# Lease vs. Buy



## scott10s (Oct 12, 2006)

Just curious how many here lease vs. buy their cars. I have only leased a car once, but it seems many here lease. I usually keep my cars 4 to 5 years. Leasing seems to me like renting. I know you don't build equity in things that depreciate in value, but why is leasing so popular. So....who leases and who buys and why?


----------



## MP3_E46 (Oct 30, 2003)

The fuse has been lit....


----------



## chrischeung (Sep 1, 2002)

Oh boy - check this link out first. http://www.bimmerfest.com/forums/showthread.php?t=141593&highlight=lease

If leasing is like renting, then is selling like divorce (without the alimony)?


----------



## schley (May 26, 2005)

http://www.bimmerfest.com/forums/showthread.php?t=165212&highlight=lease+buy

already done for you bro


----------



## scott10s (Oct 12, 2006)

Thanks Schley, that's exactly what I was looking for. Sorry I didn't do a search first. MY BAD!!!


----------



## mullman (Jan 5, 2006)

Summary: it is all about time. The time you wish to keep a vehicle.


If you do not mind driving the same car for 4+ yrs (esp when the warranty expires - UGH) and smile at the idea of no car payments, then financing is for you.

If you like to trade cars every 24-48 months (addicted to that new car smell) and are willing to always be making some car "payments" then leasing is for you.


Personally I have leased for 10 yrs and cannot see going back to cash or financing.
Dollars can always make more dollars while a car very quickly depreciates.

All IMHO of course - there is no right or wrong, just what is "right" for your situation.


----------



## emdreiSMG (Dec 10, 2003)

If you own your own business, leasing is an easier write-off than purchasing. 

The folks @ BMW Financial are not dummies...
If you look at residual values of leased vehicles, they very closely correspond to what you see those vehicles selling for on the open market 36 or 48 months later. I look at leasing as a way to give myself some flexibility with a car. 

American cars generally have lower residual values and therefore leasing them is expensive for the quality of vehicle you get. You pay an a$$load in depreciation over term and have an weak car to purchase @ maturity.

If you like it, buy the car at lease end. It works out the same + you have gotten a write-off (if your accountant can swing it).


----------



## schley (May 26, 2005)

emdreiSMG said:


> If you own your own business, leasing is an easier write-off than purchasing.
> 
> The folks @ BMW Financial are not dummies...
> If you look at residual values of leased vehicles, they very closely correspond to what you see those vehicles selling for on the open market 36 or 48 months later. I look at leasing as a way to give myself some flexibility with a car.
> ...


I understand where you are coming from. However I don't think bmwfs makes their residuals based off of what the value may actually be in 2/3 years as much as they want to move cars. Their lease numbers are the way they move cars and they have some very aggressive lease rates (residuals/mf) to act as an incentive without having to offer cash back or 0% financing. They don't want that stigma of having to offer those, thus the good lease incentives are there adn do their job without anyone bringing attention to them as a plea to move more cars.

Does an x3 sell for 75% of it's msrp after 2 years or 30k? Hell no. That is but one example. BMW has had artificially high residuals for over a year that I have follwed their captive lease rates on many of the models. Now your 6/7/m models they don't have great lease rates for that price point is high and they don't need to have an incentive to move those. Your 3/5/z4/x3 have usually been the targets for lease incentives as many more people can afford a bmw that way. They want the car back and cpo it again to keep the CPO sales going.

The purchasing at lease end is rarely an advantage to the original leasee. Among the reasons are the residual is based off of msrp and doesn't take into account any discount negotiated on the cap cost, thus you lose that negotiated % off of msrp. The sales tax in some states kills the deal totally for you pay sales tax 2x's on the entire cap cost. You lose the CPO warranty which is mandatory in my mind if I were to keep a bmw out of warranty. You can turn the car in and have the dealer cpo it and buy it back but that will cost you at least 1k to do so.

Leasing and then purchasing at lease end doesn't work out the same for it is a dynamic situation with many factors. If it worked out the same you would see many people lease then purchase and you just dont' see that for the reasons stated above among others.

Leasing has it's place, but purchasing is the way to go if you plan on holding onto the car for more than 5 years.


----------



## disden (Aug 1, 2006)

i think it also depends on what the MF, residual is set at by BMW. when I first ordered my E90 335i, the MF was horrible so leasing and purchasing monthly payments were not much different. as a result I made arrangements to purchase through my credit union. however, before ED, the lease MF's went down pretty dramatically so I changed my mind and leased. so it really depends on numerous factors.


----------



## mason (Jun 8, 2006)

If you watched enough financial new channel or read financial website, it would be clear that buying is more financially sound than leasing, given you hold on to your car at least 4-5 years. Or, if you put on a lot of miles on your car each year, buying is better off for you as well. I, personally, am not a lease person because my wife and I put on 15,000 to 22,000 miles a year on one car and we have 2 cars in our household.


