| Author |
Message |
arthur chambers (Art355)
Member
Username: Art355
Post Number: 599
Registered: 6-2001
| | Posted on Monday, August 19, 2002 - 6:23 pm: | |
Terry:
Nobody is going to cause you trouble with a 50% residual. However if the residual is 10% where traditionally the vehicle holds it value, you will have trouble. Worse when the residual is below 10%. There are a series of cases which have declared a lease to be a disguished conditional sales contract where the 10% residual was used. These were cases where the history of the resale for that type of equiipment was the residal was quite a bit higher. In the instance of a Ferrari, after 3 - 5 years, they have been worth much more than 50%, you would have difficulty.
Art |
Terry Springer (Tspringer)
Junior Member
Username: Tspringer
Post Number: 230
Registered: 4-2002
| | Posted on Monday, August 19, 2002 - 5:46 pm: | |
So, the IRS can come along and arbitrarily say that since the car did not depreciate as much as was originally setup in the lease, we are going to disallow the lease and whack you. They would thus be assuming that anyone up front could tell what the value of asset X will be in 5 years. I dont believe a Daytona will depreciate substantially in 5 years, but I would wager that pretty much nobody who paid $300K+ for one in 1990 thought it would either.
If I go lease a brand new pickup truck for my business on a 5 year lease allowing 15K miles per year the residual value is likely to be 50% of the purchase price. This is normal and customary and probably pretty accurate. However, nobody knows for sure what the vehicle will be worth in 5 years. Anyway, im gonna talk to the accountant.
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arthur chambers (Art355)
Member
Username: Art355
Post Number: 597
Registered: 6-2001
| | Posted on Monday, August 19, 2002 - 4:26 pm: | |
Terry:
The IRS has seen all of this before. If you get audited, they WILL make adjustments if they believe it was a disguished conditional sales contract. The issue they will look at is the option to purchase such that you will exercise it, and the criteria is the comparision between the actual cash value at the end of the lease and you purchase option. There are other critera, and if the market changed dramatically between the time you entered into the lease and when you did exercise the option, they will consider those factors.
I would be very careful about how you do this. Generally, it is cheaper to buy, get the good rate, than to tax plan and end up with the worst of both worlds.
ART |
Terry Springer (Tspringer)
Junior Member
Username: Tspringer
Post Number: 229
Registered: 4-2002
| | Posted on Monday, August 19, 2002 - 1:14 pm: | |
Wayne,
Bingo. A loan that looks like a lease... thats what is attracting me. I talked to the guys at Premier. Im going to be talking to my accountant some more about this. My questions now is whether or not I can write off the down payment on the lease and what are the tax implications of buying the car off lease at the end of the term. If the down payment is deductible, then this is a no brainer. I may be selling the 308 soon! |
arthur chambers (Art355)
Member
Username: Art355
Post Number: 596
Registered: 6-2001
| | Posted on Monday, August 19, 2002 - 1:12 pm: | |
Ernesto:
Have ever compared the actual interest rate on those "leases" against what you can get for a rate? My experience is that the leasing companies usually charge a much higher imputed rate than a bank which provides financing.
I don't finance because things can go wrong, and I'd like to keep my stuff rather than let someone take it away. I may not have as much as a good many people, but what I have, I own.
Art |
Jens Haller (Jh280774)
Junior Member
Username: Jh280774
Post Number: 51
Registered: 9-2001
| | Posted on Monday, August 19, 2002 - 1:02 pm: | |
Ernesto,
I think you just misunderstood me (Perhaps my english is not quite so good, sorry about that!). What I was talking about was that you cannot afford a car which you have to finance not which you chose to finance (In the first case you have not the choice!).
If you are going to a bank to lent money for a Ferrari you are still taking a big risk because:
1. What happens when you got seriously ill?
2. What happens when you loose your job?
3. What happens when your own business does not go so well?
Result: All of a sudden you got a lot of debts you cannot pay back. If you bought the car with your own cash you just sell the car and worst case that can happen is you loose some money...
If you (freely!) chose to finance your Fcar that�s totally O.K. with me but if you definitely do not have the money to even buy one it is very probable that you can�t maintain the car (This is in fact much more expensive than to buy a Ferrari!). Hope you don�t think that I am ignorant by just having that opinion...
Con saluti cordialissimi,
Jens Haller |
Warren L. (Warren)
Junior Member
Username: Warren
Post Number: 70
Registered: 2-2002
| | Posted on Monday, August 19, 2002 - 10:52 am: | |
YIKES!! That's a low blow Mitch, that's why I didn't go to law school, my reading comprehension sucked!! |
Ernesto (T88power)
Member
Username: T88power
Post Number: 611
Registered: 2-2001
| | Posted on Monday, August 19, 2002 - 10:39 am: | |
Jens, it is not a question of whether you HAVE to finance. We are all talking of options: either finance or pay cash, which is better for each person and why. Some people dont feel comfortable with debt, other do and take the cash and invest it. But saying that if you finance you shouldnt buy it because you cant afford it is very ignorant.
Ernesto |
Mitchell L. Davidson (Jussumfastgi)
Junior Member
Username: Jussumfastgi
Post Number: 195
Registered: 4-2002
| | Posted on Monday, August 19, 2002 - 10:19 am: | |
Warren, that's the point... Some of you need a reading comprehension class. lol! |
Warren L. (Warren)
Junior Member
Username: Warren
Post Number: 65
Registered: 2-2002
| | Posted on Monday, August 19, 2002 - 8:53 am: | |
Why lease a used F-? The lessor will take a low residual value. F- don't depreciate too much after the first couple of years. |
Jens Haller (Jh280774)
New member
Username: Jh280774
Post Number: 50
Registered: 9-2001
| | Posted on Monday, August 19, 2002 - 4:51 am: | |
The only opinion I share with my dad: If you have to finance or lease a car stay away because you cannot afford it! Either you have the money to pay or not. It is not a shame to not be able to afford a Ferrari but it is more than stupid to go to a bank to lent money for it. The only thing about leasing in germany I know is that it is definitely more expensive to lease a Ferrari if you want to keep the car afterwards. This may be a very old fashioned opinion for all your investment stars out there but it makes sure that I do not have tons of debts when there might (which I do not hope!) be bad times.
