Leasing (a BMW)
Leasing had a bad rap with me, but no more. Cars are depreciating assets, and it makes no sense to own depreciating assets as a general rule. So, renting one seems like a good call, and after my buddy told me he had recently switched to leasing, I decided to run the numbers.
1) Much lower opportunity cost - zero money down
Leasing can be negotiated to have zero money down, simply making the first car payment when you pick up the car. That means ZERO opportunity cost - opportunity cost is the killer for paying cash for a car. Treat opportunity cost as the loss of money you WOULD have made if you were investing that money instead in the market - for a $45,000 car, 8% = $3600 loss per year). That's not wholy accurate as you are making payments, Excel can help do the EXACT math with some future value functions, but it gives you an idea that this isn't a small factor.
2) You save a ton on the initial 3% NC taxes
Leasing only requires you to pay tax on the part of the car that you are consuming (i.e. the depreciation of the car). For a BMW 335i Sedan on a 3 year, 10,000 mile per year lease, that's 64% of the MSRP. So, if you option the car out to $45,000 MSRP, the depreciation is $45k * .36 = $16,200, and you pay the NC 3% tax on that over 3 years instead of paying 3% ALL AT ONCE on ALL $45,000 (or whatever you negotiate the purchase price down to)... Call that $486 spread over 3 years vs. $1350 out of pocket immediately - it's a big difference.
3) You might be able to buy it and flip it at the end of the lease
The lease residual is fixed for a BMW based on the car and the term, so that gets rid of one big complexity in the calculations. As noted above, a $45,000 2008 335i Sedan will have a residual value after a 3-year 10,000 mile per year term of $28,800. If it turns out you kept the car in PERFECT condition and it's still selling HOT, it might be worth more than that. You have a fixed purchase price option in the lease, so you might be able to make some quick cash just flipping it at the end (or keeping the car if you really love it). There's NO risk in that option, kind of amazes me that it's so in favor of the consumer but there it is...
4) BMW includes GAP insurance in the lease - no risk of being upside down
GAP insurance makes sure that if the car is wrecked or stolen and the insurance payout is less than the amount you owe, you don't end up with NO car and OWING money... BMW includes that coverage in the lease, allowing the zero money down option in #1 with zero risk.
5) BMW CCA rebates?
BMW Car Club of America, which anyone can join for like $75 for a 3 year membership, provides a rebate to purchasers AND leasers of a new BMW, maximum of 1 per year. Any 3-series gets $500, 5-series gets $1000, etc. So in the course of a lease for 9 years, that's 3 cars and 3 rebates vs. just 1 for purchasing the car.
6) You'd have to keep a car for many years to make purchasing cheaper
Depending on the car and interest rates and such, it could be a lot longer than you'd think before buying the car makes sense. Leasing a car for 9 years with a $600 payment = 9*12*600 = $64,800, a very large sum. But, you'd have had at least 3 new cars in that period and therefore never have paid ANY maintenance costs (BMW's include all maintenance for 4 years/50,000 miles), and avoided several replacement sets of tires (at $1250 a set...), and received 3 BMW CCA rebates. And most of that money was earning for you during the 9 years (see opportunity cost and tax savings, #1 and #2). I think it would be pretty safe to assume it's at best break-even for the owning scenario at 9 years..
7) If you own a company, LEASE!
Leasing is an expense, owning a car is a capital item that is depreciated. Suffice it to say that leasing a car through your company as a cost of doing business, thereby reducing profits of said company and thereby avoiding all taxes on that income, is unbelievably advantageous. 3-year lease costs at $600/mo are $21,600, imagine if that was discounted 33%, which is basically what the lease does when run through your company...
8) You get a new car every 2-3 years!
C'mon, that's pretty awesome! Assuming you're not paying through the nose for it (see 1-7 above :)). You can try out models/features that you don't want forever or might not be as popular and not be stuck with it on resale time (convertibles, getting a manual transmission in a model that mostly sells automatics, etc.). Tons of coolness here.
9) It's not your car! Little things won't drive you nuts
You don't have to sweat a break-in period, it won't be your car in 50,000 or 100,000 miles or whenever that would make a difference :). And if it gets a small ding (a dent of a quarter-size or smaller is okay on the lease turn-in), you don't sweat it!
10) Your sales rep will like you, so you can get better deals
When a sales rep gets you to lease, they are building a portfolio of recurring sales. If they have 600 people they have done leases for after 20 years, each of them comes back every 2-3 years on a schedule for a car (if they like you and the brand), so you basically just have to start writing the orders and life is very easy. No beating the pavement to eat. So, they are likely to work with you on the purchase price to keep that recurring revenue coming (keeping or selling more to an existing customer costs 10% of getting a new customer).
