Anyone want out of their 550/575 lease? | FerrariChat

Anyone want out of their 550/575 lease?

Discussion in '456/550/575' started by ketel, Nov 29, 2007.

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  1. ketel

    ketel Formula 3

    Aug 6, 2007
    1,355
    Sausalito, CA
    With 550 and 575 values still softening, a local dealer confided to me that there is a growing number of customers who leased their 550s or 575s in the last few years that are now upside down on their leases - they still owe more than the vehicles could command in today's market. Now, those same customers are thinking about upgrading to a 599 but are less than thrilled about taking a big hit when they trade in their leased 550s and 575s that are underwater.

    This raised an interesting opportunity for me in that, for complicated tax reasons that I won't bore you all with, i MUST lease a 550 or 575 rather than straight finance it. As such, if anyone out there (or anyone you know) has a leased 550 or 575 with a little time left on it and is interested in getting out of his lease, please PM me right away because I am willing to step up and assume that lease and the underlying obligation rather than execute a new finance contract. This could save the current owner/lessee thousands in a payout at a trade-in and save me from having to enter into a new lease contract for the next 4-5 years.

    I will also pay a reasonable finders fee if someone on this board puts me in contact with the current lease holder on a 550 or 575 and we end up consummating a deal.

    Thanks!

    ketel
     
  2. henryr

    henryr Two Time F1 World Champ
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    Nov 10, 2003
    22,413
    Atlanta
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    Juan Sánchez Villa-L
    sorry, i have to call BS on that theory. what type of premiums are 599 trading at ? +100K???

    1) the majority of exotic car leases are OPEN ended with co's like premier, chase or putnam. in the event that they would be under water, You'd be in the exact situation by assuming that same lease. unless, of course, you over paid and bailed them out.

    2) anyone that has access to a 599GTB:

    a) is a "GOOD" customer that can purchase the car for MSRP. instant equity.

    b) has the bankroll to pay the $100k+ premium over MSRP. in which case, it doesn't sound like they'd be concerned with small change and would likely ride out the remaining short term of their existing 550/575 lease.

    i'd love to hear more about "taxes" and "ferrari leasing". keep us up. i'd be interested to hear what type of offers you receive.
     
  3. donv

    donv Two Time F1 World Champ
    Owner Rossa Subscribed

    Jan 5, 2002
    26,107
    Portland, Oregon
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    Don
    Who would have leased a 575 in the last few years and not expected it to depreciate like keys falling out of a Learjet? I don't think most Ferrari owners are that dumb.
     
  4. ketel

    ketel Formula 3

    Aug 6, 2007
    1,355
    Sausalito, CA
    Henryr,

    Not sure your response is all that accurate. I don't mind a good smack-down, but I actually think you're pretty far off base. Here's why:

    Forget about the 599 example. You seem to be stuck on that. Let it go. That was just one issue with a couple 550/575 leasees. The point I made still holds: Someone in a lease on a 550/575 where the balance of the payout exceeds the value of the vehicle in today's market does not have a lot of attractive options if they want to get out of that lease before expiration. The leasing company 'may' take it back, but the leasee is looking at paying an early cancellation fee and making up the difference in the value left on the lease (unpaid payments+residual) and the market value. That can be $20-$30k. He may also take a credit rating hit. (Some leasing companies do that if you cancel early.)

    Your point that 550/575 owners are likely to be well-healed enough not to care does not hold a lot of water either. I don't care how much you have in the bank, a $30k hit would piss anyone off -- especially if it is avoidable with a little effort.

    Also, you are assuming that a leasee in this situation would just keep the leased 550/575 and continue to make payments on it through the lease term, and then turn it in. Yes, most leases are OPEN. So what? That leasee would still need to make all the contracted payments until they could turn it in; otherwise, the above situation applies. That's a particular problem if that leasee has moved on to another vehicle and does not drive the 550/575 any longer. It would just sit there taking up space; some owners simply do not have the space for an idle 550/575 that they would also have to pay to continue to insure at the FULL coverage limits because most leases demand that. Ouch.