Con saluti cordialissimi,
Jens Haller |
L. Wayne Ausbrooks (Lwausbrooks)
Junior Member
Username: Lwausbrooks
Post Number: 118
Registered: 8-2002
| | Posted on Monday, August 19, 2002 - 2:59 am: | |
Correction: It was Premier Financial Sevices, not Putnam Leasing. |
L. Wayne Ausbrooks (Lwausbrooks)
Junior Member
Username: Lwausbrooks
Post Number: 117
Registered: 8-2002
| | Posted on Sunday, August 18, 2002 - 2:13 pm: | |
I spoke to the guys from Putnam Leasing (the ones that the Daytona article was referring to) at the RM Auction last night in Monterey. Since I finance and lease cars for a living, I was curious how a classic car lease works, since the car is not likely to depreciate (on a lease, payments are depreciation + finance charge + tax, see my earlier post). Using the Daytona for an example, they said that they would just decide on a residual, usually about 50% over 5 years, take about 20% down, and base payments on the difference + finance charge + tax. Since no one is going to turn the car back in at the end (for $50,000?) they can't lose. In reality, this is not a lease. It's a balloon payment loan set up to look like a lease for tax purposes. |
Doug Meredith (Doug308)
Junior Member
Username: Doug308
Post Number: 181
Registered: 2-2001
| | Posted on Friday, August 16, 2002 - 2:53 pm: | |
An open ended lease is another option to drive an already "depreciated" sports car for lower monthly payments. A few years ago I leased an '87 Porsche 911 for the purchase price of $18,500. I had an open ended 3 yr lease and set my own residual at $11k. My payments were around $320/mo tax incl. At the end of 3 years I sold the car off the lease for $20,500. The car cost me only $2k for 3 years. If I had purchased it, I would have had to pay taxes up front and my interest rate would have been higher and the payments would have been more. The lease rate I got was aroung 7.5% and on a 10+ year old car, rates were 11-14%. At the time, this was a 3rd car and I wanted to spend under $350/mo.
The risk involved is that the car is worth less than the residual that you set in the end. |
Ernesto (T88power)
Member
Username: T88power
Post Number: 588
Registered: 2-2001
| | Posted on Friday, August 16, 2002 - 12:23 pm: | |
Terry, that is exacly how I structure my leases. Very low or zero residual or balloon at the end of the term, thereby the lease is actually more like financing in reality.
Ernesto |
Terry Springer (Tspringer)
Junior Member
Username: Tspringer
Post Number: 227
Registered: 4-2002
| | Posted on Friday, August 16, 2002 - 11:10 am: | |
Ahhhhhhh I see your point. I was actually looking to have a smaller residual even if it means a higher payment because at the end of the lease I would purchase the car. Basically, to me the ideal lease program is one that functionally works like a regular loan but can be in the company name, paid with pre-tax dollars and be fully tax deductible. So I would want the payment and residual to be the same as if it were a straight loan... |
Chris Tanner (Ctanner)
New member
Username: Ctanner
Post Number: 25
Registered: 5-2001
| | Posted on Thursday, August 15, 2002 - 8:59 pm: | |
Terry,
You and I are in agreement. I don't think you will ever see a $78K daytona.
What I was trying to convey was that the $78K residual made too much money for the leasing company. I would prefer to see the residual up in the $90Ks. A $78K residual is 71% of the $110K price. I think the residual should be up at 85%. In Wayne's example, he has the residual at 60%, which is why his example has the payments in the $1100.
The higher the residual value, the cheaper the monthly payments. I think you may be able to get a monthly payment lower than $1000/month purely based on negoiating a better residual. Just follow Wayne's formula on how residual and interest rate affect the monthly payment.
Chris |
Terry Springer (Tspringer)
Junior Member
Username: Tspringer
Post Number: 221
Registered: 4-2002
| | Posted on Wednesday, August 14, 2002 - 8:38 pm: | |
Chris Tanner: You really think Daytonas are going to lose over 25% of value over the next 5 years????? Most others I have heard anything from think they may go up 10% or at worst stay about the same. I really would not expect the cars to depreciate. If good Daytonas get down to under $75K, then where will Boxers be? $40K? How about a 365GT/C? $30K? Will that put my lowly 308GTB somewhere around $10K in perfect condition? Hmmmmmmm 308's worth less than Series II Jag E-type coupes..... No, I dont think so.
It may very well be possible to negotiate a better residual that I used in my estimate. BTW, I used a rate of 7.5% when calculating what the balance would be at the end of a 5 years on a 15 year amortization.
I may still give this a whirl after first of the year. If I can find a Daytona that is mechanically excellent with good paint but needs some detailing and minor TLC, I would put the time and money into cleaning it up. Drive it for 6 months or so and try to sell it for a mild profit or at least breakeven. |
Jim E (Jimpo1)
Member
Username: Jimpo1
Post Number: 643
Registered: 7-2001
| | Posted on Wednesday, August 14, 2002 - 8:38 pm: | |
I'm always a little amazed at the "invest your money, finance your toys" philosophy. I have yet to see an investment that can not lose money, short of a savings account or CD, and the interest rates in those are so low that it would actually cost you money in the difference in the finance percentage. I wish these confident investors would share their secrets with us. I've seen real estate depreciate, stocks and bonds depreciate, and most other 'investment' types depreciate. The only constant is cash.
|
Dr Tommy Cosgrove (Vwalfa4re)
Junior Member
Username: Vwalfa4re
Post Number: 214
Registered: 5-2001
| | Posted on Wednesday, August 14, 2002 - 8:27 pm: | |
I financed 1/2 of mine. I picked a dollar amount I was willing to spend and saved half. Then I started looking for my 308, found it and called the bank for the other half.
