Car Lease vs Buying: Hypothetical
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With all due respect, despite her crusade to get America out of credit card debt, which is fine by me, Suze is often a moron and a hypocrite. Dave Ramsey, while usually simplistic, does a lot of good and (1) is OK with paying for investment advice and (2) unlike Suze, is not an annuity basher. I had a lot of misconceptions about him before I read his book and moderated his 13-week FPU program for a church. Whenever a client asks for a credit counseling referral for a wayward child who’s in over his head financially, I recommend the parent pay the roughly $100 tuition to get the child into the program and usually, get excellent feedback. Occasionally, the child refuses to stick to the program and fails out. Sometimes, as Spears says, you can’t cure stupid.
If your clients are saying "Dave says", you should at least read his book to know what he's REALLY saying. I've had to correct several misconceptions, such as "Dave says I should withdraw my 401(K) to pay off debt" or "Dave says I shouldn't have a mortgage" or "Dave says insurance is just a waste of money", et al. Dave says nothing of the sort, but if you don't know what he DOES say, you can't correct your clients. He's certainly more conservative than I am (other than being fairly bullish on our economy and the stock market) and his message is maddeningly simple, but it works more effectively than just about any personal finance course I've come across. A few Bible verses won't kill anyone either...there's actually some wisdom in that book for those of you who haven't read it... ...and before anyone gets the idea that moderating his program is a good marketing tool, I'll tell you that there is a very strict rule about not approaching any participant in any way shape or fashion with for-profit services. I don't even tell participants what I do for a living (although it usually gets out during the course of the program). This is simply community service and a good way to (1) find out what your clients are talking about and (2) give back/pay it forward. Who knows...you might even pick up an idea or two that you find personally useful.…and as a business owner, I leased a new car, knocking roughly a third off in taxes…deducting lease payments, insurance, maintenance, gas, plates, even car washes. I want to present a reasonable image of success and not worry about the car dying on the side of the road when I’m taking a client to lunch. Dave and I don’t agree on EVERYTHING…
Speaking from a financial POV only the reliability of most cars, American or other, makes leasing the right answer for very few. 25 years ago most cars were buckets of rusty bolts by 50k miles. These days, with some care, most cars can reliably go twice that distance. Most owners will have only 50k or so by the the time the car is paid off. Then take a break from car payments or another lump sum payment until deminishing returns set in. And that can be years off.
Personally, I' ve had great luck with Hondas, getting over 100k miles without any problems on several Accords and Civics. For that matter, without any trips to the shop for anything more than routine maint. Last year I had an 03 Civic in the fleet buy the farm with 117k on the clock. The guy who caused the crash apologized. Still, I had just put $1200 into the car to get it ready for its second 100k of doing 150 miles a day ferrying my younger daughter back and forth to work and school. I got $10,500 from the insurance company. I paid 14k for the car in August of 03. I was out of pocket $3500 plus $1200, to go 117,000 miles. I like that math! And if it had gotten wrecked two weeks earlier I would have saved the $1200. Obvioulsly with the mileage we rack up leasing wouldn't work, but looking at the math of owning these cars that can be driven reliably 100,000 miles or much more, leasing hardly makes sense from a financial POV. But, then there's passion! Where do I sign!Icy, I'd say that you can, more than likely, always drive a Honda further than a Toyota....so perhaps the Honda just might be better. The car that lasts the longest, with the most miles, is the best ...in my book.
http://www.autoblog.com/2007/10/01/craigslist-find-of-the-decade-930-000-mile-95-honda-civic/It use to be Ford vs Chevy, now it's Honda vs Toyota.
While the quality control experts may say Toyota is better, nothing beats beating the crap out of one to get the real answer. Ok, The only car I beat the crap out of is my Grand Cherokee. I'm still washing mud off it from last weeks's kayaking trip. However, we do put a lot of miles on cars. Our 07 Camry odo shows 28,000 miles on the clock. It's 14 months old. It's been to the shop twice for extraordinary maintenance and it now has to go again. This time for a severe dash rattle. Something has come very loose behind the HVAC/radio stack.
