gago1101

inverterman

Leasing the RS is the best solution for me because of the cash my business generates. I designed a low residual, 36 month lease that values the buy out at end of term at $67K The added bonus is the immediate expense that offsets income resulting in lower annual income tax. If I did not have the cash flow from a business I would put a large amount down and finance the car at a term with the best possible interest rate.

inverterman

Managed accounts are your friend

gago1101

Yippiekiaye

C.J. Ichiban

If your cost basis was MSRP on a PTS 2016 RS and you sold with 1,000 miles chances are you sold for 50k over which would be a lot of lease payments!

Yippiekiaye

fair enough. That makes sense. Risky but that makes sense.

Yippiekiaye

Just to clarify, If I write a check for msrp, drive the car for 1000 miles and sell it for 50k over, I get my original purchase price back plus the 50k.

If I finance the car- I get my msrp back, plus the 50k minus any interest I paid.

If I lease the car, I get 50k back minus lease payments which will result in more expense for me.

So many people cant write the check, I get that. So why not finance like you stated CJ - do a long term loan - atleast you get your principal back when you sell - you lose the interest. But if you lease, you lose the entire lease payment.

What am I missing here?

orthojoe

What you are missing is that if you buy out a lease early, you owe only the depreciation amount remaining plus the residual and a small buyout fee of a few hundred dollars. You do NOT owe the rent charge/interest on the remaining payments.

So, if you only make 2 lease payments before buying out the car, you only made 2 months of rent/interest/sales tax payments. The rest is like you paid cash for the car. If you transfer the title before 10 days in California to someone else, you don't owe sales tax on the buyout.

shapiroeric

While the MF is high the OP failed to say what the residual is so impossible to give an opinion....

C.J. Ichiban

Sam- the key for a lot of people outside of Az:

When you buy in the Republik of Kalifornia, you buy a car and pay 8-10+% in taxes and registration.

So, on a 220k car you are out 20k or so and cannot 'trade' those credits in. So by paying cash your cost basis is 240k. Financing, you are in same boat. Leasing, you only pay about 4-6k for 6 months of ownership in regards to taxes.

In Texas, AZ, NV and other states, you can trade in a car that you paid 150k for and you buy a 220k car, only pay incremental taxes...easier to 'pay cash and drive cheap' but in CA you pay tax on each dollar of retail msrp.

Some dealers 'double whammy' their ADM customers and tax the full amount , others take a donation or side fee.

I was once offered a LaF at MSRP but had to make a 2M sponsorship payment to dealer's race team...decided to pass since they wouldn't change the team name to CJW Racing, and because I didnt want to effectively cut a check for 3.7M for a car...(one issue being a bigger deal than the other)

Yippiekiaye

Correct - but you lost those rent payments correct? You dont get those back?

Lets ignore the buyout fee of a few hundred dollars for the sake of this discussion. Lets say I lease the car for 2k a month and the total cost is 200k for the sake of this example. After 6 months I decide to get out of the car and sell it as its worth 50k more. Ive paid 12k to rent the car. I buy out the car and sell it for 250k. My net in this example is 238k because Ive paid the lease payments. Again- ignoring the smaller fees and Ive made 38k.

Lets say I decide to pay cash for the car. I write a check for 200k. I sell it for 250k. I made 50k.

Im ignoring tax as tax is negligible as its due in both instances.

Lets say I finance the car. My payments are 2500. 250 in each instance goes to interest, the rest goes to principal. Same issue- I sell the car for 250k and pay off my loan. Ive built up equity in the car with my payments, the only thing Im out is the financial charge which would be $1500 so my net is $48,500.

In the 3 instances the lease cost the most even if you sell the car for over msrp which we all know is rare. Im hoping this makes sense. Again, I realize that people may not be able to write a check for the car but do long term financing, it seems like a better deal.

Yippiekiaye

32 years in the Peoples Republic if California and I understand that well.
Fair points on the partial sales tax, but if you are going to assume that you are going to lease and then sell the car cause its 50k over msrp, you have to buy it outright at that point correct? The dealer isn't going to give you the 50k credit. You will have to buy out your lease and then resell the car in which case the entire tax is due.

orthojoe

The error is that you are ignoring tax. I don't owe 8.25% sales tax on the buyout of the car on a lease. If I cash buy or finance a car, I owe tax on the entire purchase amount. You are also assuming that the 12k you paid is totally lost. Only the rent and sales tax on those 6 payments are lost. The rest you get back.

Yippiekiaye

I was ignoring tax as it would be due in both instances correct? I buy a 200k car, I pay 200k plus tax. Car is worth 250k - I sell the car and net my profit.

I lease the car worth 200k. make 6 lease payments. Only pay tax on the 6 payments. Car is worth 250 and I decide to flip it. I have to buy out the car before I can flip it correct? At that time the remaining tax would be due.