Leasing
12-17-16, 06:05 PM
#16
Racer
Has anyone actually found a car that has lost 50% of its value after three years? I keep reading about that magical three year mark. In reality, I'm finding it's more like 50% value after FIVE years. Maybe the used car market is in higher demand and keeping values up.
12-17-16, 06:50 PM
#17
almost all the cars I just listed drop about 50% after 3 years, go on auto trader and search 2013 and 2014 750i x drives and s550 4matics, all can be found in the mid 40s, that's over 50%, same goes with just about any AMG. It's pretty common with such expensive cars, especially German, but if your looking at Lexus or even entry level Mercedes and BMW, then you'll see around the 30% mark
12-17-16, 08:44 PM
#18
Lexus Fanatic
For me the main reason I lease is because of the business deduction. I essentially only pay out half the lease payment, the rest of it I get back in tax savings.
On top of that, I know that I'm going to want a new car every 3 years or so, and if you buy new and trade every 3, 4 or even 5 years worst case it's no more expensive to lease, and best case it can be a lot cheaper to lease.
When you factor both of these things in, leasing saves *me* a lot of money.
Yes it's cheaper to buy used, yes it's cheaper to keep cars a long time, but cars are important to me and I don't want to do either of those things...so I don't.
Millionaire next door and whatever, my cars cost a lot but it's not so much that it hurts me financially to spend that money, so I spend it and enjoy it. Life is short.
On top of that, I know that I'm going to want a new car every 3 years or so, and if you buy new and trade every 3, 4 or even 5 years worst case it's no more expensive to lease, and best case it can be a lot cheaper to lease.
When you factor both of these things in, leasing saves *me* a lot of money.
Yes it's cheaper to buy used, yes it's cheaper to keep cars a long time, but cars are important to me and I don't want to do either of those things...so I don't.
Millionaire next door and whatever, my cars cost a lot but it's not so much that it hurts me financially to spend that money, so I spend it and enjoy it. Life is short.
12-17-16, 09:35 PM
#19
Racer
For me the main reason I lease is because of the business deduction. I essentially only pay out half the lease payment, the rest of it I get back in tax savings.
On top of that, I know that I'm going to want a new car every 3 years or so, and if you buy new and trade every 3, 4 or even 5 years worst case it's no more expensive to lease, and best case it can be a lot cheaper to lease.
When you factor both of these things in, leasing saves *me* a lot of money.
Yes it's cheaper to buy used, yes it's cheaper to keep cars a long time, but cars are important to me and I don't want to do either of those things...so I don't.
Millionaire next door and whatever, my cars cost a lot but it's not so much that it hurts me financially to spend that money, so I spend it and enjoy it. Life is short.
On top of that, I know that I'm going to want a new car every 3 years or so, and if you buy new and trade every 3, 4 or even 5 years worst case it's no more expensive to lease, and best case it can be a lot cheaper to lease.
When you factor both of these things in, leasing saves *me* a lot of money.
Yes it's cheaper to buy used, yes it's cheaper to keep cars a long time, but cars are important to me and I don't want to do either of those things...so I don't.
Millionaire next door and whatever, my cars cost a lot but it's not so much that it hurts me financially to spend that money, so I spend it and enjoy it. Life is short.
That said, Steve, can you please elaborate on the business deduction side of a lease, please? I've talked it over with our CPA before but she said we couldn't write off much on car expenses due to my wife being a dentist and would still need a car for commute. The only deduction we could record is if we tracked every mile that was business related, which is practically nil if my wife just commutes to her practice. Everyone once in a while, if my wife has to transport some files offsite then that can be considered a business expense. Otherwise, I have not been able to use her practice to benefit us in the area of car expenses. Is it because her car has been paid off?
Last edited by FatherTo1; 12-17-16 at 10:34 PM.
12-18-16, 02:04 AM
#20
One fun note on leasing. 12 years (damn time flies) ago we leased an RX-330 for my wife. Per comments here, sometimes leasing makes sense and we used the capital for appreciating assets instead of buying the car.
Sometimes the residual value is not well estimated by the leasing company. We bought the RX at the end of the lease, sold it to Carmax and pocketed $2000 profit. Did the buy/sell process all at Carmax in an hour. Could have made more if we sold private party.
So sometimes leasing works out very well.
Sometimes the residual value is not well estimated by the leasing company. We bought the RX at the end of the lease, sold it to Carmax and pocketed $2000 profit. Did the buy/sell process all at Carmax in an hour. Could have made more if we sold private party.
So sometimes leasing works out very well.
12-18-16, 05:02 AM
#21
Lexus Fanatic
Your wife's situation doesn't work because she commutes to a physical,location. I don't, I have a home office and every business mile I drive is a deduction because I'm driving from client to client, and I have a physical office which is my secondary place of business, while my home office is my primary.
