All of you have excellent points, thank you I really appreciate it.

Based on my numbers between lease and finance, the payment is essentially the same. At the end I have nothing if I lease (if I hand the car back) and if I finance at the end of 3 years I estimate a minimum of $25-$30k in equity. So yeah, this is a no brainer. The conundrum I face is my how to get out of my current lease. I can order the car and roll the dice that in 3 months I would have found someone. If I didn't I have two choices. Lease the car (unwise) or evaluate the numbers and take the hit by writing a check for the difference or rolling it into the financing. This could be as much as $10k+. Yet still this is likely the smarter option.

 

Very true - leasing provides the buyer with option value (right to buy at a certain price or give back car - so porsche is taking the risk of the residual value it assigns). However, when I looked into leasing a 991, the lease money factor (or analogous interest rate) was significantly higher than financing I was able to obtain on my own (5% vs 2%). This may vary dealer to dealer (was too lazy to call around), but say a 3% premium in rate from leasing vs financing on $150k is pretty large, especially since this is post-tax money. Can still make out in leasing if for some reason, 991s depreciate way more than porsche estimates as residual value in its lease structure now.

That being said, probably a no brainer to lease if you own a business and can write off your monthly lease payments in their entirety against your business' income. Makes me wish I were more entrepreneurial.

 

Quote:

That being said, probably a no brainer to lease if you own a business and can write off your monthly lease payments in their entirety against your business' income. Makes me wish I were more entrepreneurial.

Bingo! That's exactly my situation and why I lease all my P-cars.

 

No nerve touched here. Finance charges and depreciation have nothing to do with each other. The car is going to depreciate whether you pay cash, lease or finance it.

 

Why leasing is a good idea:
1) Transfer the residual risk to the Lessor
2) Pay only sales tax on the amount the car is calculated to depreciate
3) Transfer decline in value due to accident to the Lessor
4) Deductibility for tax purposes
5) Opportunity cost of capital
6) Trading in and out of cars frequently in states with high sales tax
7) Car is usually under warranty
8) Gap insurance coverage

Why leasing is a bad idea:
1) Financing costs
2) Possible higher insurance costs

Let’s look at some real world examples:
1) Leased 2014 GT3 with minimum drive off. After signing lease I decided to sell. Only paid sales tax on first payment instead of entire car. In my case that’s $173 vs. $12,426. My financing cost was $649. Therefore the lease saved me the difference in sales tax less the financing cost, or $11,604. This is an extreme example but it illustrates the point.
2 ) Leased a 2005 Mercedes SL55 for 36 months. Purchase price was $127,000 and residual was $72,000. At the end of the lease I returned the car which sold at auction for $55,000. I therefore used $17,000 of value which I didn’t pay for. I also did not pay sales tax on the $72,000 residual which totaled $6,300. My finance costs were $17,000 which were offset by 3 years of investment income on the $62,000 that I never spent (assuming lowest, not average, net cash position) and the sales tax savings.
3) Leased 2 Range Rover Sports and had $6-9K in equity when I sold them back to the dealership. If the car was worth less than the residual I would have given the dealer back the keys and walked away.
4) Friend of mine leased a BMW 760IL. Car was in an accident and had frame damage. He turned the car in at the end of lease and walked away. Didn't have to deal with driving or selling a frame damaged car.

Things to watch out for when leasing:

1) Capitalized Cost – same as purchase price. You should know what you’re paying for the car.
2) Residual Value – the value of the car at the end of the lease. This is determined by the leasing company based on a variety of factors. You can alter this slightly by adjusting the number of miles you drive. The more miles, the lower the residual, and the higher the payment. This is because at the end of the lease your car will be worth less than a similar car with less miles. The reverse is also true. Be careful on selecting annual mileage because if you drive over the allocated mileage, there are penalties for every mile over the mileage allowance.
3) Money Factor – this term I always convert to an interest rate because it’s easier for people to understand. You can do this by taking the money factor and multiplying by 2400. For example, a money factor of .0020 converts to an interest rate of 4.8%. When I am leasing a vehicle I always ask what the dealership’s “buy rate” is. That’s essentially the dealership’s cost (dealership will still make money leasing at the buy rate). I was told the buy rate on the GT3 lease was .0020. Therefore the dealership makes additional money on anything over this money factor. I always try and ask two dealerships what their buy rate is and compare notes to see if the story is the same. The dealerships also have a sheet they use (looks like a matrix) from the leasing companies which I will ask to see to double check what their buy rate is. Sometimes you can reduce the rate by paying the final month in advance (last month deposit).
I usually watch them input all of the information into the system and ask for a printout. This shows all of the terms and I cross check that with the final lease agreement. I have found a dealer who tried to bump up the money factor and reduce the annual mileage. The net effect did not change my monthly payment because the increased financing cost was offset by the residual increase (due to lower mileage). If I had just focused on the payment I would have never caught the change and been surprised at the end with a higher residual and mileage penalty.
4) Term – I don’t like anything other than 24, 36, 48, or 60 month leases. In California if you sign a 39 or 42 month lease you pay a license fee for 6 -9 months that you don’t benefit from (California you pay a year in advance).
5) Insurance – Leasing companies usually ask for high limits and low deductibles. If you normally don’t carry high limits you may have a significant increase in your insurance premiums. I have been successful in asking the leasing company to increase the deductible. I will try and get the deductible to $5,000. This is because I would pay cash for any claim of this amount or less to keep it off my policy. I carry high limits so that part is not an issue but my insurance company also makes me carry identical limits on all my cars. You should talk to your insurance company about the Lessor’s insurance requirements before signing the lease.
6) Taxes – If you are able to deduct the car for tax purposes, then leasing an expensive car has advantages over purchasing based on deduction limits. It's a good idea to talk to your tax accountant and run the buy vs. lease tax scenario by them. You may be surprised.
7) Financing costs – Leasing is usually more expensive than financing when comparing interest rates. If you are going to keep the car long term (more than 5 years) then purchasing vs. leasing is probably the way to go. Unfortunately “this one’s a keeper” has only applied to my 1964 ½ Mustang. None of my other cars has made it past 4 years. Therefore the increased finance costs of leasing vs. purchasing were offset by the sales taxes I didn’t pay on the residual value on the leases (California is currently 9%).
8) Opportunity costs – What returns are you able to make on the cash you did not spend by leasing? Depends on your ability as an investor.
9) Depreciation - Difference between Capitalized Cost (Purchase Price) and residual. In real world terms a leased car depreciates at the same rate as a purchased car. You wouldn't pay a different amount for two identical used cars if one was purchased and one was leased. The leasing company just tries to calculate the depreciation in advance based on a number of factors.
10) Gap Insurance - Usually a lease includes Gap insurance. This means if your car is stolen or totaled you are not liable for the difference between the value of the car and the lease payoff amount.
11) Drive-off - The amount of money you need to start the lease and drive the car off the lot. This amount will be itemized and you should review it for accuracy.

There is so much more to leasing but I think that covers some of the basics.

 

Thank you for putting so much time into an informative post.. Most of is think we understand this aspect of ownership, but I learned a lot there

 

i suggest that one can back up the car such that IF u wanted to, you can pay cash for it.

with that in mind, anyone who pays cash (that he has) to buy an expensive car is absolutely nuts. even at 5% int. i can provide u a guaranteed return in excess of 5%. so why would you pay cash?

 

ugh.. no
if you run a financial model on leasing vs purchase, you will see the result is independent of dep'n.

say if a car has zero depn for ease of calculation....

you finance it, own it at year 5, sell it close to purchase price (ignore rates for the moment) you have minimal loss.

u lease it. the amount you pay over lease term is the dpn' (again ignore rate or money factor for now). since depn is low or zero in this case. your lease pmt (your "loss") is also very low.

i ignored the rate b/c once you decided which way you want to go, you can always find comparable leasing vs financing terms.