    If you need a real world example so you think this is not all "theory", let me provide one. One of my vehicles is a 2003 Range Rover. Perfect condition. All options, etc. I got the vehicle last year from a leassee who got a 2006 Range Rover and had 1 1/2 years left on his lease with the 2003. I assumed that lease. I put NOTHING down. When the lease came up for termination I purchased the vehicle and still own it today. The prior leasee did not want two cars he was making payments on and insuring and his garage in his building only allowed one vehicle. It was a win-win for both of us. He got out of his lease with Land Rover Credit and I assumed a near-new vehicle for nothing down and only 14 months left on it. If I did not like the car after 14 months I could have simply turned it in -- (this is not an option if I took out a 36-60 month contract on another vehicle.)

    So...I think there are 550s or 575s in this predicament. I would assume the remaining balance on the lease and any fees associated with the transfer and the leasees would get out of their lease and the associated payments, insurance and maintenance obligations.

    ketel
     
  5. Juice It

    Juice It F1 Rookie

    Sep 22, 2002
    3,233
    Maryland (DC Suburb)
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    Jeff
    Taking over leases is done all the time but the lien holder will not remove the original lessee even if they add the new guy. They have no reason to let someone off the hook even though someone new is added. They are the ones with something to lose and could care less what agreements the original lessee makes as long as he is still on the hook. There are websites that list leased cars available to assume. My only concern if I was the original lessee would be insurance implications and having to trust a complete stranger is making your payments.
     
  6. henryr

    henryr Two Time F1 World Champ
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    Nov 10, 2003
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    fair enough - but i think your whole analysis relies on the premise that the lease is a closed end type. in which case, you are correct. the costs and liabilities are definable.

    i believe the vast majority of the leases on these cars will be open ended. an assumption of an opened end lease will just serve to transfer any equity (plus or minus). who is going to eat the negative equity upon transfer ? someone is responsible for the residual.

    anyone that has access to a 599 at MSRP has better options and a good relationship with their dealer. otherwise, $20-30k is chump change is chump change in the world of $400-500k toys. judging by the mileage on many of these cars - all the do is sit and take up space.
     
  7. dakharris

    dakharris Two Time F1 World Champ

    Jun 7, 2001
    29,441
    Sleepy Hollow
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    If your proposition is a good one for the party assuming the lease, I must not understand leasing as well as I thought. I think the OPEN ended lease is a major consideration. My understanding is that with an open ended lease, the risk of depreciation rides with the lessee. In a closed ended lease, the lessor maintains the risk of depreciation (for which they are compensated in theory in the lease payment). Why would you assume an open ended lease on a vehicle that has depreciated far more than was contemplated in the lease? You would then be stuck with that "balloon" payment at the end of the lease, making up the amount of additional depreciation not caputured by the prior lease payments.

    I have only personally leased one vehicle. It was a CLOSED end lease and I was very glad because the car was only worth $9,500 at the end of the term, but the payoff was $11,500. Not only did I not excercise my option to buy, but I also paid less for the car than I would have, otherwise. I only financed the $14,000 it was expected to depreciate, rather than the $16,000 it actually did. Therefore, I'm not sure of the value in assuming a closed end lease, either. If the payoff is greater than the value of the car, why not just buy it for less money from the lessor after it gets turned in by the original lessee?

    I definitely see the advantage to the original lessee, but not to anyone who assumes an upside down lease, whether open or closed ended. The only way this makes any sense is for your undisclosed tax reasons, right?
     
  8. Drive550PFB

    Drive550PFB Two Time F1 World Champ

    The way many auto leases are written (notice I did not say "all" leases) is very much one-sided to the leasing company.

    Say that you lease a $12,000 car (to make the math easy). If you put $2,200 down (Cap cost reduction) and lease a car with a residual value set at $5,000, then you are paying off $4,800 over the life of the lease. On a 5 year lease, this would equate to $100 per month in amortization (and, I know it is not a linear equation, but this is an example). Now, let's assume the interest rate (but leasing companies never quote an interest rate, they quote a money factor) is 12% per year. This would indicate a monthly payment of $176.40 per month. Of this $176, about $100 is paying down the balance.

