I can try and get lease quotes for someone if they are interested in one of our cars.... We also suggest doing a 5 year lease because they are open ended and the payment is smaller..... Seems to be pretty common on these kind of cars because you only pay tax on what you use and bunch of other benefits....
I agree. Youre paying: 1. the buydown cost 2. interest and taxes on the pay down amount 3. interest in the cap cost left over. 4. added fees that magically show up (mileage fees; cancellation fees; contract fees etc) Not to mention, you dont "own" the car, just the debt responsibility. The bottom line is you are borrowing money at a higher rate for a longer period of time in most cases. The benefit to most is that you get more car for a smaller payment (if thats how you structure it).
Help me figure this out if I have the math wrong, but using that lease quote after 2 years you've spent ~$90k (inc 1 month penalty for getting out) with a balance of $223k. Finance (60 mo @6%) after 2 yrs and you've spent $130k with a balance of $188k. This assumes the 6% tax rate as well used in the lease quote. If the car takes a 30% hit after two years and you sell it for $196k, then you have an additional loss of $27k on the lease and a gain of $8k on the loan. This brings the total cost of the lease to $117k and the total cost of the loan to $122k. So in this case, it seems the lease is $5,000 cheaper. Now figure in the tax advantage of A)using pre-tax money on the lease (30% premium) and B)writing off a portion of the lease. Those pre-tax payments of $90k would be equivalent to $129k post tax.
I can send someone an example of a lease quote on a 430 if they like..... The banks have to make a bulk of their money in the first year or so because they know most people will not keep these kind of cars for the full term (most people move on to something else) so it has to make sense for them. If you bought a car for $200k at 8% tax you are instantly out the $16k. If you lease the same car and sell it in 2 years (for example) you only paid a small amount of tax compared to the $16k. We had a guy buy a 599 GTB 5 months later traded it in on a 458. He leased both and that saved him a good chunk of $$$ because he didn't have to come up with all the sales tax compared to a purchase. And mileage technically does not really matter because the bank never gets the car back...
Hi Cam, not really in the market for a 430 but wondering how you treat residuals for classic cars which have a much lower depreciation and some times, even an appreciation. Example would be a 246gts or a countach.
I did a little research and spoke with the guy that does a lot of leases for Ferrari of Palm Beach and the local Lamborghini and Bentley shops. I also had a conversation with both of my CPAs. I live in FL. I am not qualified to give financial advice to humans. 1. If you (and your CPA) feel your business can defend a write-off of an exotic, then buy/lease in the business name. 2. If you lease, you can write off all of the lease payment (assuming the vehicle is 100% business use). This is easier and more cost effective (more write off) than traditional financing. 3. If you structure the lease where the buyout is small, i.e. $30K on a 458 after X years, and keep the car until the end of the lease (my plan), then you legally have to pay tax on the difference between the buyout price and FMV (fair market value). This is not easily verifiable as there is no specific form submitted to the IRS that might trigger a flag. But in the end you would have to pay your tax rate on the delta between the buyout and FMV. It may appear people omit this step on a regular basis. My math last year on a new 458 using the lease option, factoring in a low buyout, the tax advantage, and minimal paperwork; the lease was the best option for me and my personal situation with my company at that time. Some more footnotes: a. My company was going to pay the insurance. 36% tax savings on that money. b. My company was going to pay for all maintenance and wear items. I know the 458 warranty is stellar. What should you do? Just get a quote for both the purchase and the lease, then schedule 1hr with your CPA. The answer will be crystal clear. If it is not, fire your CPA, and move on with life. *I am taking this from memory, so if I did not accurately remember a fact, sorry, **** happens.
This is the bottom line. How does one do this? All of my company cars are either boring, big trucks or Range Rovers that weigh more than 5K lbs. I have a business reason for owning them through the company. Are you painting the logo of your business on the side of your company owned Ferrari?
I do not know much about how the do classics, sorry. I think it kind of depends on how aggressive you and your CPA want to get.....
A. I think you have abnormally strong feelings toward the lease vs buy discussion. B. I think you may misunderstand the term "business use". This is for you and a qualified CPA to discuss and make a decision based on that discussion. C. Please note not every business involves moving dirt, some businesses involve sales people driving to customers and depending on what they are selling and to whom they are selling will determine the appropriate vehicle type and cost. In my "personal" case this would be the vehicle for the CEO of a software company. Using a vehicle for business meetings, travel, etc, one can drive a bentley, porsche, or ferrari and likely defend it in an audit. D. There will be no "logo" on my vehicle as I am not using it to advertise my company, just for business related position displacement. This is not up for debate because it is a personal business decision.
Generally, a normal depreciation rate is applied, even to the older cars where the residuals will be more stable / higher. What ends up happening is that the leasee builds a lot of equity and at the end of the term, can recover a large portion of their lease expense. F430s are one thing, but not a lot of companies will lease Dinos or Countachs. They are out there, but you can expect to at least pay a normal rate of depreciation, if not pay the car down to essentially $0 over the term. If the car appreciates over the term of the lease, you better execute on the buy out! While there are possible write-offs and advantages to paying with pre-tax dollars, one thing no one has touched on is opportunity cost. I know of one individual that leases his Enzo. He could pay cash for it with what falls out of his jeans, but instead of having ~$1MM tied up in a car, he pays ~5% interest on it, keeps most of that $1MM in his accounts and earns several times more than the interest through other investments. If you're looking at a 458, what could you make with the $280k cash vs. what will it cost you to lease?
The only way I could justify a Ferrari lease is if I ran it through my business. The only way it makes sense is to use pre-tax $$. I agree it's a personal business decision.
This is what gets me also. Where are these guys making these guaranteed returns that offset the cost of the lease? "Several times more than 5% interest"? Really?
