StatmanDesigns

We are at complete opposite ends of the spectrum. Why would you want to pay off your house early? It is the cheapest money you could ever borrow, and all of the interest is tax deductible. Even with 0% equity in the property you reap all of the appreciation of the property. Unless you are nearing retirement age and want to limit your monthly bills, this makes no sense to me. certainly you could find a better place to put all of that money you have tied into the equity in your primary residence.

Please do not get me wrong, I do not think people should have zero equity in their homes, but 40-50% is the maximum that I want.

B-Line

Wow, great info..

So here's a basic question about leasing.
Assuming your green at leasing such as myself. You have read all this great info but are really bad at math lol...

When I go in to lease a car and the stealers are throwing around all sorts of numbers and deals at lightning speed, what do I do to ensure that I get the right deal.

I do understand the use of formula's provided above but what I don't get is the clear GOOD deal.
Example.. American cars to purchase. O% down, O% financing.. good deal...

German car lease ... (what are the numbers that are a good deal and what are the numbers that are a bad deal)
Sorry for asking such a stupid question after reading all this great info and I do understand a lot more now. But I still don't know when to walk away based on the lease numbers..

In other words.. IS THERE A BENCHMARK I can use as easy reference.
I know not all cars are created equal so lets say I'm talking about a high line car like a BMW, Mercedes, Porsche.

Thanks.
B

jcnesq

There are a lot of positives in leasing: minimizes sales tax (in California and many states), leasing company takes the risk on the residual value, and one I have considered recently, that a properly repaired car suffering a major accident can be returned to the leasing company without penalty, whereas the resale value is probably substantially diminished. There can also some tax benefits for self-employed and business use.

Negatives: Stuck with a specific term lease contract where an early buyout may be expensive; of course there is an interest cost for using their money (but not necessarily much higher than a car loan); and for us, little incentive to make mods that will just be returned to the leasing company.

I had leased most of my cars for some years. In several cases, I got out early by trading the car (paying off the lease) and having equity. With my wife's previous (Land Cruiser), the leasing company, not me, suffered about an $8k loss because they miscalculated the residual; with my Boxster S, IMO the leasing company will end up with a major loss because the residual was miscalculated, and I preserved this by going through a lengthy and difficult process to transfer the lease to someone (through swapalease.com).

In a sense, you get the best of both worlds with a lease; if the real residual value is higher at the end, you can buy or trade the car and keep that benefit, but if it is lower, you can simply return the car.

What is a good lease deal? It depends on (a) the money factor - currently maybe .0021 is a decent rate; (b) the residual percentage (these can vary among lease companies); and (c) the negotiated discount on the car from MSRP (i.e. the cap cost). The residual is a percentage of MSRP; the cap cost is the agreed price for the car. To use a simple example, assume a $100,000 MSRP with a 50% residual. Assume you agree to a price of $90K ($10k discount). You end up paying $40k (90k less residual of 50k), plus an interest factor, (plus sales tax in most states) over the lease term.

While I can go on about the many benefits of leasing, I bought my two 911 cars this year, and (a) its easier to mod them and know they are yours, and (b) its simply a better feeling than leasing.

Randall G.

Dan,

Do you know why leasing is so unpopular/uncommon for 2-year old (+) cars? Leasing a 2-year old, certified/under warranty car seems like it could be a good way to go, if you want to "sample" various car models conveniently, and at a reduced cost. The depreciation curve is not nearly as steep, as compared to brand new, so the depreciation part of the payment should be very low. And, (in theory) the money-factor should only be nominally higher. However, near as I can tell, leasing a 2-year old car is not much cheaper than leasing a new car.