This is the second Camry we've had. The first one was leased and thru 35,000 miles of lease payments it visited the shop a least a half a dozen times in it's short time with us. Something was always wrong with that car. That was 11 years ago and we figured we'd give them another shot. The 07 is better, but it's not up to the Hondas we've owned when it comes to quality. From 1991 to today we've had at least one Honda in the driveway. Today we have two Civics. An 03 DX bought at the same time as the LX that was mentioned in the previous post. it has 60,000 miles on it with no extradinary maintenance. And that's sayin something because ,as a kid car, it's been in three crashes. One of those a borderline total. Still it purrs along without complaint. The other is an 07 LX with about 20,000 miles on it and no shop visits. 6 Accords owned from 91 to 06, one extra shop visit for water in the HVAC system. 5 of those cars never went to shop for anything more than scheduled maintenace. So, we've had really good luck with Hondas and not so much with Toyota. It's unscientific, but as a consumer I'm going to go with my own experience. The R56, Zippy, with 9100 miles on the ODO, goes to the shop tomorrow to deal with the last of the Raccoon debacle. I hope. Joe, Indy can answer, but I saw him riding around town in a Bling Chrysler 300 with smoked windows and 24s. Very Smooth ride!!![quote=joedabrkr] [quote=BondGuy]
Joe, Indy can answer, but I saw him riding around town in a Bling Chrysler 300 with smoked windows and 24s. Very Smooth ride!!![/quote]Nice
Did it have the neon underbody lights too?
[/quote] Hey, he's Indy, way too conservative for that. Did have the mirrored HIDs up front though.
[quote=BondGuy][quote=joedabrkr] [quote=BondGuy]
Joe, Indy can answer, but I saw him riding around town in a Bling Chrysler 300 with smoked windows and 24s. Very Smooth ride!!![/quote]Nice
Did it have the neon underbody lights too?
[/quote] Hey, he's Indy, way too conservative for that. Did have the mirrored HIDs up front though. [/quote] It is a 300 (limited)...at least you got that part right... red with some nice chrome, leather inside with a sunroof I really didn't ask for but accepted rather than order one. I think we talked about that one when you were on sabbatical, Joe. It's no Beemer, Porsche or Ferrari (although it is a half-ass Mercedes...they re-designed it during their ownership of Chrysler from what I understand), but I don't wan the clients thinking I'm screwing them either...
[quote=henryhill]I have owned American cars and they have held up very well ( I traded in my cherokee with almost 200k in miles.) According to the book, “The Millionaire Next Door” most millionaire’s buy, not lease.[/quote]
I’d argue that most millionaires lease, then buy. That book has it wrong. Out of the millionaires I know, they lease first to make sure they like the car. This way they can test it out for a couple of years and make sure they like it. If they do like it after 2 or 3 years, whatever the lease is, then they buy it out right and own it.
How many millionaires do you know? Is it a fair sampling? I would think the author's of that book did the research. If the millionaires you know lease then buy, I don't think you'll know too many millionaires before too long.[quote=henryhill]I have owned American cars and they have held up very well ( I traded in my cherokee with almost 200k in miles.) According to the book, “The Millionaire Next Door” most millionaire’s buy, not lease.[/quote]
I’d argue that most millionaires lease, then buy. That book has it wrong. Out of the millionaires I know, they lease first to make sure they like the car. This way they can test it out for a couple of years and make sure they like it. If they do like it after 2 or 3 years, whatever the lease is, then they buy it out right and own it.
I wasn’t disagreeing with his answering I was only disagreeing with the processes.
Yes: Most millionaires own.
But: They lease first and decide if they want to own.
Bullshit.I wasn’t disagreeing with his answering I was only disagreeing with the processes.
Yes: Most millionaires own.
But: They lease first and decide if they want to own.
In the interest of full disclosure I know 4 millionaires, multi millionaires.
My theory holds true for all of them.
One leased a MB SL 500 something for 3 years and then wrote a check.
Another leased a 7 series for 3 years then bought it out right.
(This one also bought some classic Porsche’s outright just to have, so I guess that counts as just a buy)
The other two lease Porsche Cayenne at the moment, don’t know if they have bought before or if they plan to purchase.
I mean think about it, they have say $100K to buy the BMW 7 Series. They can lease it for 3 years at about $1,000 a month. So, $36,000 for three years. That means that they could take the other $64K and invest it. Assuming 9% returns over the 3 year lease they’d have just under $83,000 when it comes to purchase the car.
If you pretend for a second that the 7 series depreciated exactly how much the lease accounts for, that car is only worth $64,000 right? Meaning that the millionaire just made $19,000 off his money instead of pumping it all into a depreciating asset right away.
Just my 2 cents.
Find some more millionaires or multi-millionaires if you're so inclined. There is some information you are missing and your logic is a little flawed.In the interest of full disclosure I know 4 millionaires, multi millionaires.
My theory holds true for all of them.
One leased a MB SL 500 something for 3 years and then wrote a check.
Another leased a 7 series for 3 years then bought it out right.
(This one also bought some classic Porsche’s outright just to have, so I guess that counts as just a buy)
The other two lease Porsche Cayenne at the moment, don’t know if they have bought before or if they plan to purchase.