 

false logic
financing cost is independent of dep'n.
if dep'n is X%, it will be X% no matter if you leased, financed or paid cash.

method of purchase has no effect on depn

but paying cash today, you lost all your investment opportunities during the term of the comparable loan.

THIS IS ASSUMING THAT YOU HAVE THE CASH TO PAY IN CASH, BUT CHOSE NOT TO IN ORDER TO MAXIMIZE EARNING POWER.

 

if there's tax benefit thru your business, then leasing may have an edge. but that's case by case, it doesn't mean lease is better than or worse than financing or cash. it's individual's legal tax minimization issue.

buying out lease at end of 24 month then sell it. yes, i understand it. and it 's often done. but you cannot predict the future. also u are talking about the disposition strategy to minimize loss .it doesn't show lease is bad or financing is bad per se.

yes and no.
again if you have tax benefits, then different story.
but fundamentally,

financing is usually 5 years
leasing is usually 3 years

calculate the total money out of pocket in 5 yr of finance
calculate the total money out of pocket in 3 year of lease, then pay the residual in cash (PREMISE WAS THAT I HAD THE CASH TO PAY, BUT I CHOSE NOT TO). you will find the total speng in both closes are really really close. generally less than 5000 in 100k cars.

assuming u have comparable leasing and financing rates. if the manufacture is subsidizing leases (like porsche did 10 yrs ago or as bmw continues to do) then you are not comparing leasing vs financing. you are distorting the result with unnatural rates.

valid points. and that favors leasing at least academically, especially considering the cash you kept and invested. BUT the dpn risk (residual value) is calculated by a brain trust of actuaries. the are USUALLY pretty accurate ( they blew the 4.0) and when they are off. they arent off by much. and i would not buy out lease, sell privately and pocket $5000. too much work. now if i can pocket $20k, sure. but they dont usually make that big a mistake. but your point is very valid.



no nerve, but an interesting discussion however.
but as another poster stated: depn and method of purchase are totally independent.


i am just playing devil's advocate and make you all think a bit more about this topic. as an ex - banker, we create these products to confuse you and take money away from you so we can buy porsches too

 

Assuming den on this car is very low after a low mileage 24 month example goes to be sold, the difference between what you paid in lease payments (approx $60k with) is way different from the actual price you can sell the car for (closer to msrp). I can't imagine leasing and then not buying the car to resell it at a gain. Would be crazy to pay $2200/mo for 24 months and then walk away from a car which you can sell for not much less than the original purchase price

 

Sounds like we have made this too hard, and the end of the day my accountant says your crazy why spend this amount of money on a car? My answer I will enjoy the for personal value, and I love the speed and looks. Hate to say it boys the tax savings is joke, and once you do the the math it's not that much relative to the 150k car you're buying.

The only true savings is not to drop 150k on something that may be upside down when boy drive it off the lot. I'm the crazy guy that will just write the check because I have made a deal with myself no more debt of any sort. I've worked my *** off not to owe anyone anymore. Leasing is a trick to think you're saving something, and oh drop all your cash and give it back to me later with no miles, no scratches or I will charge you no thanks that's like being married. You spend all the money up front to use it, and give it back on the back end and you pay to get rid of it! The OP if you look you have the risk of being stuck with two leases clearly the first one is not working out so why do it again? Cars are toys, and don't let them make your financial decisions it will cost you on the long run thinking leasing is better. Just my two cents ........

 

You can't fully deduct the lease payment via a business on luxury cars. So validate this during any analysis.

I am with mooty and if you can earn in excess of the 2 to 3 percent rate being charged for auto loans you are better to finance as much as you can and hold your cash.

Mooty on the 5 percent guaranteed return I would love to talk offline if you are inclined.

 

There are also intangible benefits of owning a debt-free car. It seems to drive better. Fewer worries overall. There is increased pride of ownership knowing it's yours and not the bank's. And best of all, no payments.

 

Opportunity cost is key. It is all business, nothing personal.