It is cheaper to pay cash but If I was really serious about saving that money or doing something really smart with it then what the hell am I doing buying a Ferrari to begin with? I don't need the car. I am sure I have paid far more in ridiculous mark up for Ferrari parts then I did in the bank's mark up of the money they gave me. Where's the good sense in any of this?
I really think that if you're like me and plan on keeping your Ferrari forever then all money management logic and good sense ends the moment you bring it home. Like I said I don't need the car. Unless I sell it it will never do anything but cost me money.
But it sure is fun. |
Doug O (Little_o)
New member
Username: Little_o
Post Number: 20
Registered: 6-2002
| | Posted on Wednesday, August 14, 2002 - 1:14 am: | |
Ernesto,
Totally agree with you. Everybody has a comfort zone with leverage. I myself used considerable leverage in my early stages of my business.
Doug |
Charles rich (Ccr2002)
New member
Username: Ccr2002
Post Number: 15
Registered: 7-2002
| | Posted on Tuesday, August 13, 2002 - 11:48 pm: | |
I too will probably finance...the only thing i have to add to this discussion is a strategy a friend of mine employs. He has his own leasing company. He then buys the car (not deductible) with a loan (prime now-which is deductible) and then pays his leasing company a higher lease payment.He deducts some of this as business expense and also takes the profit after paying the loan off and gives it to his kids as income for washing the cars, etc. this way the money goes at their rate not his...he deducts a higher pct of his lease. also, any money left over can be spent to pay off the loan on the car tax free. He also "leases" the car to clients for a weekend at exotic car rental prices and writes off the whole payment as an "entertainment business" expense. All these strategies would also work if one paid cash...but with rates so low it seems to make sense to leverage.
Personally, i know it's dumb to pay interest...but i'm building a house presently and don't have the money. I've been practicing delayed gratification for 16 yrs during college and medical school and residency and now i've got the fcar bug. I don't have a problem paying for the pleasure...I'm sure it will cost me $50K-$60K to drive a maranello for 5 yrs or so...maybe more. Well worth it to me.It makes the 3:00AM drives to the ER much more pleasant.
By the way...a twist on the above is to get a good friend or two and form a leasing company LLC and get a few cars in there and lease them out individually a weekly or monthly rates and share the expenses. That's what i'm trying to set up...i'll never be able to afford all the cars i'd like to drive. In some ways it's more fun to do it with some friends anyway. |
L. Wayne Ausbrooks (Lwausbrooks)
Junior Member
Username: Lwausbrooks
Post Number: 109
Registered: 8-2002
| | Posted on Tuesday, August 13, 2002 - 9:39 pm: | |
Chris, the finance charge on a lease is calculated by taking the money factor times the sum of the net cap cost plus the residual. That will equal the monthly finance charge, which will remain the same over the term of the lease. For example, let's say that:
Gross cap cost (price of the car)= $100,000
Cap reduction (down payment)= $0 (to keep it simple)
Net cap cost= $100,000
Agreed residual= $60,000
Money factor= 0.00300
Therefore, the monthly finance charge will be:
$100,000 + $60,000 = $160,000 X .00300 = $480 monthly finance charge
To follow this example through to the end, the net cap of $100,000 - $60,000 residual = $40,000 in total depreciation divided by 60 months = $666.67 monthly depreciation.
$666.67 + $480 = $1146.67 monthly payment (plus tax depending on the state you live in, some require the tax to be paid upfront or added to the cap cost)
The higher the residual, the higher the monthly finance charge will be (more money for the leasing co.). On the other hand, since the residual is subtracted from the net cap cost to determine the monthly depreciation, the higher the residual, the lower the payment.
The difference between a standard automobile lease and a classic car lease is that the leasing company is taking much less risk. When somebody can no longer afford to make payments on their BMW, or returns in at lease termination, the leasing company takes a big hit because the car is usually not worth the jacked up residual value. The Daytona, on the other hand, will most likely never depreciate. |
Chris Tanner (Ctanner)
New member
Username: Ctanner
Post Number: 24
Registered: 5-2001
| | Posted on Tuesday, August 13, 2002 - 9:11 pm: | |
I crunched some numbers on the $1000/mth Daytona lease. The interest rate is about 8.5%, which isn't bad for an old car, especially since the finance portion is 5 years.
However, a 71% residual seems much too much, in my opinion. I don't think Daytona's are going to be $78K in 5 years. If you could negoiate a residual percentage in the 80's the car would be in the low $800/month. I think this is more realistic, but it takes some profit from the leasing company. |
Ernesto (T88power)
Member
Username: T88power
Post Number: 566
Registered: 2-2001
| | Posted on Tuesday, August 13, 2002 - 7:42 pm: | |
Doug, I have yet to find highly profitable investments that are guaranteed and risk-free. There is a risk/return relationship that cannot be ignored. All the people I have met that have made it big all took risks to get there. If you are unwilling to take any risks, then paying cash makes sense. Otherwise, leverage and invest.
Ernesto |
Doug O (Little_o)
New member
Username: Little_o
Post Number: 19
Registered: 6-2002
| | Posted on Tuesday, August 13, 2002 - 7:34 pm: | |
Finance 101 guys,
In a riskfree environment, meaning guaranteed rate of return. Keep borrowing until the cost of capital is less than your rate of return on your investment. Example, if your home mortgage is 6.5% and your are in the 38.1% tax bracket the real cost of capital is 4.02%. If you have a guaranteed investment that returns more than this you want to invest this until the the cost of capital line crosses your investment line. The whole problem with this is that the capital markets are very efficient and there are very few investments that are riskfree that will let you arbitage this advantage. Ernesto feels comfortable doing this, more powere to him. I on the otherhand have not found a guaranteed investment that I would find comfortable borrowing on what I consider is a luxury item.