I mean think about it, they have say $100K to buy the BMW 7 Series. They can lease it for 3 years at about $1,000 a month. So, $36,000 for three years. That means that they could take the other $64K and invest it. Assuming 9% returns over the 3 year lease they’d have just under $83,000 when it comes to purchase the car.
If you pretend for a second that the 7 series depreciated exactly how much the lease accounts for, that car is only worth $64,000 right? Meaning that the millionaire just made $19,000 off his money instead of pumping it all into a depreciating asset right away.
Just my 2 cents.
Inside, no arguement with your personal experience. However, your guys don’t sound like the typical millionaires found in the study. For example; most of the millionaires studied didn’t drive foreign luxury iron. Most drove american cars, with the Grand Cherokee the most owned by the group studied.
The study is now somewhat dated, having been done in the nineties. But BMW/Mercedes/Porsche were just as popular back then as today. No reason to think anything has changed. Within my own book of biz, my 5 wealthiest clients drive an Audi A6, Cadillac STS, Lincoln Towncar, Silverado pickup, and an aging Q45. The infinity owner is the richest of the bunch, but loves his ninety something luxo barge. None own the top of the line German metal, even though each could buy a truckload full if they so desired. I found that the book confirmed my experiences with the rich and very rich. What's important to them doesn't come with a steering wheel. Lastly, I do have clients with the fast and or expensive Geramn cars. All are realitively young, 40ish to 50, and none is what I would call truly wealthy. Big income and comfortable, but not there yet.I can agree with that. All I was getting at was that they probably Lease first and if they like it cut the check to the dealer.
For the record eveyone I mentioned now owns all their car(s).
Ferris, generally speaking I agree with your reasoning for leasing VS owning. Seems well thought out in your case. One thing though, you are the one taking the depreciation hit, not the bank/leasing company. All lease math includes residual value, the value of the car at the end of lease term. Another term for residual value is depreciated value. The leasing company then throws on a cost of money factor, profit factor, and a fudge factor, crunches the numbers and gives you a payment. That doesn’t include the vig to the dealer. Since most people are so lost on how lease payments are calculated dealers love leasing because their gross profit is almost always much higher.
In the rarified air of high performance metal it gets better for the dealers and leasing companies. The dealers make out because the customer has no where else to go to get competitive numbers. Also, very few of the cars in this catagory on the ground at various dealers are optioned exactly the same. That puts a different number on each car making comparison difficult. Also high end customers aren't good shoppers because in many cases they have a personal relationship with a dealer who keeps supplying them their hard to get dream cars. This allows the dealer to hose them. Which some do. The leasing companies, because of the small numbers of vehicles produced, hold a lower residual on these cars artifically inflating the payment. Or they'll change the money factor to increase the payment. This gives them some wiggle room if they've guessed wrong on the residual. Which,by the way, is about as likely as an insurance company guessing wrong about whole life premiums. Once the car comes back to the leasing company the lessee is charged for any damage, excess wear, mileage. In other words, excess depreciation. The leasing company then gathers up all its off lease cars for that month and puts them thru the sale at places like Manheim where they are sold immediately to dealers for a profit. If the leasing company is an arm of the car's manufacturer, BMW Financial for example, the cars are offered at a BMW sale to BMW dealers who sell them as certified pre owned. These dealer sales allow the bank to sell the cars for even more money. So, while all your reasoning for leasing is solid, and meets your needs, one thing you're not doing is beating the depreciation. You are paying for it , with interest.Ferris, no argument that leasing , for some, is the best alternative. Your decision to lease is well thought out. I too have one leased car. I leased a car for one of my kids. I did for one of the reasons you mentioned, to know all my costs upfront. The rest of fleet is owned. However, no heavy metal in my garage. Right now my weekend driver is an 07 Mini Cooper S. With gas prices being what they are, even having to use premium, Zippy, the R56 is getting more and more daily driver duty. I can drive it as hard as i want and it still gets 30mpg. And it is the most fun I’ve had with any car for a long time.
http://www.youtube.com/watch?V=4DlBQYBQA84 One thing, out of curiosity, regarding the market value of the M5? Was there a significant jump in lease payment from your previous M to your current car? It would seem that the big miss guess on residual, no doubt brought about by some outside unknowable factor, would increase the lease payments on the current car. First, because the car now has a verifyible track record of greater depreciation, and second to increase the lessor's comfort factor in the volatile market of high performance cars. 8Gs is a pretty big miss. Of course not as big as full sized SUVs right now. Just curious? Lastly, what forum? I've seen Roadfly, are there others?indy,
What did you lease? Also my cpa says if I lease a car that I can only write off the % I use for business miles. Is this correct. I thought a lease was an above the line expense. All of it.