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

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

Discussion in '360/430' started by John Dowling, Jan 15, 2007.

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  1. John Dowling

    John Dowling Formula Junior

    Oct 1, 2006
    596
    Richmond, VA
    Full Name:
    John Dowling
    I know this probably does not belong here... but it just would not work on the 308/328 thread!

    To carry over a thread from earlier about net worth, cars, etc. I noticed a lot of talk about how much you need to be worth to buy $XXXK car, etc.

    Something to think about in simple terms:

    As a person in the financial planning business... the wealthy rarely pay cash for anything (I mean the big ticket stuff). Everything is financed, on margin, collateralized, etc. The name of the game is controlling the asset. That is right, controlling the asset (not owning the asset, because it will some day be sold). For instance, I want a $10MM yacht and I am worth $50MM. I am not going to sell my office complex, shopping centers, whatever, to plunk down $10MM for a yacht. I will most likely finance it 100%, keep my money at work, keep the cash flow up, and make the payments and still end up with a higher net worth year after year. The goal is not to own a yacht the rest of my life... I'll probably want to own it (read: control it) for 5 or 6 years, then get bored with it, and decide I want a ski home in Aspen. The bottom line is cash flow and net worth and keeping it growing. Not where the dollars are parked necessarily.

    Because you lease a car, plane, boat or finance your home, does not mean you are not wealthy, or stupid. It has to do with cash flow and maintaining control over as much as possible for as little out of pocket money as possible, and most importantly, keeping your assets working and growing.

    Now, on this level, $240K for an F430 or even $1.3MM for an Enzo is not quite what we are talking about here... but I think it is an interesting topic to think about.
     
  2. azew

    azew Formula Junior

    Jul 4, 2006
    463
    New York

    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
     
  3. staylor

    staylor Formula Junior

    Aug 20, 2006
    766
    Sydney/London
    Full Name:
    Scott
    There are a _lot_ of these topics already... perhaps search the archives ;)
     
  4. Simon^2

    Simon^2 F1 World Champ

    Oct 17, 2005
    12,313
    At Sea Level
    Care to provide a few more details on your qualifications?
     
  5. AutoXer

    AutoXer Formula Junior

    May 1, 2006
    538
    Full Name:
    John
    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.
     
  6. RBK

    RBK F1 Rookie

    Jul 27, 2006
    3,105
    Calif and Nev
    Full Name:
    Bob
    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
     
  7. motion

    motion Formula Junior

    May 4, 2005
    584
    At the track
    Full Name:
    Motion
    Old fashioned philosophies will always win out over new... there is a reason old money is smart money.
     
  8. TheRogue

    TheRogue Karting

    Dec 14, 2004
    113
    Newport Coast, CA
    Full Name:
    Mike Rouge
    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.
     
  9. ucorders

    ucorders Formula Junior

    Dec 27, 2005
    398
    Portland Oregon
    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.
     
  10. Bill S

    Bill S Formula 3

    Oct 2, 2004
    1,995
    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.
     
  11. John Dowling

    John Dowling Formula Junior

    Oct 1, 2006
    596
    Richmond, VA
    Full Name:
    John Dowling
    My mistake...

    was being theoretical and should not have brought this up. I think I am misinterpreted, here. Sorry...
     
  12. Senna1994

    Senna1994 F1 World Champ

    Nov 11, 2003
    13,183
    Orange County
    Full Name:
    Anthony T
    Not at all. Thank you for the post and discussion.
     
  13. PhilNotHill

    PhilNotHill Two Time F1 World Champ
    Owner

    Jul 3, 2006
    27,855
    Aspen CO 81611
    Full Name:
    FelipeNotMassa
    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???
     
  14. John Dowling

    John Dowling Formula Junior

    Oct 1, 2006
    596
    Richmond, VA
    Full Name:
    John Dowling
    You clearly have not read my first post, nor my second one.

    I am absolutely not saying any of this... don't wish to get into a battle.

    Sorry for bringing this up.
     
  15. PhilNotHill

    PhilNotHill Two Time F1 World Champ
    Owner

    Jul 3, 2006
    27,855
    Aspen CO 81611
    Full Name:
    FelipeNotMassa
    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.
     
  16. PhilNotHill

    PhilNotHill Two Time F1 World Champ
    Owner

    Jul 3, 2006
    27,855
    Aspen CO 81611
    Full Name:
    FelipeNotMassa
  17. PhilNotHill

    PhilNotHill Two Time F1 World Champ
    Owner

    Jul 3, 2006
    27,855
    Aspen CO 81611
    Full Name:
    FelipeNotMassa
    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.
     
  18. boffer

    boffer Rookie

    Dec 7, 2006
    23
    Los Angeles
    Full Name:
    Steve
    yes, you should know better :D

    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 :)
     
  19. Joe Mac

    Joe Mac Formula 3

    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
     
  20. John Dowling

    John Dowling Formula Junior

    Oct 1, 2006
    596
    Richmond, VA
    Full Name:
    John Dowling
    Really, some bankers on this site need a lesson on reading comprehension. I am in no way suggesting a guy with no assets should lease an F430 and get in over his head while trying to pay for his house and send his kids to college. Mr. Banker fellow, we are very proud of your accomplishments. You are no doubt a huge success and have all the answers.

    Cars are chump change, and I agree. My last sentence clearly states it really is not my point. "Not quite what we are talking about, here". I generally work with folks who are commercial real estate developers with large net worth, huge cash flow, but not willing to sell anything (wonder why)... and if you own $50 million in commercial income property, with steady appreciation and huge cash flow... you don't dump it to buy a $10MM yacht. You lease the yacht... hell 6% is nothing if what you own is appreciating at a rate greater than that and throwing off tons of cash. $50MM - $10MM = $40MM. How is this headed for bankruptcy?

    This clearly has opened a can of worms and for that I am sorry. Anyway, I promised myself I would not post to this thread anymore... but... ahhhh, I give up. Not that important...
     
  21. Simon^2

    Simon^2 F1 World Champ

    Oct 17, 2005
    12,313
    At Sea Level
    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....
     
  22. henryr

    henryr Two Time F1 World Champ
    Silver Subscribed

    Nov 10, 2003
    22,364
    Atlanta
    Full Name:
    Juan Sánchez Villa-L
    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.
     
  23. Jompen

    Jompen Formula Junior

    May 27, 2006
    718
    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.
     
  24. carcommander

    carcommander Formula 3

    Sep 28, 2006
    1,705
    Southeast
    Full Name:
    Jim
    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.
     
  25. FXFerrari

    FXFerrari Rookie

    Jan 12, 2007
    17
    Where sun does shine
    Full Name:
    Mike Zaring
    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 :)
     

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