11) You can buy extra miles cheap
Before the end of the lease, you can buy extra miles cheaper than paying for overage at the last second. This makes it smart to take the lowest estimate of your miles per year and do that in the lease. At $.20 per mile, the cost at the end of the lease, you pay a lot more than normal. But at $.16 per mile, the cost 4 payments before the end of the lease, you are not that far from the standard lease cost per mile... Again, that saves you on opportunity cost (you don't pay for the miles until the end of the 3-years), and you don't risk paying for miles that you don't use (paying for them the whole 3 years).
1) Much lower opportunity cost - zero money down
Leasing can be negotiated to have zero money down, simply making the first car payment when you pick up the car. That means ZERO opportunity cost - opportunity cost is the killer for paying cash for a car. Treat opportunity cost as the loss of money you WOULD have made if you were investing that money instead in the market - for a $45,000 car, 8% = $3600 loss per year). That's not wholy accurate as you are making payments, Excel can help do the EXACT math with some future value functions, but it gives you an idea that this isn't a small factor.
2) You save a ton on the initial 3% NC taxes
Leasing only requires you to pay tax on the part of the car that you are consuming (i.e. the depreciation of the car). For a BMW 335i Sedan on a 3 year, 10,000 mile per year lease, that's 64% of the MSRP. So, if you option the car out to $45,000 MSRP, the depreciation is $45k * .36 = $16,200, and you pay the NC 3% tax on that over 3 years instead of paying 3% ALL AT ONCE on ALL $45,000 (or whatever you negotiate the purchase price down to)... Call that $486 spread over 3 years vs. $1350 out of pocket immediately - it's a big difference.
3) You might be able to buy it and flip it at the end of the lease
The lease residual is fixed for a BMW based on the car and the term, so that gets rid of one big complexity in the calculations. As noted above, a $45,000 2008 335i Sedan will have a residual value after a 3-year 10,000 mile per year term of $28,800. If it turns out you kept the car in PERFECT condition and it's still selling HOT, it might be worth more than that. You have a fixed purchase price option in the lease, so you might be able to make some quick cash just flipping it at the end (or keeping the car if you really love it). There's NO risk in that option, kind of amazes me that it's so in favor of the consumer but there it is...
4) BMW includes GAP insurance in the lease - no risk of being upside down
GAP insurance makes sure that if the car is wrecked or stolen and the insurance payout is less than the amount you owe, you don't end up with NO car and OWING money... BMW includes that coverage in the lease, allowing the zero money down option in #1 with zero risk.
5) BMW CCA rebates?
BMW Car Club of America, which anyone can join for like $75 for a 3 year membership, provides a rebate to purchasers AND leasers of a new BMW, maximum of 1 per year. Any 3-series gets $500, 5-series gets $1000, etc. So in the course of a lease for 9 years, that's 3 cars and 3 rebates vs. just 1 for purchasing the car.
6) You'd have to keep a car for many years to make purchasing cheaper
Depending on the car and interest rates and such, it could be a lot longer than you'd think before buying the car makes sense. Leasing a car for 9 years with a $600 payment = 9*12*600 = $64,800, a very large sum. But, you'd have had at least 3 new cars in that period and therefore never have paid ANY maintenance costs (BMW's include all maintenance for 4 years/50,000 miles), and avoided several replacement sets of tires (at $1250 a set...), and received 3 BMW CCA rebates. And most of that money was earning for you during the 9 years (see opportunity cost and tax savings, #1 and #2). I think it would be pretty safe to assume it's at best break-even for the owning scenario at 9 years..
7) If you own a company, LEASE!
Leasing is an expense, owning a car is a capital item that is depreciated. Suffice it to say that leasing a car through your company as a cost of doing business, thereby reducing profits of said company and thereby avoiding all taxes on that income, is unbelievably advantageous. 3-year lease costs at $600/mo are $21,600, imagine if that was discounted 33%, which is basically what the lease does when run through your company...
8) You get a new car every 2-3 years!
C'mon, that's pretty awesome! Assuming you're not paying through the nose for it (see 1-7 above :)). You can try out models/features that you don't want forever or might not be as popular and not be stuck with it on resale time (convertibles, getting a manual transmission in a model that mostly sells automatics, etc.). Tons of coolness here.
9) It's not your car! Little things won't drive you nuts
You don't have to sweat a break-in period, it won't be your car in 50,000 or 100,000 miles or whenever that would make a difference :). And if it gets a small ding (a dent of a quarter-size or smaller is okay on the lease turn-in), you don't sweat it!
