| Author | Message | ||
| P. Thomas (Ferrari_fanatic)
Member Username: Ferrari_fanatic Post Number: 621 Registered: 4-2003 |
>>If a new 360 is $170k and next year you/they can get $185K, why don't they pay you?>> That is my point. If you purchase the car (or sell it to someone) at the end of the lease and the market value is actually higher then the Residual (ie, pay off, buyout, or whatever nomenclature you wish to use), then guess who get's the money? You do. | ||
| Dave White (Dwhite)
Junior Member Username: Dwhite Post Number: 152 Registered: 5-2003 |
What about inflation? This is a factor which should also be in the calculations. One other question, if a new 360 is approx. 170K and you/they can get 185k next year, why don't they pay you? | ||
| Dr. I. M. Ibrahim (Coachi)
Member Username: Coachi Post Number: 433 Registered: 5-2002 |
I just checked into leasing a car for my wife...after 4 years or so, you pay as much as you would have if you bought it. And when you turn it in, you own nothing. I paid cash for it, as my best interest rate or money markets is 3% (most of the time less than 1%). I guess if you can make much more on your cash than 3% then leasing is an option | ||
| Frank Parker (Parkerfe)
Advanced Member Username: Parkerfe Post Number: 3048 Registered: 9-2001 |
My never lease-pay cash post refers to exotic toy cars, not daily driver work cars. I think it's fine to finance, not lease, your daily driver, just not a toy such as a Ferrari. Always pay cash for toys. You don't finance your childrens' toys do you ? | ||
| benedict caiola (Benedict)
New member Username: Benedict Post Number: 30 Registered: 9-2003 |
Frank, I disagree. Never say never. As KDS stated, what if one can leverage their cash to a point where it generates 1000+% return on investment. (No, this is not that unrealistic with real estate values skyrocketing,etc). You will still tell me that it makes sense to take that hard-working lump sum of cash and put it all into a semi-illiquid, likely depreciating, asset like a Ferrari? | ||
| TC (Houston) (Tec)
Member Username: Tec Post Number: 279 Registered: 2-2002 |
I can only imagine what Frank's next response will be.  | ||
| Troy Watts (Troy_watts)
Junior Member Username: Troy_watts Post Number: 97 Registered: 9-2003 |
Frank, Not everyone can write a 6 figure check! | ||
| Frank Parker (Parkerfe)
Advanced Member Username: Parkerfe Post Number: 3045 Registered: 9-2001 |
Never lease a car...PERIOD. There are no exceptions...EVER. With a lease you will end up paying much more for the car and in most cases never own it. Pay cash ! | ||
| Kds (Kds)
Member Username: Kds Post Number: 273 Registered: 5-2003 |
To elaborate on Benedict's statement about "cost and use of money" I have several clients with $200K and up to $1 million of cars on lease at any given time. Why ? They initially pay less tax in my jurisdiction, the tax flows thru and is a write off, plus the capital remains in their companies where they generate returns well in excess of the actual lease cost of funds. Leasing has many variables....but this one is a biggie IMHO. | ||
| John McDonald (Jmcdonald)
New member Username: Jmcdonald Post Number: 4 Registered: 10-2003 |
The two aren't exactly comparable, from a financial perspective, because with the lease you're paying interest on the depreciation (the "money factor"). Run the numbers on buying a car outright over five years, as compared to leasing it for three, and then financing the purchase price at lease-end for two years, and the latter will be more. | ||
| P. Thomas (Ferrari_fanatic)
Member Username: Ferrari_fanatic Post Number: 620 Registered: 4-2003 |
Whether you buy the car outright in cash, finance it, or lease it, the critical question (variable) is how much is the car worth 12, 24, 26, or 48 months from now?? If you buy a $130,000 car today for cash, and in 2 years it is worth $100,000 then the depreciation is stil $30,000. If you leased the car and the Cap Cost was $130,000 and Residual was $100,000 the deprciation whether you or the bank owns it is the same. Again, the tricky part is agreeing on what the FUTURE Fair Market Value is (there really is not much agreeeing as the Lessor determines the Residual). The reason you build equity is that the larger payment (purcahse vs. lease) is going to Principal Reduction. The value of the car 24 months from now is still exactly the same. | ||
| John McDonald (Jmcdonald)
New member Username: Jmcdonald Post Number: 3 Registered: 10-2003 |
This may seem obvious, but it's worth emphasizing -- with a lease, you're making payments and have zero equity to show for it at the end of the lease - you own nothing but the right to buy it outright and some (hopefully) fond memories of driving the car. With an outright purchase, you make higher payments, but at the end you actually own the car. Leasing makes sense with "daily driver" cars that are essentially "used up" during the payment period, because the car will be undesirable and worth relatively little at the end of the payment period. Leasing saves you the PITA of selling it - just hand back the keys and go find something else. However, with a "weekends/nice days only" car like a Ferrari, as long as it is maintained properly, the car is going to be in substantially the same condition at the end of the payment period as the beginning, only with a couple thousand more miles. If you bought it, you'll then be in a position to either continue enjoying it (free of payments), or sell it and use the proceeds as a down payment on a better Ferrari. Ever wonder how people with not outrageous incomes can afford impressive Ferraris and other sports cars - in many cases, it's from purchasing good, relatively depreciation free used exotics, paying for them over time, and then trading up. | ||