StatmanDesigns

There are usually better manufacturer incentives which can lower the money factors and raise the declared residual value of the new car relative to the old car. It is very much similar to the difference between loan interest rates for new cars (0%, 1.9%, etc.) and used cars (up to 10+%). Leasing companies do not seem to be as motivated to deal with used cars and they tend to hammer you on the residual value. It is MUCH better to have the leasing company declare an unrealistically higher residual than a lower one, if they are going to make a mistake. A higher residual will lower your payments and costs you less in depreciation, but you MUST return the car after the lease ends to reap the benefits. If you had bought the car outright, you would be stuck with the extra depreciaiton instead of the leasing company.

StatmanDesigns

There are no easy answers to this question. For me the answers are based on the following things I like to see in a lease:

First I negotiate the best possible purchase price for the car (cap. costs). Do not let the dealer bull**** you into thinking since it is a lease you pay MSRP, they get their money up front whether you lease or buy, so it is no different to them.

I usually extend the payments through the warranty period of the car, 48 months for audi or BMW, but I have them "run the numbers" for 36, 42, and 48 months. Sometimes the residual values will work out better on a shorter term and benefit the payment.

Personally I do not use any cap cost reduction (i.e. no down payment) and I try to roll the sales tax into the cap cost if it is a state that requires up front sales tax on all lease payments like Ohio does.

Then have the dealer give you the numbers, ALL of the numbers. Capitalized cost, money factor, residual percentage of MSRP, any up front fees (licensing and registration, security deposit, etc.). Take the numbers and go home to compare the payments with calculated payments for the same set of numbers. The dealer will try to pad the numbers with an undisclosed reserve, and you can calculate this with the information you got.

Decide if you are comfortable with the monthly payment and current cash flow. Realize that this payment includes all maintenance and repairs for the life of the lease (on BMW and Audi, and other higher end cars). All you have to pay is the payment, gas, and insurance. Using that same payment, decide how much money you would have to put down on the car to purchase it outright, or what priced car you could afford with the same payment and no money down.

You could also negotiate the deal and post the numbers on this forum and people will give their opinions,

Randall G.

Hey Dan,

Based on the brief research I've done on leasecompare.com , I think your point about hammering on residual value is the key. For example, it appears that they're still predicting an ~65% residual on a 2-year old car, similar to the residual for the car when it was brand new. Which, of course, is apples to oranges.

dale

finance the purchase with a home equity line rather than a traditional auto loan and the interest, within limits imposed by the treasury regs, is deductible. this method is common (I'm a cpa).

Greg Fishman

Just make sure you pay that loan off before the useful life of the car is over or you are really just trading equity in a home for use of a car. (IMO that is not a smart move, interest rates and deductiblilty aside).

ciera

so in leasing it's an advantage if you're just using the car for a short time? like a year or two?

goofballdeluxe

First off, welcome to Rennlist.

Just as an FYI, the thread you're commenting on is 7 years old, so you may not get the response you're looking for

2Many Cars

Maybe. Borrowing is borrowing, whether for a lease or a loan, and costs money (aka interest). The real benefit of a lease is the "put" option you get at the end. A high residual allows you to walk away with a good exit value. If you aren't going to keep the car this can be a good deal. If you keep your cars a long time then the put option is worthless. For short time owners it's all about the residual value (and the imputed interest rate it translates to). Negotiate a low purchase price and a high residual value and leasing can be a great deal for short time owners. If you're a long term owner the "put" is of no value and a deductible HEQ loan is a far better deal.

LRG, CFP

ciera

lol, it just captured my interest, got engrossed reading i didn't keep track of the date :P

Slow Guy

First, welcome to Rennlist.
Second, Good for you for using the search feature!

As I'm getting ready to replace the wife's (leased) car this is a timely subject.

Another reason to lease is because of warranty issues. Her car is a '09 BMW H/T conv. No warranty co., inc. BMW's own CPO program covers the H/T assembly and that's a $15,000 exposure (AMHIK).

saeyedoc

Regarding leasing used cars, I think the reason the numbers don't work out is because the leasing companies don't want 4-5 year old cars that are out of warranty. 2-3 year leases on new cars fuel the manufacturer's CPO programs.