10) Your sales rep will like you, so you can get better deals
When a sales rep gets you to lease, they are building a portfolio of recurring sales. If they have 600 people they have done leases for after 20 years, each of them comes back every 2-3 years on a schedule for a car (if they like you and the brand), so you basically just have to start writing the orders and life is very easy. No beating the pavement to eat. So, they are likely to work with you on the purchase price to keep that recurring revenue coming (keeping or selling more to an existing customer costs 10% of getting a new customer).
11) You can buy extra miles cheap
Before the end of the lease, you can buy extra miles cheaper than paying for overage at the last second. This makes it smart to take the lowest estimate of your miles per year and do that in the lease. At $.20 per mile, the cost at the end of the lease, you pay a lot more than normal. But at $.16 per mile, the cost 4 payments before the end of the lease, you are not that far from the standard lease cost per mile... Again, that saves you on opportunity cost (you don't pay for the miles until the end of the 3-years), and you don't risk paying for miles that you don't use (paying for them the whole 3 years).
The final analysis:
So, after all that, it came down to WHICH lease terms to take. Factoring in how many miles I might have to buy, how much tires cost and how many miles they would last, BMW CCA rebates, etc., I calculated the total lease costs over 6 years (to synch a 2 and 3 year) and did a 3 year 10k mile lease. If not for the acquisition fees and doc fees (the one-time hits), a 2 year lease would be VERY appealing. Even with them, it almost makes sense.
Resources and other miscellania:
BMW Financial Services rates (new every month, search yourself when ready)
BMW dealers will try to mark up the BMW Financial Services money factor. They can't manipulate the residual value, so find the money factor above and negotiate that. Going .0004 above is the max they are allowed, and .00015 more if you want to waive the security deposit. Mine tried for the max, .00255, it was EASY to get them down to .00225 and next time I'll get it lower. You can also pay extra security deposits, which you get back at the end of your lease, to lower that money factor even more - .0007 for each deposit I believe.
BMW Financial Services charges $625 for an acquisition fee, the dealer can mark it up (mine wanted $825).
State of NC has fixed title and tag fees. Factor those in, roll them into the lease.
BMW dealers (and all dealers) have to charge a fixed doc fee to ALL customers, it is legally non-negotiable. $399 at my dealer.
Lease Payment Calculator - I found this was precisely accurate. If your numbers don't match, the dealer hasn't told you everything (I discovered some other fees this way :)).
BMW Car Club of America
Resources and other miscellania:
BMW Financial Services rates (new every month, search yourself when ready)
BMW dealers will try to mark up the BMW Financial Services money factor. They can't manipulate the residual value, so find the money factor above and negotiate that. Going .0004 above is the max they are allowed, and .00015 more if you want to waive the security deposit. Mine tried for the max, .00255, it was EASY to get them down to .00225 and next time I'll get it lower. You can also pay extra security deposits, which you get back at the end of your lease, to lower that money factor even more - .0007 for each deposit I believe.
BMW Financial Services charges $625 for an acquisition fee, the dealer can mark it up (mine wanted $825).
State of NC has fixed title and tag fees. Factor those in, roll them into the lease.
BMW dealers (and all dealers) have to charge a fixed doc fee to ALL customers, it is legally non-negotiable. $399 at my dealer.
Lease Payment Calculator - I found this was precisely accurate. If your numbers don't match, the dealer hasn't told you everything (I discovered some other fees this way :)).
BMW Car Club of America
posted by Bootay at 8:40 PM
4 Comments:
Hey-hey, Bootay! Great info. Thanks. It's hard for anyone to find out if they're getting the best deal when leasing a Beemer. I've felt like I'm making a decision in the dark myself when doing so. I found one web posting (http://www.bmwleasepayment.com) where a guy's trying to get people to share that kind of info, so everyone can make an informed decision. Know of anywhere else?
I left a few links in the doc that outline places you can get info. Specifically the financial forums with info such as:
http://www.bimmerfest.com/forums/showthread.php?t=248804&highlight=lease+rates+december
Several forums have people sharing info, such as what you can REALLY get the lease rate down to (getting the base rate IS doable) and what the real selling prices are out there...
There's a lot of information to digest here. Have you boiled it down to a simple cost per mile or cost per day value, and then compared that to buying a similar car?
Question- I am one year out from ending my lease. I tinted my windows on my own. I just read that tinting aftermarket voids your turn in inspection and that a third party inspector will inspect the car- do you know is true? What about the tacked on charges??
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