    The leasing companies then calculate your payoff as follows: They take the $176.40 per month and multiply by 48, giving you about $8500 in payments. Remember, your residual is $5000, so the day you drive off in that car, you will owe $13,500 (which is $8500 plus $5000) to pay off the lease--that's more than you paid for the car.

    Unlike a home mortgage, where you simply pay off the unamortized balance when you pay the loan early, the lease is not an amortizing instrument. It is a payment stream.

    Some companies out there have phantom income (that is income taxable by the IRS, without receiving the cash) that they want to offset with legitimate expenses. Leasing allows for this.

    While it is probably a bad use of money, the tax issue described in this thread is very much plausible.

    I personally, think prices will continue to decline, so the guy might get stuck--but that's his problem.
     
  9. dsd

    dsd F1 Rookie
    Owner Silver Subscribed

    Nov 19, 2006
    4,271
    Northern Virginia
    I was under the impression that open ended leases were illegal (at least in my state --VA).

    Also, not sure how well leasing a Ferrari would go down during an audit (may be hard to justify as legit business expense)?

    Best,
    dsd
     
  10. ketel

    ketel Formula 3

    Aug 6, 2007
    1,355
    Sausalito, CA
    Henryr,

    You argue that it would only make sense in a CLOSED-end lease; not true. Actually, it makes little difference whether the lease is OPEN or CLOSED-ended in the scenario we are talking about, which are the options when trying to end a lease early in a vehicle with more owing on it than the market value.

    In a closed-end lease, there is no residual--hence, no option to acquire the car at lease expiration; one simply turns in the vehicle and -- barring any damages or excess mileage charges -- walks away.

    An OPEN ended lease offers the leasee the option to buy the vehicle at lease expiration -- at the residual which is pre-determined. Obviously, where it gets sticky is when that residual exceeds the market value of the vehicle. Unless he REALLY loved that particular 550 or 575, why would he pay, say, $120k to buy out the residual and own it outright when he can get a comparable vehicle for $90k-ish in the market? Why wouldn't he simply turn it in and find a similar car in the marketplace? Even if the vehicle he finds at $90k-ish is not as nice as the one he's been driving during the lease period, that $30k in savings sure will go a long way toward getting it cherry and adding all the goodies he could possibly want.

    As to the comments about it "making no sense" to want to assume the lease on an upside down vehicle, look at it this way: In a lease assumption there is usually only a short period left on its term -- say, 12-18 months. This gives the leasee a nice option to drive a new-ish exotic without a long-term commitment. Given how many people we all know who rush out in the heat of the moment to lease a new Ferrari and end up never using it because they did not know what they were getting into and/or making the deep commitment that is involved in having an Fcar, more people could benefit from not being locked up for so long in a lease.

    Also, in a lease assumption there is often no down payment involved. One simply takes over the payments. This can save $20-30k in a typical down payment outlay. (For example, Don L. Leasing has a '99 550 for around $90k and their lease would involved 20% down -- roughly $18k. I'd much rather keep the $18k and apply it toward the balance of the remaining payments on another car that did not require a down payment, wouldn't you?) Not making the down payment goes a long way toward absorbing the amount the car may be underwater on the back-end. In other words, if I decided to buy a vehicle that I assumed at lease expiration, and that vehicle was underwater on its residual, that amount could technically be offset by the fact that I did not have to plunk down $20k on the front end. So, net-net, this is still a better deal.

    Finally, there are ancillary benefits to the lease assumer (if there is such a word.) Assuming an existing lease is usually easier than getting a fresh new one. So, if you are having credit challenges and/or if you simply do not want to take the credit hit of signing up for a long-term lease (which will often ding your FICO score because it is such a new and long-term obligation), assuming is the way to go.