Business deductions almost mirror individual rates, so the analogy is the same. Leasing does have its advantages, you can structure the lease so that it is considered more like a rented car and writeoff the whole payment each month, meaning a high residual. Also, since it would be considered rent the lease would not show on your business balance sheet. If however, the lease is structured with a low or no residual, than it can be construed as a capitalized asset and the resulting lease would be disclosed on your balance sheet as a liability, with the limitations for deductability with high-end cars. Deductability test; ordinary, reasonable, and necessary. As always this should always be confirmed by your tax professional. |
Terry Springer (Tspringer)
Junior Member
Username: Tspringer
Post Number: 213
Registered: 4-2002
| | Posted on Tuesday, August 13, 2002 - 6:23 pm: | |
Man oh Man! Guys, let me clarify my Daytona leasing scenario a bit.
The way these classic car leasing deals work, you NEGOTIATE the residual value up front. This means at the end of the lease, you HAVE built considereable "equity" in the vehicle. The car would also not have to be a daily driver, not even I would want to use a Daytona like that. The car would be leased by the company as a promotional vehicle. Do you not think Anhauser Busch writes off the Clydsdales ?
Writing off promotional expenses is allowed as long as you can prove you actually do use the vehicle for such. So, drive it in a couple of parades, take it to some vintage races with your company name on a magnetic sign on the side... you get the idea. Use it in your marketing, like in your company ad you put in the Ferrari club magazine... I asked my tax guru (attorney) and he thinks this would be legit and defensible.
So, I lease for $1,000.00 per month, pay with pre-tax dollars and write the full payment off. In 5 years I have made $60K in payments on a $100K initial balance (assuming I paid $110K or so for the car and put $10K down). At the end of the 5 year lease, my purchase price residual on the car is around $78,000.00. This is the same as it would be had I financed the car for 15 years at 7.5%. At this 5 year point I can pay the $78,000 and own it, I can refinance it or I can negotiate a similar type of lease. During the 5 years I am enjoying the car, the company is making the payment and I write off every penny. The car is not depreciating. Classic car insurance and tags are cheap. Maintenance would be the same whether I lease or buy.
Maybe this type of strategy is not as good as just writing a check for it... However, I'm 35 years old and have a 1 year old business. Business is doing very well. I dont have the option of writing a check for it, I want my cash to stay in the business and fuel further growth. The business can afford the payment with no problem. I have always wanted a Daytona. This leasing thing does not look like such a bad deal to me!
BTW: My current '77 308GTB is financed. I got a loan at 7.25% from JJ Best. It was very simple and easy, they were a pleasure to deal with. I am however paying the loan off this month as I am putting it into an equity loan so I can write off the interest. I will be paying prime on the equity loan. Money these days is CHEAP! (I should know, I sell it every day).
Wouldnt you be better off doing this with your cash: I have a client right now purchasing a rental duplex. It rents for $1,480 per month, He is putting 5% down on a $114K purchase. His net monthly cash flow after taxes, insurance ect. will be about $200.00. Properties in this area are appreciating at about a 3% annual rate. So, for a $10,000 total cash investment he will earn a $2,400 annual cash return. If his property does appreciate at 3% he gains another $3,400 in net worth. So he has an annual gain of $5,800 on an initial investment of $10K. Hmmmmmmmmmmmmmm Im not a rocket scientist but I dont think many equity investments are going to look this good. Or safe.
I hope to someday be rich enough to simply write checks for things without a second thought. For now, I'll use whatever creative means are available to live life the fullest while not being stupid. |
arthur chambers (Art355)
Member
Username: Art355
Post Number: 586
Registered: 6-2001
| | Posted on Tuesday, August 13, 2002 - 5:31 pm: | |
Wayne:
I paid cash for the 355 in 99. The idea was that since these cars are occassionally used on the racetrack, and there is no insurance for them, I thought that it would be better if I paid for it. Since the actual dollars to buy the car wasn't really material to how I live, it felt better to pay cash than to finance.
When you finance you have to disclose your income, they check your credit, etc. Since I don't finance very much, if a bank tries to screw with me, I have absolutely no compuction to refuse to pay them, or to sue them if I believe they owe me money.
Not having to use other people's money is a great advantage.
Art |
wm hart (Whart)
Member
Username: Whart
Post Number: 460
Registered: 12-2001
| | Posted on Tuesday, August 13, 2002 - 5:10 pm: | |
I've done it all different kinds of ways, for ferraris and other cars. take as an example, our 740iSport, which we got as a 2001, loaded at around 63k. The car depreciates heavily, and at the end of a 36 month (lease) period, would probably be worth 30k, maybe? So if i paid cash for the car, i would own something i could resell for half the price i paid for it. If i leased the car, for 890/mo., i will have paid approx 32k over the course of 36 months, and then dump the car. Leaving aside the "opportunity" cost of investing the money i don't spend on the car if i pay cash for it, why am i better off paying cash for this car? I don't have any greater equity at the end of the day, oh yeah, a used car which i need to sell to recover the 30+thousand more i spend to own it; and, i don't tie up the cash, even if i don't invest it for a higher return, isn't it better to pay a small amount each month?
|
Ron Thomas (Ronsupercar)
Junior Member
Username: Ronsupercar
Post Number: 238
Registered: 5-2002
| | Posted on Tuesday, August 13, 2002 - 10:19 am: | |
Robert Kyasaki (not sure of the spelling) once wrote in one of his books that when he was going to buy his Porsche he was going to pay cash.. But then decided to use that money and buy stoage units which he rented instead.. He then use the profit from that unit to pay for his Porsche.. Now that his car is paid for he is still collecting income from the units..
To me this works.. I have to agree with Ernesto when you look at it this was.. YOu make someone else pay for you toys and the interest..