Well, for 280k you can buy two houses and rent them each out for $1,500, that gets you above 10% Buy a building for your own use and save the lease costs Buy machines or raw materials to make your product with But a bunch of collectibles from Jerry, wait 3 years and make 50%. Etc, etc
Piling on here, as someone who recently leased two Ferraris... Trent's post (#56) is dead on. My primary rationale for leasing this time was 1) savings on sales tax 2) reality that I was able to get very, very low money factor (interest rate), use capital for better ideas/returns (which is speculative, of course) and 3) potential to further reduce tax exposure as these cars are part of our LLC (business use). YMMV and likely will. I have an uber-conservative CPA who 1) keeps me out of IRS trouble and 2) minimizes my taxes, in that order. I involved him early, and often. What I've learned - Open-ended leases are, by definition, a gamble; you need to decide up front what you think the car will be worth X months/years down the road as the defined residual. 458's seem to hold their value; we can debate the FF's depreciation. Ultimately, setting the residual too high or too low has implications at the end of term. Think conservatively. Some leasing companies will force you to think conservatively! When I was young, and stupid, I leased cars (get more car for lower payments) - I didn't have the $$ to buy them outright. Now, I only do this if I can pay cash and do a lease something for other advantages. (I pay the lease out of an escrow account) I looked at leasing a couple high-end used cars (for same reasons above). I would consider the warranty aspects; most new cars we don't worry about mechanicals as it's under warranty. Lease a used F430 and find yourself needing a new gearbox, the economics change quickly. BTW make sure you get agreed-value insurance in excess of your final obligations and reduction-in-value coverage in case your leased car gets into a scrape that ruins your residual expectations. (assuming you are going to trade/sell it at some point). Let us know how this turns out; I learned a lot from perusing Fchat as I went though this, would love to hear and learn from your experiences. We used Rick Intile from Putnam....his advice was stellar and he's no-BS. Worth a call to him if anyone is considering this (no affiliation other than he helped me and is Fchat sponsor).
This tax benefit of leasing doesn't work in some states like IL. All tax payments upfront buying or leasing doesn't matter. And when buying the car we get taxed again. Double tax. So unfair!
1. I already do that too. 2. That's all work also. What's your time worth? The original post makes it seem like you just leave you million in an account and blammo, 15% return. That's just not the case.
In Georgia, there is no sales tax on used cars if bought from a private seller. Therefore, I pay cash for all cars and buy them from private sellers. My sports cars I use post tax $$ though.
it seems to me that for those who like to lease, there is no explanation necessary, and for those who dont, there is no explanation possible. be that as it may, Putnam, premier etc. are all in business since there seems to be a greater demand for leasing than the "buy cash only" posts on f-chat would have you believe.
1. Guaranteed returns dont really exist at any decent ROI, lets call it "probable" returns. 2. "Several times more than 5%..." is not needed. Lets say you should target a return greater than your interest rate. Return > Interest_Rate. The delta is a up to the investor, their risk tolerance, age, and financial situation. 3. If you can not get >5% on your investments, please post in the business section of fchat. (PM me if I dont chime in on the thread). The average of all of my investments are >10% over the last 2 years with no exposure to equities. I dont target 15%, thats possible but can be hard, and does not suit my personal investment comfort zone. I would rather make 10% worry free than 15% investing with fear. So I trade some return for comfort and a slightly better quality of life. 4. Investing is forgoing consumption today with the expectation of increased consumption in the future. If you lease or finance you can actually have both the consumption today and the investment. This of corse only works if you have the money up front. The math can be fun. Lets say you want to buy a 100K 360. You can take $250K, make 10% with minimal risk (Trents investments). If you invest the money your nominal return (nominal is fine since the financing or leasing does not adjust for inflation either) is 25K/yr. You pay 30% to the IRS (possibly 15% if its capital gains), so that is 17.5K/yr post-tax. Now just scale out the purchase duration where the payments equal <17.5k/yr. On 100K a 72month loan @ 5% is ~$1600/mo. Then after 6 years the car is paid for and your investment principal is intact and the returns continue to come in. This is what I did with my F430 Spider, but not to 100% coverage of the P+I payment, but within ~$300/mo, close enough. You could also just use the 100K cash and offset the payment by ~$700/mo, or roughly half, if you use a capital gains tax strategy and squeeze out another percent or two in returns. Then after the 6 years, once again you own the vehicle and still have the principal. Why? Lots of reasons for me, but the main one is it forced me to invest instead of carrying cash in several FDIC accounts. I sometimes need the push. Why not pay cash? Loss of use at these interest rates is just too large.
This is all work! I already work. I'm not going to take on another "investing job" to pay for a Ferrari when I can just write a check.
You are 100% correct; Investing is a job, and like most jobs it pays a salary. You can hire someone to do it for you for a fixed cost or percentage of return as well. I pay 1% for my managed investments. I respect your decision to pay cash for a vehicle. I also respect the people who finance and lease. The important point is to review all of your options, then consult a professional, trusted friends, etc, then make an educated decision based on your specific situation. If there was a one-shoe fits all, we would not be having this discussion. *Note; If you pay cash for a vehicle or home as opposed to financing/leasing or otherwise borrowing the money, you end up with a non liquid asset. I target non-liquid assets to be a reasonable percentage of my net worth. But then again I am conservative in that regard.
I think it depends on which Ferrari we're talking about........ I could sell my CS in a week. And, it's gone up in value in the last 2 years anyways. I'm not the type of guy who would buy a new 458.
I can think of a few reasons to lease but, in the majority of cases, I feel that people do so for the wrong reason. And that reason is that they cannot otherwise afford the car any other way. Terrible money mangement. Irresponsible behavior and, as we've seen in the housing market, people's poor financial choices often wind up impacting the financially prudent as well.
