How To Get More Ferraris For Your Money

I'm with the 'pay cash' crowd, unless you're buying and selling new Ferraris left and right. With a lease, you're paying for the value of the car that you're using up. I.e., during 48- or 60-month lease you're paying for depreciation and wear on the car for its first 4 or 5 years. Depreciation on a brand new Ferrari is dizzying. Yes, you save a lot of sales tax, but you're essentially taking the new car hit for someone else.

Any leasing company will let you buy the car at the end of the lease, but usually you'll end up paying more (in total) than if you had just financed it.

BUT - again - leasing a toy car like a Ferrari had better pay you back in smiles, or a new wife, because that money is gone. The smart money (relatively speaking - cars are almost never smart money, but we love 'em) is to buy a car with a year or so left on the factory warranty.

 

Exactly. Suppose I am about to buy a new 430 for $200K. I won the lottery, have lots of cash, and I have my check book out and have started to write the check. Suddenly the dealership finance guy pops in the office and says I can finance the car instead for 60 months at 2%. Knowing I can take my 200K check and deposit it for 60 mos and earn 3% after tax, why would I NOT finance the car? An irrational fear of paperwork?

Let me give you a real life example. When I bought my F-car I put about $30K on a 4 year note at 4%. I COULD HAVE paid cash, but also had an investment opportunity that I would have had to have passed on if I did. I did not have enough cash to do both and meet the minimum liquidity position that I hold for myself (my safety net). Knowing that I would earn more than 4% AT in the investment, I borrowed and made the investment. About 12 months later, with my investment return now in hand and sitting on even more cash (initial investment + return) I faced the same decision. Reinvest or pay off the loan? Since I did not have an alternative use for the cash this time around, I paid off the loan. Yet some of you still think I should have paid cash and passed on the investment?

 

Whether to lease/finance or to buy comes down to perspective. As a financial advisor, I analyze the numbers and can make valid arguments for financing or leasing IF the rates are low enough in the deal......HOWEVER, I've learned that transactions such as these are not always black and white decisions based on numbers. The other perspective is how you will sleep at night. Some people can't sleep at night feeling like they have a payment to make every month even if they could liquidate some investments and pay it off if they wanted to. Others think that driving down the road w/o the pink slip in their safe deposit box makes them feel like they didn't "earn" their car. So there is no right or wrong that can be applied to everyone.

I will add this however. If you own a home with enought equity in it why would anyone lease an exotic car? Instead you could take a home equity line of credit or a second mortgage to finance the deal. The terms could be similar with a low monthly payment and then a balloon payment at the end of the term. The advantages are that 1) you're likely to get a lower interest rate and 2) up to $100k of the loan can be tax deductible.

 

I've been looking for a 360 for a few months now (99 - 00) and was planning on paying it in full.

After reading this article, I contacted PFS to see if the deal made sense. My parameters were that if I was going to lease the car, I would write off 40% of the vehicle for business use. It would be a legit write off as most of my customers are in the automotive industry and would get use of my car as a promotional vehicle.

I plan on keeping the car for 3 years before I traded up and my sales tax rate is 8.25%. I also factored in earning 4.1% on the money in a CD and having my income taxed at the highest bracket.

Based on these assumptions and assuming that I could sell it for what I owed on it after 3 years (I think it was 72k), I figured it would be nearly a wash between a lease and an outright purchase; even with 7.X% interest on the payments. I save about 50% of the sales tax and I write off a portion of the vehicle, insurance, and maintanence costs.

Of course, these were just rough calculations and I haven't run this by a CPA yet. But I concluded that the least would be too much hassle for nothing gained.

I'm sure if you wanted to buy a 430 and only hold onto the car for a year, leasing can make sense because you spread the sales tax across the lease term vs. paying it all up front.