I don't play with the stock market too much but I do own property and to me this makes all the sense to me...... |
Fred (Iluv4res)
New member
Username: Iluv4res
Post Number: 22
Registered: 8-2002
| | Posted on Tuesday, August 13, 2002 - 9:08 am: | |
This is simple finance tied together with emotions!!!
First the finance part. If you can borrow $ at, let's say 5% and invest it and make 9%, you do it as much as you can because you net a 4% spread. This is true for whatever you buy. If you can finance the car instead of paying cash and invest the funds into something that exceeds your cost of capital (including taxes, etc...), it makes fiancial sense. If you can only generate a return that is less than your cost of capital, you should pay cash.
If you're able to generate a higher return than your cost of capital and you pay cash, you are, in essence, paying the opportunity cost of the spread you are forfeiting.
That said, emotionally, there are some who sleep better knowing that there aren't payments and no investment risk if the investment goes south. There are also some who, emotionally, like to finance even though they can't generate additional returns.
Investments should never contain an emotional aspect. This makes decisions easy. However, as we all know, Ferrari's are usually only purchased to satisfy emotions so rational decision making goes out the window!!!!
Whatever you choose, enjoy!!!!! |
ctk (Ctk)
Junior Member
Username: Ctk
Post Number: 64
Registered: 7-2001
| | Posted on Tuesday, August 13, 2002 - 9:08 am: | |
You borrow at the bank at 6%, they give you 0.7% interest for fixed deposits. I reckon, inflation runs at about 2%. If you save, you lose. Generating top quality cash flow from rentals in real estate is tough. Property prices are crashing because of overvalue, and rentals are insufficient to provide you cover to pay your mortgage. Cheapest loan today is on a housing mortgage, about 4% effective. Thinking about it, I should try to get a bank licence!!! |
Ernesto (T88power)
Member
Username: T88power
Post Number: 560
Registered: 2-2001
| | Posted on Tuesday, August 13, 2002 - 8:54 am: | |
Yeah, equities are tough now days. About 40% of my days go to stock research and trading for myself and others, and it is not easy. I have only bought three stocks in the past six months I think, but I have sold many.
By the way, I dont pay capital gains taxes in real estate since I dont sell the properties I invest in (for the most part). They generate income that pay income tax, and in 20 years or less I own them free and clear. It is pretty simple and straightforward.
For example, the $170K that I could have put into my 360 would allow me to develop a $850K project assuming standard 80/20 financing. Such a project would generate more than enough income to pay off the Ferrari loan.
Ernesto |
ctk (Ctk)
Junior Member
Username: Ctk
Post Number: 63
Registered: 7-2001
| | Posted on Tuesday, August 13, 2002 - 8:46 am: | |
Wow! That was quick, don't you sleep? Where I am, there are no yields on real estate. We used to get good capital gains but not at the moment. I'm just wondering where you can put money to grow these days? Equities are taking a beating and my retirement plans look like the proverbial cowboy 'ridin into the sunset'. Thanks for your reply. |
Ernesto (T88power)
Member
Username: T88power
Post Number: 559
Registered: 2-2001
| | Posted on Tuesday, August 13, 2002 - 8:39 am: | |
I am involved in mostly real estate investments, long term meaning that I almost never sell them. Mostly developing commercial and residential properties for rental.
Ernesto |
ctk (Ctk)
Junior Member
Username: Ctk
Post Number: 62
Registered: 7-2001
| | Posted on Tuesday, August 13, 2002 - 8:32 am: | |
Ernesto,
Care to share your ideas on types of investments that return healthy interests that covers the cost of a lease? What kind of time span are we talking about in these investments? |
djmonk (Davem)
Junior Member
Username: Davem
Post Number: 76
Registered: 1-2002
| | Posted on Tuesday, August 13, 2002 - 4:54 am: | |
WAIT! Hold the thread, im here a person who financed his Ferrari. There i said it may the type-lashing begin.(be gentle) I used an untapped part of my home equity credit line which is 1% under prime(3.75 whopping percent at todays rates). The descision to use my credit line was simply based on as i was rushing to New Jersey from Connecticut on the glorious day i purchased my Mondial an was based simply that it was the first checkbook i could find as i was in such a hurry to beat rush hour traffic. There i said it. |
L. Wayne Ausbrooks (Lwausbrooks)
Junior Member
Username: Lwausbrooks
Post Number: 100
Registered: 8-2002
| | Posted on Tuesday, August 13, 2002 - 1:32 am: | |
Okay, nevermind. The question was never about whether it was better to lease, finance, or pay cash. Thank you Ernesto and Chris for answering my original question.
As for all of those who paid cash and are adamant about letting the leasing/financing crowd know how stupid you think they are for doing so, maybe we should start a new thread entitled "Did you pay cash for your F-car, why, and why would you never finance/lease one?"
I will retire my original question, as I'm sure no one would want to admit they financed or leased their F-car now for fear of being verbally attacked. |
Chris Tanner (Ctanner)
New member
Username: Ctanner
Post Number: 23
Registered: 5-2001
| | Posted on Tuesday, August 13, 2002 - 1:02 am: | |
When I bought my car, I couldn't make up my mind on all cash or all finance. So I met in the middle and went 50/50. But I used a conventional auto loan from PeopleFirst.com. I don't tie up all the cash, and since the loan is only 50% of the car value, if I ever have to sell the car, at least I can get enough to pay off the loan.
I have concerns over leasing a used exotic in that I think the finance companies charge too much.
When one is leasing, what you are buying is the depreciation of the car. At the start of the lease, the value of the car is determined at the end of the lease. With new cars, the value goes down. Leasing is really just borrowing money to buy this depreciation--your monthly payment being depreciation per month and interest. At the end of a lease, you give the car back.
For a used exotic, like the Daytona mentioned earlier, there isn't going to be any depreciation on the car, unless you drive it into the ground. But the payment is still a $1000/month. I don't see how that number can be so high without there being a huge profit for the leasing company.