Because i I have a second car, I can essentially deduct the whole thing, or very close to it.
If her car is paid for, the only way to deduct it is to depreciate it which won't get you very much. In my case I'm spending $12,000 a year on lease payments, plus fuel, car washes, insurance, parking, tolls, every expense that goes into driving a car, and most of that gets deducted, so essentially half of all that expense comes back to me in tax savings.
In short, I'm paying about what people are paying to drive a 4 year old LS to drive a new one.
Because i I have a second car, I can essentially deduct the whole thing, or very close to it.
If her car is paid for, the only way to deduct it is to depreciate it which won't get you very much. In my case I'm spending $12,000 a year on lease payments, plus fuel, car washes, insurance, parking, tolls, every expense that goes into driving a car, and most of that gets deducted, so essentially half of all that expense comes back to me in tax savings.
In short, I'm paying about what people are paying to drive a 4 year old LS to drive a new one.
Last edited by SW17LS; 12-18-16 at 05:05 AM.
12-18-16, 08:40 AM
#22
Advanced
THIS! ^^^^^^^ is the best reason to lease a car. When I was in business we leased almost everything we could........ Trucks, man lifts, cars, copy machines, shop space and we rented expensive tools too.
Some poor financial decisions are when some people are in business is they want to own everything.......Think OPM! (Other people's money)
Some poor financial decisions are when some people are in business is they want to own everything.......Think OPM! (Other people's money)
12-18-16, 09:31 AM
#23
Lexus Fanatic
Yep, exactly.
12-18-16, 03:35 PM
#24
Instructor
This is why accountants and lawyers get the big bucks. Deductions are a complex bag & someone made a statement earlier "find a sweet spot". Find an accountant that will tell you what you need to hear not what you want to hear.
12-18-16, 04:10 PM
#25
Lexus Fanatic
And talk to a few accountants. Some are more aggressive than others.
12-18-16, 04:15 PM
#26
As I get older, I realize how valuable good legal and tax advice really is. I used to do our own taxes and be extremely averse to spending for this type of professional advice. Now that I'm wiser I realize how valuable and profitable this is.
12-18-16, 04:20 PM
#27
Lexus Fanatic
I always did my own taxes, and thought I did a pretty good job. When I hired my accountant he went back and refiled my last 3 years of returns and I got back over $30,000, a lot of which was due to TurboTax calculating things incorrectly.
So yeah, was happy to pay him $3k to refile those, and happy to pay the $1,000 or so every year going forward LOL
So yeah, was happy to pay him $3k to refile those, and happy to pay the $1,000 or so every year going forward LOL
12-18-16, 06:04 PM
#28
I was brought to buy vehicles - not lease. That being said, I opted to lease a two year old LS with 20K miles. I've been very happy with my decision in regard to the ability to write off my cost. My home office is primary with physical location being secondary. Plus, I'll always be in a late model LS.
12-24-16, 03:39 PM
#29
Intermediate
Leasing is handy for the reasons Chuck mentioned.
I agree with him, I prefer to pay cash and take good care of my cars for a long time. Buying 2-3 years old and keeping for 8-10 is the cheapest way to own a vehicle hands down.
There are tax benefits to buying new (still can finance) with bonus depreciation and such, but that is highly individual. Even though my accountant really wanted me to buy new and finance for tax reasons I couldn't quite make sense of the numbers.
If you can't afford to pay for the car, you can't afford the car. Leasing will cost you a fortune in the long run if you do it every 3 years. Rule of thumb (taken from millionaire next door) is your car should cost LESS than 1% of your net worth. Hopefully much less.
I agree with him, I prefer to pay cash and take good care of my cars for a long time. Buying 2-3 years old and keeping for 8-10 is the cheapest way to own a vehicle hands down.
There are tax benefits to buying new (still can finance) with bonus depreciation and such, but that is highly individual. Even though my accountant really wanted me to buy new and finance for tax reasons I couldn't quite make sense of the numbers.
If you can't afford to pay for the car, you can't afford the car. Leasing will cost you a fortune in the long run if you do it every 3 years. Rule of thumb (taken from millionaire next door) is your car should cost LESS than 1% of your net worth. Hopefully much less.
They should make this book required reading in high school. Maybe then people would understand the impact of not living below your means.
As far as lease vs. buy. I generally pay cash for cars. However my most recent acquisition is a 2016 Lexus CT. We chose to lease because the hybrid/electric technology is changing so fast that resale values are plummeting and we did not want to get stuck in 3 years when we move to a Tesla Model 3 or something similar. For example, a 2014 Nissan Leaf (all electric) was $30k new and is now $8k for a 2 year old model with 30k miles on it.
