Why lease a Ferrari?

I've been noticing since I've started looking for a 430 that many of them on the market today have been leased by at least one of their owners. I can't comprehend this, unless perhaps you've found a way to attach it to your business, and therefore can write it down. Other than that, why spend thousands a month on something that you just have to turn in after a couple years?

Also - are you guys with me in my thinking that leased cars aren't going to be treated as well, and therefore that I should avoid buying one that has been previously leased?

 

leased = run through business in many cases

 

Leasing might be the way they structured their payments to keep them low with a ballon mayment at the end. Good for your business and keeps your payments down.

 

Purely to make the payments tax deductible...by running them through a business. Otherwise, it is INSANE to add interest costs on top of the purchase price.

By way of example, when I recently bought my 430 for $150k, the buyout of the lease for the previous owner was $180k! So, he had paid his lease payments for almost 2 years AND took at least a $40-$50k hit on the sale...just makes zero sense. The days of an inflationary economy are gone...

 

I think it unwise to lease a Ferrari for the sake of a tax write-off. Seems like that would be a sure red flag for the IRS.

Another thing is that you are renting a car with nothing to show for your money at the end. My car will be worth less after the same period of time as a lease, but it will be sitting in my garage and be all mine.

 

If you flip cars frequently (say every 1-3 years), the sales tax savings of a lease can be substantial. Depends on the state obviously and the residual -- but in parts of Cali, the sales tax is 9.75% while leases are structured so you only pay tax on the portion of the car that depreciates over the term of the lease.

The trade-off is you also end up paying tax on the embedded interest in the monthly payment so you have to compare the savings on the residual vs. the extra tax on the interest vs. the interest rate / money factor.

 

There is no cheaper way to buy a car than "paying cash". Those who are leasing are doing so because they don't have the cash and need the "monthly payment".

In the last 10 years of HELOCS there has been a lot of financing fancy things cuz they can't afford them in real life.

 

That's appealing for sure but aren't most exotic car leases open end? You have to buy it in the end so you're only delaying that tax payment.

There may be no safer way, but it surely isn't cheaper if you're not risk-averse. Net after taxes on my HELOC is currently TWO percent. It really doesn't take a substantial risk to beat that IMHO.

 

What's the term of the HELOC and is it "front end loaded"? If so, and you're not carrying the loan to full term, you're paying a lot more than 2%.

 

There may be no safer way, but it surely isn't cheaper if you're not risk-averse. Net after taxes on my HELOC is currently TWO percent. It really doesn't take a substantial risk to beat that IMHO.[/QUOTE]



So you're suggesting that you take out a HELOC for the amount of the car, buy the car with that, and then have a low-rate payment via the loan on the house? I've contemplated this but haven't gone so far as to see what the rates are on those these days.

I was also thinking how brilliant it would be to have the dividends from an investment make your car payment, although naturally it would likely take an investment that is several multiples of the value of the car.

 

Absolutely correct. I own and have also leased many times . If its collectible own it if its depreciating lease it . Why have all that cash sitting in a garage losing value. I Take the difference I would have laid out and put it in a guaranteed TAX DEFERRED annuity at 8% compounding for up to 18 years. I will quadruple that same money you watched lose value year after year. You have to consider the time value of money when it gets over a certain amount . To keep up with inflation and right now of course it deflation IMHO its better to have the money grow and only pay for the time I enjoy ..

 

8%?

Where?

So let's say you lease a $100K Ferrari and put $100K away making 8% compounded annually (if it truly exists). That's only $8K a year and the Ferrari payment is going to cost you a lot more than that per year and at the end you have no Ferrari.

I see how ideas like this used to work but not anymore.

 

It's simple interest, which is currently about $200/mo, tax deductible.

 

Right if the payment is 3k/month you'll need what, more than 400k invested @ 8%. I suppose you could start smaller though, invest 200k and make payments on an m3 or something, then trade that in and go from there...

 

The point isn't that the investment pays for the car, the point is simply that you come out ahead if you can earn more on your money with an investment than it costs to borrow. I make about 2.5X the dividend income than I pay in interest on my HELOC. There is risk.

 

I can give another reason.
at swapalease.com or leasetrader.com once in a while you see a person looking to get out of their lease.
it's a relatively less expensive way to find out if you like a Ferrari before the commitment of owning one.

 

Based on what amount borrowed?

 

I've tried to make deal work on that website. It's impossible. You'll see a Range Rover for example with a $3K per month lease on it. Never a good deal.

 

This is a true statement but it does not mean that just because someone uses borrowed money they can not afford the car. A is a subset of B but B is not necessarily a subset of A.

As for no cheaper way ... if that were true no one would ever finance a large development project because they could make a lot more if they didn't. Oh yea, they do finance things because leverage can work in your favor. Same applies.

This math is correct if you are trying to calculate how much you need invested to drive a Ferrari and never have a car payment. BUT if you are trying to determine borrow & invest vs cash this isn't the math. You have to deduct the depreciation from the total and consider only the interest. Then you have to establish a safe rate and cost of funds. You will also need to determine a probable rate. Then you discount all of the cash flows to a net present value and compare. No problem but much more complicated than what you are showing. Hence the reason it looks so lopsided.

 

I simply don't understand how anyone can write off a ferrari as a business expense?? Unless you are in the auto business. Isn't that a big red flag for the IRS?

 

I'm not bashing anyone that borrows to buy their Ferrari. I'm just saying that the cheapest way to do anything is CASH. From development projects to cars. You add in all the closing costs, front end loaded loans etc. and BANKS are laughing all the way to the BANK.

There's a reason the world economy is in the ****ter right now and it's because everyone borrowed more than they could afford.

 

You can't.

If you can lease and write it off you can just as easily pay cash and depreciate it through your business. Either way, no IRS agent is gonna be OK with a business using pre tax dollars to pay for a Ferrari..

There are people that do it though and if they can without getting caught then I say "good for them".

 

On the first point, because a lot of people can't afford to buy a new Ferrari. It may also because of the technological obsolescence of the newer cars -- i.e., after 2-3 years there's something newer and better.

On the second point, yes. I lease my daily driver and have no plans on keeping them beyond the warranty. I drive them hard, turn in the keys at lease end, and walk away.

What he said. If you know you're going to turn the car in after the lease, you do save a good chunk of sales tax. And it is a big chunk here in California -- I think it's 8.75% in San Diego County, 9.75% in LA.

 

I guess this is one we will disagree. I didn't say buy it when you can't afford it. I said use OPM when you can get a better return. When I bought my car I chose to continue to hold some stocks instead of sell them to pay for the car. The finance cost 5% and my portfolio returned 18.4%. Yes, there is additional risk but clearly better to finance than pay cash.

Here we agree. No way to do this that doesn't end up in a big IRS bill. Lease or buy the auto deduction is capped. You can write it off then you have to recapture it so on net it isn't deducted. Lots of talk claiming that they do this but I don't see any way to make it fly.

Here in San Jose/San Francisco 9.5%. That is a big hit on 50-60% of the value of the car. The net effect is a pretty good return on the cash you didn't part with.

 

8% everyday with the largest and oldest co in the world. Ive been in the industry for 25 years. So yes that 100 is worth 200 in 9 years WORST CASE SCEANRIO unless the market does better and your Ferrari is worth mid 50's. Now having said that i will make a payment for the time I drove the car. Just a diff approach. Same with a girlfriend vs a wife .. sorry depreciating asset