In my opinion, without there being some type of business writeoff, I think leasing is too expensive for a exotic. I recommend you check out Peoplefirst for conventional financing.
My spin on the cash or finance question is that whatever decision one makes, it should have no impact on your financial situation. A toy car purchase should not cause any financial pain or hardship. Houses, on the other hand, should hurt big time. (I live in the SF Bay Area, where real estate can get a little pricey) |
Ernesto (T88power)
Member
Username: T88power
Post Number: 555
Registered: 2-2001
| | Posted on Monday, August 12, 2002 - 10:57 pm: | |
Yes, I agree, this subject has been beat to death! But, I dont think i ever mentioned tax breaks, but i dont have the energy to look...
End of story...
Ernesto |
Henryk (Henryk)
Junior Member
Username: Henryk
Post Number: 160
Registered: 8-2001
| | Posted on Monday, August 12, 2002 - 10:53 pm: | |
Doody: I agree!!!!!!!! End of story! |
Mr. Doody (Doody)
Member
Username: Doody
Post Number: 379
Registered: 11-2001
| | Posted on Monday, August 12, 2002 - 10:51 pm: | |
for the love of pete, folks - why must we have a pointless set of arguments about leasing -vs- buying every month?
let's discuss chrome fish license plates or leather conditioner or something else.
there are no absolutes here. for some people there are rational arguments to sink $100K in a car. for some people there are rational arguments to lease a $100K car.
can we just setup a FAQ for this one?
A: Lease -vs- Buy?
Q: Talk to your tax accountant and financial advisors.
way past my bedtime :-)
doody. |
Henryk (Henryk)
Junior Member
Username: Henryk
Post Number: 159
Registered: 8-2001
| | Posted on Monday, August 12, 2002 - 10:51 pm: | |
Wayne: Ernesto was referring to the tax brakes earlier....that is why I included the car an a work vehicle, and as such, one would be putting more miles one it. Leasing a pleasure vehicle makes NO sense at all.
The fact that banks are loosing money on leases, while probably true, is that the economy has caught up with the leasing problem. People aren't buying them at the end of the lease, as the bank had expected......now they are stuck with the vehicle. This can easily be seen in the SUV market. Before they became so popular, banks where making tons of money on the leases. Now that they are so plentiful, there is a big problem that has BIT them! This just turned out, for the banks, as a potential investement.....that they LOST on......nothing more!!!!!!
I discused this with my accountant, and he agrees. Possible tax savings (VERY questionable)......but definitely NOT on a Ferrari! |
Ernesto (T88power)
Member
Username: T88power
Post Number: 553
Registered: 2-2001
| | Posted on Monday, August 12, 2002 - 10:39 pm: | |
Of course there is a risk in investing your money!! There are no sure things in life. Now this is a different conversation... If you personally view investing as too risky and live on salary, then I agree that paying cash may be the way to go since there arent other places to allocate the cash. If it is just sitting in a bank accound earning 3%, then it makes sense...
Ernesto |
L. Wayne Ausbrooks (Lwausbrooks)
Junior Member
Username: Lwausbrooks
Post Number: 99
Registered: 8-2002
| | Posted on Monday, August 12, 2002 - 10:38 pm: | |
Okay Henryk, where is it stated that if you lease a car it has to become a daily driver all of a sudden? Also, banks have been leasing cars forever and the fact is that they have been taking such a beating on the leases (their losses are huge!) that several large banks are pulling out of the leasing business. Bank of America and Key Bank are two famous examples of this. There are others. |
Henryk (Henryk)
Junior Member
Username: Henryk
Post Number: 158
Registered: 8-2001
| | Posted on Monday, August 12, 2002 - 10:36 pm: | |
Ernesto: The bottom line is what risk one is willing to take? You keep saying that you would put this money into another investment......but the term investment means that you can WIN or LOOSE!
If your investment does well, than good for you!......but if it doesn't, now you have a REAL problem.
This is just TOO risky for me, and others! |
L. Wayne Ausbrooks (Lwausbrooks)
Junior Member
Username: Lwausbrooks
Post Number: 98
Registered: 8-2002
| | Posted on Monday, August 12, 2002 - 10:33 pm: | |
Ernesto, I don't think anybody here said that if you finance it, you can't afford it. I thank you for your response to my original question. it was intersting to hear from you that you financed the car and why.
I really wasn't asking everybody who paid cash (and I know already that that's most of you) to post why they didn't finance/lease their cars, but I welcome their input, anyway. I was looking for info from those that DID finance/lease their cars as to why (thank you, Ernesto), and with what company. |
Henryk (Henryk)
Junior Member
Username: Henryk
Post Number: 157
Registered: 8-2001
| | Posted on Monday, August 12, 2002 - 10:32 pm: | |
Wayne: There IS an increase in maintanence, and depreciation, due to the extra miles driven on the Ferrari as a every-day work car. How can you deny that?
Regarding the bank and leasing company being ONE; I feel that they still are being treated as separate entities my the bank, and EACH has to make it's share of the profit......it only makes sense. The banks got on the leasing band-wagon, only because they saw the profit potential from it! |
Ernesto (T88power)
Member
Username: T88power
Post Number: 552
Registered: 2-2001
| | Posted on Monday, August 12, 2002 - 10:28 pm: | |
What is it with the common misconception that if you finance it you cant afford it? I couldve paid cash, but decide to put that money to work.
The advantage of financing is not the tax breaks, but the added flexibility of using the cash for something useful that produce future benefits, such as investments, rather than getting it tied up in a car. I am just arguing for the efficient allocation of resources. And tying up $170K in a car does no seem efficient - at least to me.
Ernesto |
L. Wayne Ausbrooks (Lwausbrooks)
Junior Member
Username: Lwausbrooks
Post Number: 97
Registered: 8-2002
| | Posted on Monday, August 12, 2002 - 10:26 pm: | |
What am I missing here? Why would you put more miles on the car or pay for more servicing/maintanence if you were leasing it? |
Henryk (Henryk)
Junior Member
Username: Henryk
Post Number: 156
Registered: 8-2001
| | Posted on Monday, August 12, 2002 - 10:22 pm: | |
I find that hard to believe. With leasing, you are bringing in a 3rd party.....one that HAS to make a profit......and so does the bank. You WILL pay more!