| benedict caiola (Benedict)
New member Username: Benedict Post Number: 29 Registered: 9-2003 |
One thing no one has mentioned so far. If your cash is earning a high interest rate (albeit rare these days) it would not make sense to take that cash and purchase a car outright. It would be smarter to leave it alone and let it earn a higher rate than what you are paying on the lease. | ||
| Nick Berry (Nickb)
Junior Member Username: Nickb Post Number: 142 Registered: 8-2002 |
In CA the sales tax is added to the lease payments over the term of the lease. If a person after a couple of payment decided to buy the car from the lease company would he be able to avoid the remaining sales tax? | ||
| P. Thomas (Ferrari_fanatic)
Member Username: Ferrari_fanatic Post Number: 618 Registered: 4-2003 |
That is the tricky part, the Residual. On a 2003 Honda Civic most people can estimate the Fair Market Value in 2 years. F-Cars are all over the board. But here is some food for thought: Let's say that the predetermined Residual Value in October 2005 is LOW (relative to what ever the Fair Market Value is in October 2005 and assuming a 24 month lease. You can buy the car for the residual value (Balloon payment) or sell it someone for the Residual Value. (ie, the Residual on a 360 in October 2005 was predetermined to be $130,000 and Fair Market Value is $150,000, then it is a no brainer). If the inverse holds true...Ouch Not all leases are bad, you just have to familiarize yourself and read the fine print. Whether purchasing (financing) or leasing never fall in to the trap of only looking at the payment. That means nothing relative to the financila implications of how the terms are structured. | ||
| Ray Buchner (Ray98)
New member Username: Ray98 Post Number: 5 Registered: 9-2003 |
Here in NY the old style conventional lease has gone away because of manufacturer liability in the old style leases. The new "lease" is what was mentioned, a payment plan (taxes paid on the full vehicle cost not the just the lease value) with a baloon at the end. But the leases offered allow the option of making the last payment (balloon)and owning the vehicle at that time or declining and moving on to something else. But you do lose the remaining taxes paid on the total value if you decline. | ||
| Ron (Easy_rider)
Member Username: Easy_rider Post Number: 773 Registered: 12-2002 |
Ray, the major difference here is that most of the leases available (Premier and Putnam at least) offer open end leases, not closed end leases. Essentially these are loans with a balloon payment at the end. You are still responsible for the balloon at the end of the term. The primary negotiation is in determining the residual value, however, that only makes a difference in your balloon, not in your total obligation. | ||
| Ray Buchner (Ray98)
New member Username: Ray98 Post Number: 4 Registered: 9-2003 |
Then if I lease a lets say 4 year old vehicle with the largest part of depreciation applied then the "cap cost" minus the "residual value" would yield a relatively small lease payment. For example, a $240K 456, at 4 years old with a cap cost of $120K and a residual of $90K after 4 years yields a payment around $670/mo with no money down (very rough numbers). With the option to buy or walk at the end. I guess the trick is to lease in the timeframe of least vehicle depreciation. Does this seem reasonable? | ||
| P. Thomas (Ferrari_fanatic)
Member Username: Ferrari_fanatic Post Number: 614 Registered: 4-2003 |
Leasing terms 101: Cap Cost=Purcahse Price, Cap Cost Reduction=Down Payment, Residul Value= What the car is PREDETERMINED to be worth at the end of the lease period. Leases can be negotiated EXACTLY as you would negotiate a purchase. If your goal is to EVER purchase the car do not lease it, just buy it outright. If you NEVER plan on buying the car then you want to negotiate a low Cap Cost and a HIGH Residual value. Since you are paying the difference between the Cap Cost and the Residual Value (AKA depreciation) your payment will be lower. If you are uncertain if you will buy the car at the end of the lease negotiate a lower Cap Cost (always regardless of your intentions) and a LOW Residual will mean two things. 1) Higher payments (you are paying the difference in Cap Cost and Residual Value), 2) if you wanted to buy the car at lease end and the Residual was low you would buy a car "Under" market value. Again Residual Value and Cap Cost are determined at lease INCEPTION. | ||
| TC (Houston) (Tec)
Member Username: Tec Post Number: 273 Registered: 2-2002 |
I always thought that leasing only benefitted people who could take a tax deduction for the use of the vehicle in their business. It recently dawned on me, however, that leasing is a great way to reduce your depreciation exposure for certain cars that could have huge depreciation in the first couple of years. If you're willing to eat $X a year on depreciation, why not just lease the car for that amount and turn in the keys when you're done? | ||
| Jerry Slagle (Slag_328gts)
Junior Member Username: Slag_328gts Post Number: 105 Registered: 9-2003 |
I always thought leasing was a way to just get you into a more expensive car than you could afford. I think it is just a way for the dealers to make more money - why would they be offering a lease for YOUR benefit? Just run the numbers both ways - My guess is the purchase ends up being a better deal. | ||
| Ray Buchner (Ray98)
New member Username: Ray98 Post Number: 3 Registered: 9-2003 |
I'm looking to get into a 355 or 550 next season. Is there any tangable benifit to leasing as opposed to an outright purchase? Is it possible to afford a costlier vehicle by leasing before the purchase? |