depreciation Calculator -- created using the assumptions above.
Now that is a rough guide but will give some idea of relative values.
How to reduce the rate of your motorhome depreciation
Whilst there are some factors that are beyond your control, there are quite a few things that you can do to reduce the rate of depreciation on your motorhome.
Protect it from extreme weather conditions
It’s not always practical but keeping your motorhome under cover when not being used does protect it from extreme weather conditions and the UV effect of the sun.
Be meticulous with preventative maintenance
Another effective action you can take is to be meticulous with the preventative maintenance schedule of your motorhome, as well as keeping detailed service records. If nothing else, the latter proves that you took care of your motorhome. There’s nothing like waving a properly filled out service book under the nose of a prospective buyer to prove the point that the motorhome has been loved.
Preventative maintenance means that everything in the complex device that is your motorhome is kept in good working order. Water tightness testing by an approved agent is something that should be done regularly and records of those tests lodged with the manufacturer. This is important for maintaining the water tightness warranty and will be, in most cases, a requirement if ever you need to make a claim on the warranty.
Refurbish your motorhome
Refurbishment, when it’s needed in an older motorhome, not only keeps your motorhome looking good but retains the pleasure of ownership. That can be something as simple as a good wash and polish, changing the upholstery or updating the curtains.
Keep your motorhome in storage
Lastly, if you keep your motorhome in storage, stay on top of your maintenance programme and record it diligently, keep it looking good and refurbish it when it starts to show signs of age and wear, you will have done a better job than most at reducing the depreciation on your home away from home. Remember that depreciation rates reduce over time so an older motorhome that has been well cared for over a long period will depreciate relatively less than a new motorhome that has had less love and attention.
Depreciation is a fact of life in any purchase, not just motorhomes, but in this case the cash amount can be quite substantial. When considering purchasing your dream motorhome, it’s always handy to look to the future and do a few financial calculations that include the depreciation factor before taking the plunge.
Know the value of your motorhome once it's been used.