    Anyhow, I have gone on too long here. Hope I cleared up a few things up.

    ketel
     
  11. dakharris

    dakharris Two Time F1 World Champ

    Jun 7, 2001
    29,441
    Sleepy Hollow
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    Ketel: I strongly urge you to carefully read the terms of any lease you wish to assume. There is a huge difference between closed and open ended lease terms. Your explanation above differs from my understanding of the difference between the two types of leases being discussed. My understanding is that Closed gives you the OPTION to buy. Open means you MUST buy (or pay the difference between the lease value and market value in many leases) at the end of the lease term. An open end lease is great if the car depreciates less than anticipated. You are screwed if it depreciates more. Under your scenario, you are looking for a car that is upside down on its lease. Assuming an open end lease in this case would be buying a disaster. Unless you have some creative tax reasons for doing so, don't.

    From Forbes:

    Closed-End Lease

    A rental agreement that puts no obligation on the lessee (the person making periodic lease payments) to purchase the leased asset at the end of the agreement. Also called a "true lease", "walkaway lease" or "net lease".

    Since the lessee has no obligation to purchase the leased asset upon lease expiration, that person does not have to worry about whether the asset will depreciate more than expected throughout the course of the lease. Thus, it is argued that the closed-end leases are better for the average person.

    For example, suppose your lease payments are based on the assumption that the $20,000 new car that you are leasing will be worth only $10,000 at the end of your lease agreement. If the car turns out to be worth only $4,000, you must compensate the lessor (the company who leased the car to you) for the lost $6,000 since your lease payment was calculated on the basis of the car having a salvage value of $10,000. Basically, since you are buying the car, you must bear the loss of that extra depreciation. But, if you have a closed-end lease, you don't buy the car so you don't bear the risk of depreciation.

    Open-End Lease

    A rental agreement that obliges the lessee (the person making periodic lease payments) to purchase the leased asset at the end of the agreement. Also called a "finance lease".

    Since the lessee must purchase the leased asset upon lease expiration, that person bears the risk that the asset depreciates more than was expected by the end of the lease. Of course, at the same time, the lessee stands to realize a gain if the asset depreciates less than expected.

    For example, suppose your lease payments are based on the assumption that a $20,000 new car will be worth only $10,000 at the end of your lease agreement. If the car turns out to be worth only $4,000, you must compensate the lessor (the company who leased the car to you) for the lost $6,000 since your lease payment was calculated on the basis of the car having a salvage value of $10,000. Basically, since you are buying the car, you must bear the loss of that extra depreciation. Conversely, if the car is worth more than $10,000 at the end of the lease, you receive a refund from the lessor.
     
  12. ketel

    ketel Formula 3

    Aug 6, 2007
    1,355
    Sausalito, CA
    dakharris,

    Yes, it goes without saying that it is mandatory to familiarize oneself with ALL the terms of any lease contract being assumed. This is particularly the case with vehicle leases because words are often used interchangeably and that can lead to a lot of confusion.

    For the purposes of this discussion, OPEN leases refer to those leases that have embedded therein an OPTION to buy the vehicle at lease expiration at the residual value. CLOSED leases have no such option. Your Forbes example is, I'm afraid, misleading. I have leased many cars over the years -- almost all high end or exotics -- and I have never seen the lease that your Forbes quote describes. That type of lease refers primarily to equipment leasing for businesses, not automobiles. The last time I read a clinical description like that of what a lease entails was in business school and it referred to leases on capital equipment for factories, etc -- certainly not for Ferraris or their ilk.

    All I can say is that I have personal experience of having assumed leases on high-end autos in the past and, when structured properly, they perform very well, make a lot of sense, and are a win-win for all concerned -- except mayble the dealer who really wants to write a new lease for every car on his lot and extract his pound of flesh in fees and tack-on finance charges. I don't feel so bad about depriving him of that usurious business.

    ketel
     
  13. henryr

    henryr Two Time F1 World Champ
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    Nov 10, 2003
    22,413
    Atlanta
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    your descriptions, differences on open/close end leases differ from any that i have seen. i would consider there to be major financial differences between the two.

    the lessee in an open end lease assumes all financial risks in relation to the residual regardless of whether you purchase the car at term end from the lessor. in a closed end lease, u have no residual risk.

    the forbes description is dead on with the exception of your obligation to purchase at final term which may or may not exist. you should be free to (if your an idiot) return the vehicle and assume any financial risk of liquidation of the assets by the lessor. when they puke your 575 at auction at $65k ($75k residual) you'll be getting a bill for $10k.
     
