Cash vs. Lease / What do you do to afford these cars

I am not sure with whom you associate in the financial planning business but I could not disagree with your generalization more. In my opinion, if it cannot be purchased from unencumbered cash - and with such cash not accounting for a material portion of one's liquid assets - it does not get purchased by me or others that I know generally.

Of course, there are folks out there who leverage and stretch themselves to the hilt to buy exotic cars and such. They may likely end up as "one hit wonders" that fall prey to the cyclical nature of markets (of virtually every type) and place themselves in significant risk of substantial economic peril when things are the least bit volatile. But those with financial prudence do not tend to fall into this vortex - lest they not be able to afford such for long.

Again, nothing wrong with stretching things to pursue your dream, but to say that the wealthy rarely pay cash for anything and that everything is financed, on margin, collateralized, etc. is misplaced

 

There are a _lot_ of these topics already... perhaps search the archives

 

Care to provide a few more details on your qualifications?

 

I also disagree with your viewpoint and personally would not borrow money to buy a depreciating asset. Our cars are toys and unless I can pay cash for it and not have it be a burden on my lifestyle, I would not touch it. I might lease it if the numbers make sense and I want to keep the cash working for me, but I have not seen a lease that makes financial sense on these exotics yet.

Yes, it's good to leverage, but only if the return is there and the risk is understandable and can be assumed or diversified away. I also disagree with you that the ultra rich finances everything. In my business, I see lots of high end homes purchased with all cash.

However, in many of these cases, purchasing a high end home or spending $250,000 on a car or even $1.3 million on a car is chump change for them.

 

Succinctly - I agree. My philosophy is buy it and forget it. Who "invests" in a car, boat, or plane they use? Once bought, the money is gone and forgotten. You will not make a profit "investing" in such things.

My personal experience with those who leverage is they eventually find themselves in trouble.

The disparity between rich and poor increases and even among the 1% wealthiest, many in the 1% are relatively poor compared to others. Some go broke trying to keep up and others never make it trying to (prematurely) "control" assets. Best

 

Old fashioned philosophies will always win out over new... there is a reason old money is smart money.

 

The only time I would "leverage" anything would be on an appreciating investment or business opportunity where the numbers and risk made sense. Definitely not on a toy that is going to lose half its value the minute your drive it off the lot or pull it out of the slip.

 

A car is an expense nothing more or less. Figure out the cost of the money in either lost interest on your money or the cost of using someone elses money, add the depreciation and maintainence and this is what it cost you in after tax dollars. If you feel the toy is worth spending that much on and you are not neglecting your saftey net then it is worth it. It does not really make a difference if you borrow the money or use your own. It is only the true cost of the car that matters.

 

Sometimes it makes sense to borrow, especially if there's a tax write off. For example, most people with $1M+ income will carry a $1M mortage because you can right that off, which is significant in that tax bracket. They'll drop cash for the remainder.

Look at home sales in Montecito CA. Most people pay cash for the homes, or just carry the $1M loan, even for homes $10M+. The feeling is that, in the long run, the home will be worth more than investing the money, and there's no mortgage interest that you can't write off.

 

Not at all. Thank you for the post and discussion.

 

If you can't and don't pay cash you can't afford it.

Can you say "heading for bankruptcy"?
You pay twice as much when you include the interest and you may be forced to sell at the worst possible time. Cash buyers can sell when and to whom they want.

Being in debt is economic slavery. You want to sell your freedom for a car? Not me. The car owns you not the other way around.

As a banker I have seen more heartache over too much debt than you can imagine. Good bankers don't lend more money to a person or company than they can handle. Bad bankers end up going down with their bad debt.

Get it???

 

If you can't and don't pay cash for a Ferrari or exotic car you can't afford it.

You can only borrow so much money. Borrowing power should be saved for necessities and preferably emergencies.

Financial leverage helps you make more money on the upside. Problem is it KILLS you on the downside.

There are lots of risks: Terrorism, high energy prices, inflation, high interest rates, falling dollar, higher taxes, etc. Probably not going to get much better than this. Employment is low and earnings are high. More likely things will not be as good going forward. Could happen but the ODDS are against it.

Too much debt is a form or slavery. I would not trade my freedom for anything material, especially for one that will probably depreciate in value.

As a banker I have seen too many people ruin their lives with too much debt. Good bankers don't let people have more debt than they can handle. Bad bankers eventually go down with their bad credits.

Save up and buy a car you can afford. You'll appreciate it more and you will probably be healthier, wealthier and wiser.