I would agree with your statement that it depends on how you structure the lease.......but, neither the bank, nor the leasing company are stupid!
The red flag to the IRS would be a REAL concern to anyone living in the US!
Let's say you could depreciate the $1000/mo.....that is $12,000 per year. With a tax rate of 30% to the IRS (I am assuming one is making decent money), your actual savings would be only $3,600 for the year. Now add another 5% (a guess) for the State taxes, and you end up with only a $3,000 savings for the year. I believe that the extra costs involved, as stated in my previous post, would be far greater than that. Now start putting miles on, and the cost of an extra major maintanence on the car would eat up your whole gain, and then some......even if you do it yourself, it will still cost you several thousands of dollars for parts. Now, add the extra miles......we ALL know that Ferrari prices are determined STRICTLY by miles......and I can't see where one can be ahead with a lease.
Again, if this would concern me, then I am buying a car that I can't afford, and should look for something cheeper!
|
L. Wayne Ausbrooks (Lwausbrooks)
Junior Member
Username: Lwausbrooks
Post Number: 96
Registered: 8-2002
| | Posted on Monday, August 12, 2002 - 10:18 pm: | |
Henryk,
Just to clarify, on a lease:
1. There is no increased cost in maintanence
2. There is no increased cost in depreciation
3. Though it is sometimes (depending on the leasing co.) mandatory to carry limits of liability higher than legal minimums, I'm sure most of us here do anyway.
4. There doesn't have to be a separate bank and leasing company for leases any more than there has to be a separate bank and finance company for loans. It's up to where the consumer goes to get their lease/loan.
5. Cars do not always cost more on a lease than a loan. Over the years, I have written thousands of auto leases/loans. Believe me, they come out to the same thing if you know what you're doing.
I'm still not saying that financing or leasing is better than paying cash, I'm sure that depends on each individual's situation. I know that most Ferrari owners, especially of the older cars, paid cash for their F-car, I'm just curious if there are any out there that didn't. Now I've learned that some finance/lease in order to invest the cash elsewhere. Anybody out there that couldn't afford to pay cash but still had to have an F-car? I'm also curious if there's anybody who has dealt with the following companies:
Putnam Leasing
Premier Financial Servies
J.J. Best & Co. |
Ernesto (T88power)
Member
Username: T88power
Post Number: 551
Registered: 2-2001
| | Posted on Monday, August 12, 2002 - 9:59 pm: | |
Leasing is exactly the same as financing, if you structure it correctly. The payments were exactly the same under the two scenarios, with the car fully paid during the finance/lease term. It is only when you leave an unpaid balance (balloon) in the lease where it gets ugly.
I would pay the same insurance whether financed or paid cash - full cover.
Puerto Rico is part of the US, last time I checked.
I personally view paying cash the riskier scenario...
Ernesto |
Henryk (Henryk)
Junior Member
Username: Henryk
Post Number: 155
Registered: 8-2001
| | Posted on Monday, August 12, 2002 - 9:56 pm: | |
It seems to me that leasing ALWAYS costs more than purchasing outright. I would agree that leasing can work as a company car.....with the write-off......however, I feel there would be VERY few professions where one can write off a $1000/mo. lease payment on a Daytona.
The IRS is not stupid......I feel that you would be raising a red flag, by doing this......maybe not in Puerto Rico.....but certainly in the US.
Besides, whatever money you THINK you will save will be eaten up by the increased cost in insurance.......driving a Ferrari as your work car....increased final cost, since leases cost more......increase costs in maintanence (VERY costly, as we ALL know) and, in more depreciation in the vehicle due to the many miles put on it.
Think about this: If you bought a Ferrari with a bank loan, only they have to make a profit.....whereas, if you lease, not only does the bank have to make a profit, but also the lease company.......so you have to pay for BOTH.
The bottom line is what risk are you willing to take!!!!!!!!!!!!
My feeling is to pay cash for a toy! If I am concerned about the money, investment, etc., then I should look for a cheeper toy! |
TWA (Exoticars)
Junior Member
Username: Exoticars
Post Number: 82
Registered: 8-2001
| | Posted on Monday, August 12, 2002 - 9:46 pm: | |
I wouldn't pay cash for anything that costs over 10k. Never, never, never. Finance and invest. Once it's in a car, you can't get it out unless you sell it and that's almost always for less than you put in. So, if you were guaranteed to lose money, then why put it there? |
Ernesto (T88power)
Member
Username: T88power
Post Number: 549
Registered: 2-2001
| | Posted on Monday, August 12, 2002 - 8:37 pm: | |
Yes, it's just two different schools. I am sure you would feel as uncomfortable in mine as I would in yours! But you are right, whatever works for you is what you should do.
In the end, we all got to where we wanted but took different roads - Ferrari ownership!
Ernesto |
BobD (Bobd)
Member
Username: Bobd
Post Number: 543
Registered: 3-2001
| | Posted on Monday, August 12, 2002 - 8:24 pm: | |
I'm producing income with other assets, not my toy fund. Hey Ernesto, it's just two different schools of thought. If you think financing is the way to go, terrific. Keep it up. It's your choice. Be happy. |
Ricky Nardis (Ttforcefed)
New member
Username: Ttforcefed
Post Number: 19
Registered: 4-2001
| | Posted on Monday, August 12, 2002 - 8:23 pm: | |
these questions/responses make me laugh a bit because at the end of the day isn't it all simply about indifference curves and opportunity cost??? Ie...for someone worth $2MM who makes $250,000 a year it would make more sense to finance the toy and keep as much cash as possible for a rainy day...for someone who is worth $10 or $20MM+ and makes $1MM to 2MM+ a year, writing a $200,000 check isn't a huge deal (unless buying a G4 becomes then next goal), so why have the headache of loan? |
Ernesto (T88power)
Member
Username: T88power
Post Number: 548
Registered: 2-2001
| | Posted on Monday, August 12, 2002 - 8:18 pm: | |
Oh, so there is no concrete reasoning behind it? Because if you don't have the income to make the payments, that is one thing. But if you generate enough cash to make the payments, then the efficient allocation of resources is to finance and invest the money to produce future income.