Last edited by chuckNX; 12-24-16 at 03:45 PM.
12-27-16, 06:37 AM
#30
Instructor
I've leased many (many!) cars and trucks over the past 20 years, and I can attest to the fact that many times they offer the best value possible. But you have to be pretty careful to lease the right kind of car, and wait for the right deal to come along.
In my area (Midwest), there are quite a few decent new cars that can be leased for less than $200 per month (total, including sales tax). Some lease for less than $150 per month (new Hyundai Elantras, Chevy Cruze, etc.). I have 5 kids, with 4 of them driving. I've chosen leasing for them since they turned 16. I want the latest safety and tech features for their safety, and don't want to deal with them breaking down on a country road. Last February, for example, Chevy went crazy with leasing their Cruzes, offering insane incentives. I leased 3 of them on 24-month leases for less than $100 per month each (the last one was at $45 per month!). No way I'd have been better off buying them vs this lease cost!
Another example: I leased a Toyota Prius years ago for $199 per month. After 9 months, I grew tired of the lackluster acceleration and checked the value of the car. Gas prices had soared since I leased the Prius, and I was able to trade it in for a $2K gain (real money, not "funny money" the dealer can show to make you feel good).
Also, at times it makes financial sense to start with a 24- or 36-month lease even knowing that you want to buy the car at the end of the lease. This is due (at times) to huge lease incentives car companies put on their leases (and very low money factors). Run the math on paying just the lease payment for 36-months and then paying the Residual to buy out -- you might be surprised that it's a better deal (sometimes) than just buying new from the start, and you put the risk of extreme depreciation on the dealer instead of yourself, since you can walk away after 3 years if the value plummets.
Right now, I'm leasing a 2016 Dodge Ram 1500 4WD truck. It is totally loaded up and the MSRP on it was $48K. I'm paying $259 per month on the lease for 24 months with $0 down. There's no way the math would work out buying that truck with zero down.
I did buy my Lexus LS600hL as a CPO, since there was no leasing option at the time for CPOs, but I'm actually wondering if that was a smart deal. I'm paying $730 a month for 72 months for the car. I have a 6-year warranty, so I don't have to worry about huge repair bills (except for the possible hybrid battery failure). But I've had it for nearly 3 years now, and I am still "upside down" on it by around $10K (per KBB and Edmunds). I'd have been roughly equal, money-wise, if I had leased a brand new LS for around $1000 per month for 36 months, and I could walk away now to switch to a Mercedes S or Tesla (if I wanted).
In my area (Midwest), there are quite a few decent new cars that can be leased for less than $200 per month (total, including sales tax). Some lease for less than $150 per month (new Hyundai Elantras, Chevy Cruze, etc.). I have 5 kids, with 4 of them driving. I've chosen leasing for them since they turned 16. I want the latest safety and tech features for their safety, and don't want to deal with them breaking down on a country road. Last February, for example, Chevy went crazy with leasing their Cruzes, offering insane incentives. I leased 3 of them on 24-month leases for less than $100 per month each (the last one was at $45 per month!). No way I'd have been better off buying them vs this lease cost!
Another example: I leased a Toyota Prius years ago for $199 per month. After 9 months, I grew tired of the lackluster acceleration and checked the value of the car. Gas prices had soared since I leased the Prius, and I was able to trade it in for a $2K gain (real money, not "funny money" the dealer can show to make you feel good).
Also, at times it makes financial sense to start with a 24- or 36-month lease even knowing that you want to buy the car at the end of the lease. This is due (at times) to huge lease incentives car companies put on their leases (and very low money factors). Run the math on paying just the lease payment for 36-months and then paying the Residual to buy out -- you might be surprised that it's a better deal (sometimes) than just buying new from the start, and you put the risk of extreme depreciation on the dealer instead of yourself, since you can walk away after 3 years if the value plummets.
Right now, I'm leasing a 2016 Dodge Ram 1500 4WD truck. It is totally loaded up and the MSRP on it was $48K. I'm paying $259 per month on the lease for 24 months with $0 down. There's no way the math would work out buying that truck with zero down.
I did buy my Lexus LS600hL as a CPO, since there was no leasing option at the time for CPOs, but I'm actually wondering if that was a smart deal. I'm paying $730 a month for 72 months for the car. I have a 6-year warranty, so I don't have to worry about huge repair bills (except for the possible hybrid battery failure). But I've had it for nearly 3 years now, and I am still "upside down" on it by around $10K (per KBB and Edmunds). I'd have been roughly equal, money-wise, if I had leased a brand new LS for around $1000 per month for 36 months, and I could walk away now to switch to a Mercedes S or Tesla (if I wanted).
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