 

Pay Cash

 

I live in Aspen.
The average home last year sold for $5.3 million. Over 70% of those homes sold for cash. Real estate has been going up every year for years. The market may flatten out, but seldom goes down (I've never seen it in 35 years). Cash buyers do not have to sell. They can wait until they get their price. This holds prices up.

Some of these homes are bought with debt. These are usually flipped in two years after much rennovation has been done. You can make some good money if the buyers keep coming and the economy stays good.

There are several Ferraris in Aspen. Nobody I know leases or has debt on their cars. Most are very sharp businessmen. If it is not smart for people who have $5 million dollar homes to have debt on their cars, it is really tough for people with less cash flow to service the debt.

I had a fellow Ferrari Club member in Denver who had a Ferrari with debt which he sold right before his company filed bankrupcy.

 

yes, you should know better

i love everyone's theory - "if you can't pay cash, you can't afford it!" Settle down boys, we know you all have loads of money. It's not a question of can you afford to pay cash, it's a question of what makes the most sense financially.

in my experience, people i know with lots of discretionary income lease their high end cars. i won't pretend to be a finance expert, FAR from it. i paid cash for my CLS55 just because I prefer to own my cars, and the dealer (who sells to a lot of LA celebrity types) said the following...."just curious, why are you paying cash. most people in the business lease their cars." I just shrugged and said i like to own my cars. I know an MB is different than an Fcar, but i also have a friend that leased a McLaren and a Bently in one year, and he can afford to buy 3 or 4 of each without blinking (yes I am very jealous).

just the other side of the coin here......there's no right or wrong way, depends on the individual

 

As an FChatter with money and with a financial strategy history, let me impart the following: just like he said above, it is all about preference. Those who pay cash for everything are either ill informed or don't wish to worry about the idea of financial planning. As for cash for cars, if you have so much money so as not to care about buying one of the fastest depreciating assets, so be it. Isn't smart financially but who am i....Leasing (though I don't lease my 360 - long story) is a smart thing in the Ferrari market or related exotics market if you know how to shop for the "right" lease. Most people buying these types of cars are like me; they love to drive cars and they have some form of ADD they requires they have a new precious exotic every 2 years - sometimes less. Those who are "buying" that luxury and losing that value evry 2 years should reconsider their strategy.

Happy motoring!

Joe

 

A discussion goes both ways... your language style to me comes off quite "young" to my interpretation... and since you are being somewhat hostile to "Mr. Banker fellow"...

Again, would you care to give some of you qualifications...

IMO the discussion varies depending if you are 20 with an AA degree... vs a VP at Merrill Lynch in I-Banking...

Notice I haven't posted anything for or against your premise, I am just trying to understand who is leading the discussion....

 

you must have a better accountant than i. you cannot WRITE it off.

familiar with phase outs ??? once your AGI exceeds a certain number ($260ish, dependant on filing status, etc) your deductions are limited and get phased out above a certain income. then throw in AMT.

and this no cash = no car is bullsh*t. the cost differential between cash, lease and loan is a rounding error in my book. do a search on a thread i had. my bloomberg has a lease vs buy scenario. the cost differential over a three year period was minimal at best. cash buyers have an opportunity cost also.

i purchase my cars for the sole reason that i know what i am paying and it makes an apple to apple comparison easy when comparing pricing among dealers. i drive them into the ground. we lease my wife's for a whole set of different reasons.

no cash = no car is valid only when you don't have the networth to maintain a prudent debt to eqty ratio.

 

I´m sorry if I sound rude now but are you crazy?

Your assuptions basically says this. I borrow money to play around with and pay expensive rates while my real money is growing alot faster invested in something.

This is a VERY risky way to go imo. If you did this during 2001 you don´t have to worry about it cause you won´t have any money left.
People doing this are the reason why the american consumer credits and american economy is considered the biggest risk for global economy worldwide atm. You really have to learn abit about risk and read some financial history.

 

A pretty interesting discussion. I like to pay cash for depreciating assets. Leverage is great on appreciating assets if they continue to appreciate. The average car (not Ferrari) is traded in with 4 or 5 thousand negative equity.

A Ferrari never makes financial sense. So why try to make an emotional purchase into a logical one. Just for the record, yachts never make financial sense either. Ask Trump.

 

Not sure, how paying cash straight out benefits you financially.

If let’s say you buy a 300k car cash – then it’s done, money “wisely” invested into a depreciating asset.

If you invest 300k at 9% and finance 300k car at 6% you are still ahead of a game by 3%. Finances 101, isn’t it? Unless I am not getting it…

P.S. Hello everyone! My first post here