Ernesto |
BobD (Bobd)
Member
Username: Bobd
Post Number: 542
Registered: 3-2001
| | Posted on Monday, August 12, 2002 - 8:14 pm: | |
Because that's the way I was brought up. And based on what I read on this thread, I'm not the only person with these ideals. |
Ernesto (T88power)
Member
Username: T88power
Post Number: 547
Registered: 2-2001
| | Posted on Monday, August 12, 2002 - 8:11 pm: | |
Why not? |
BobD (Bobd)
Member
Username: Bobd
Post Number: 541
Registered: 3-2001
| | Posted on Monday, August 12, 2002 - 8:08 pm: | |
Ernesto, I finance my home... the interest is deductible and it's one of the few write-offs left. It makes sense. Personally, I couldn't sleep at night if I was financing expensive toys. |
Ernesto (T88power)
Member
Username: T88power
Post Number: 546
Registered: 2-2001
| | Posted on Monday, August 12, 2002 - 8:04 pm: | |
Personally, I can think of more useful things to do with $170K than tie it up in a car. I couldnt sleep at night if I had $170K just sitting idle and depreciating in a car. Financing allows you to invest the money, but I guess it all has to do with risk tolerance levels.
Ernesto |
Marq J Ruben (Qferrari)
Junior Member
Username: Qferrari
Post Number: 89
Registered: 2-2002
| | Posted on Monday, August 12, 2002 - 7:54 pm: | |
Of course. Ergo, my initial statement, that's why I won't finance/lease toys. |
L. Wayne Ausbrooks (Lwausbrooks)
Junior Member
Username: Lwausbrooks
Post Number: 94
Registered: 8-2002
| | Posted on Monday, August 12, 2002 - 7:38 pm: | |
Marq, to point out the obvious, it's the same with conventional financing. The additional money you're paying is the finance charge. |
Marq J Ruben (Qferrari)
Junior Member
Username: Qferrari
Post Number: 88
Registered: 2-2002
| | Posted on Monday, August 12, 2002 - 7:36 pm: | |
Also, as with many leases, after you pay the monthly lease payment (for however many years) and then the residual payment at the end, you've paid far far in excess of the value of the car.
|
acw (Acw)
Junior Member
Username: Acw
Post Number: 86
Registered: 2-2002
| | Posted on Monday, August 12, 2002 - 7:30 pm: | |
I personnaly always buy toys cash simply because I don't think I can beat the loan / lease interest rate by investing the money and then paying taxes on these investments.
ACW
|
Terry Springer (Tspringer)
Junior Member
Username: Tspringer
Post Number: 210
Registered: 4-2002
| | Posted on Monday, August 12, 2002 - 7:27 pm: | |
Well, an interesting little article in the last issue of SCML talked about leasing a classic car. They used a Daytona as an example. Apparently, with 10% down you can lease a Daytona for around $1,000.00 per month. Terms of the lease specify that you are to purchase the vehicle at the lease termination for a previously agreed upon residual value. When the lease is up, you can either buy the car, finance the car or do another lease.
In effect, due to the agreed upon residual value this lease becomes very similar to a purchase. However, if your self employed and the lease will be in your company name, you can write off the full payment. The vehicle is being leased by the company for promotional purposes. If you buy it individually, you make payments with after tax dollars and you write nothing off. With the lease you make payments with pre-tax dollars and write it off as an expense. If the company buys the car outright, you can only write off a certain amount of depreciation each year. Leasing would clearly hold significant advantages!
Im sure you would have to actually use the car for business promotion at events, so attend some car shows so you can pass out company brochures and put a magnetic sign on it for a parade or 2 each year.
Hmmmmmmmmm now all I have to do is get my business to the point where $1K per month in extra "promotional" expenses is no big deal and its DAYTONA FOR ME BABY !!! |
Marq J Ruben (Qferrari)
Junior Member
Username: Qferrari
Post Number: 87
Registered: 2-2002
| | Posted on Monday, August 12, 2002 - 7:18 pm: | |
Sorry Wayne, not me either. I concur with Jscott & Bobd...I never finance my toys.
|
Ernesto (T88power)
Member
Username: T88power
Post Number: 545
Registered: 2-2001
| | Posted on Monday, August 12, 2002 - 6:45 pm: | |
I financed my 360.. Never pay cash for anything expensive - I INVEST my cash, I dont SPEND it. I use income from my investments to pay for everything. Fully paid-for cars and houses are just dead money that could be invested.
Financed with a local bank here in Puerto Rico.
Ernesto |
j scott leonard (Jscott)
Junior Member
Username: Jscott
Post Number: 149
Registered: 1-2002
| | Posted on Monday, August 12, 2002 - 6:43 pm: | |
I have a personal philosophy that it is unwise to finance a toy as well. Many may feel different but it has served me well. |
BobD (Bobd)
Member
Username: Bobd
Post Number: 540
Registered: 3-2001
| | Posted on Monday, August 12, 2002 - 6:18 pm: | |
I don't finance toys.... paid cash. |
L. Wayne Ausbrooks (Lwausbrooks)
Junior Member
Username: Lwausbrooks
Post Number: 89
Registered: 8-2002
| | Posted on Monday, August 12, 2002 - 5:57 pm: | |
Being in the automotive finance business, I was just curious, how many of you owners out there are financing or leasing your Ferraris? With whom are you financing/leasing? |