  14. elpadrino

    elpadrino Formula Junior

    Aug 29, 2005
    694
    Bogota NJ
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    Gabriel
    people who REALLY COULDNT afford one to begin with and were just looking at the here and now. Good for them though they enjoyed a ferrari at a very high premium....much like most of the housing market....wait a little while maybe some govt agency will come along and bail them out of their stupidity in an unfair gesture to those that really work hard to afford their life style.

    (sorry for the rant)
     
  15. Drive550PFB

    Drive550PFB Two Time F1 World Champ

    YOU ARE DEAD ON! This has been the subject of many of my posts. I cannot fuc***g believe that the Bush Administration is talking about a 900 Billion bailout of the subprime mess. I would have expected this from Hillary--let's give every child $5,000--but a Republican? This could turn out to be the most socialistic program in the history of the world. I was smart enough to buy a house I could afford and lock an interest rate--and now those idiots who bought too much and financed things to their eye teeth are getting bailed out??? There is even word that credit card debt is going to be a bailout. Hank Paulson is nuts!!

    I will tell you this, though, their consumer debt is going to get them. Ferraris they can't afford on leases that are under water. I know guys selling one-year old gold Rolex watches at a $7K discount to the purchase price.

    GIVE ECONOMIC DARWINISM A CHANCE! If we can weed out these idiots, we will be better for it.
     
  16. ketel

    ketel Formula 3

    Aug 6, 2007
    1,355
    Sausalito, CA
    Drive550PFB has a point. What is even more interesting with this 'bail out' issue is how the ferocious opposition is coming in a bi-partisan way. I'm a Democrat and I think this would set a terrible precedent. Unfortunately, fat cats are prone to cover each others' backsides. Paulson is a Goldman Sachs veteran and the former i-banker is certainly not thrilled to see his Wall Street buddies take it in the shorts on all the subprime debt they gobbled up with both hands only a couple years ago. All the malarky about 'protecting working families' from foreclosure is public relations crap: the bottom line is that powerful financial interests are getting pounded in rapidly deteriorating subprime debt. If they can't get out of these crappy securities they argue that they'll take the economy down with them. How the hell did things get so messed up.

    Perhaps George Carlin said it best:

    Conservatives insist that they need tax breaks and freebies so they will have incentive to invest; then they argue that poor people have lost all incentive because they've been given too many handouts and freebies...

    ketel
     
  17. Fastviper

    Fastviper F1 Rookie

    Nov 20, 2003
    4,525
    Texas
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    Dash
    This site has lease takeovers with zero down.

    This thread made me remember this site I saw years ago and thought wow I could drive a different car every 12 -18 months with zero down. Just drive it and give it back it seemed like an Ok deal. I just never did it.

    If you accept that you are going to pay lets say 700 a month, can someone explain why this deal would be bad?

    leasetrader.com
     
  18. dakharris

    dakharris Two Time F1 World Champ

    Jun 7, 2001
    29,441
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    Zero down, but they do charge some fees. Other than saving the capital reduction cost, which is a trade off for a depreciated used car, what do you save? You are getting someone else's used car. Why not go lease it yourself new and get exactly the options that you want. I don't want to take over a lease, I want to buy the car from the leasing company who repossessed it and is now going to take a bath on it.

    No Ferraris, btw. 3 Maseratis! One poor guy has 50 months left on a 60 month lease on a QP.
     
  19. ketel

    ketel Formula 3

    Aug 6, 2007
    1,355
    Sausalito, CA
     
  20. carcommander

    carcommander Formula 3

    Sep 28, 2006
    1,705
    Southeast
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    Jim
    I would not rent someone's money to buy something I don't have to have. That would inlcude most toys. The only way this works is if you want to own the car and think it will depreciate more than the value of the lease payments. Used gold rolex watches are always available at 60 percent of list or less. You just have to know where to buy them. Most any other watch as well.
     

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