----------



## X3 Skier (Aug 21, 2005)

emdreiSMG said:


> If you own your own business, leasing is an easier write-off than purchasing.


Depends if you can take a Section 179 deduction or not. You can expense the Whole Cost in one year.

Cheers


----------



## chuck92103 (Oct 9, 2005)

Not to start a buy vs. lease debate, they both have their merits.

however, leasing never works for me for two reasons. 

1. Miles put on the car.
2. Unable to customize the car. Tint, wheels, tires, iPOD Adapter, etc. canot be done on a lease easily without losing money. When the lease is up the car has to be put back the way it was. If you are lucky and the dealer will take the car back as is, you lose the money spent. If you sell your wheels before lease end you still lose money.

I am astonished by the amount of people who lease and spend thousands on mods.


----------



## bmwKbiker (Nov 5, 2006)

schley said:


> Leasing and then purchasing at lease end doesn't work out the same for it is a dynamic situation with many factors. If it worked out the same you would see many people lease then purchase and you just dont' see that for the reasons stated above among others.


What about if the MF is really low like the 5 series?
Take the low MF add some MSD and rent is like 10-15$ a month. 
Do this for 2/3 years and then if you still want the car buy it then, a lot better than a new car loan at ~6%.

I also don't agree with the lose the MSRP discount statement. The depreciation is based on the cap cost. It just means you recoup any discount during the lease term, yes there is no discount on the residual, but you already recieved it as lower depreciation payments during the lease term.


----------



## schley (May 26, 2005)

bmwKbiker said:


> What about if the MF is really low like the 5 series?
> Take the low MF add some MSD and rent is like 10-15$ a month.
> Do this for 2/3 years and then if you still want the car buy it then, a lot better than a new car loan at ~6%.
> 
> I also don't agree with the lose the MSRP discount statement. The depreciation is based on the cap cost. It just means you recoup any discount during the lease term, yes there is no discount on the residual, but you already recieved it as lower depreciation payments during the lease term.


You received a portion of hte discount on the cap cost not the entire discount on the vehicle if you lease. If you got 4k off of the cap cost of the vehicle you don't save 4k over hte life of your lease term you only get a portion of that equal to your depreciation. That is reason enough that it doesn't work out.

I agree that the low mf on the 5 series is a reason to lease no doubt, however that isnt' the only factor. For reasons below.

When I rack my brain only way I see a lease with intent to purchase working out is if you cannot negoatiate any discount from the msrp either for purchase or lease. Thus you are now effectively looking at MF and apr. Which one is cheaper? Knowing you aren't saving any money on msrp either way you can take the lower rate MF with lease, or apr with finance. 
But keep in mind if you lease you are going to have to pay your acquisition cost which will be at least 625-825.

Also your tax situation on leases in your state come into play if you are taxed on the entire cap cost at lease inception and upon purchase after lease.

A big issue you don't address is what about the CPO warranty you aren't getting if you lease with intent to purchase. That has to be factored in there, as if you are going to purchase at lease end, why not just purchase a cpo of your vehicle instead? If you are goign to get your lease return CPO'd it will cost you before you purchase it back.


----------



## bmwKbiker (Nov 5, 2006)

schley said:


> You received a portion of hte discount on the cap cost not the entire discount on the vehicle if you lease. If you got 4k off of the cap cost of the vehicle you don't save 4k over hte life of your lease term you only get a portion of that equal to your depreciation. That is reason enough that it doesn't work out.


Won't I save exactly 111.11 a month in the depreciation (3year lease)?
Yes the rent will change but not by that much if the MF is favorable.

I still don't agree.
I'm not trying to be arguementive just want to see the other point of view. Since I'm considering an ED lease with a likely intent to buy at the lease end.

If I get a $2400 discount from MSRP on a two year lease don't I save exactly $100 a month on the depreciation portion of the payment. I realize the rent portion will change somewhat (actually won't it go down just a bit also?), maybe not quite as favorable as a financed purchase (you get the full discount up front). I just don't see why you think I lose (some of) the discount buying at lease end assuming the lease cap cost = potential purchase cost. Ignoring the aquistion fee for a moment. Isn't the depreciation payment (xTerm) plus the residual always going to add up to the cap cost (MSRP-discount)?

Yes you have to factor the aquistion fee in. I consider it a MF buy down even though it isn't.
$800/$40k = 2% (amortized over the life of the lease)

Ignoring the MSD opportunity & assuming I don't live in a lease unfriendy tax state.

Sedan 2yr MF = 0.00150
Call the aquistion fee 2% (over two years)
Estimate cost of funds 2400*0.00150 + 1% = 3.6% + 1% = 4.6% 
I don't know where to get 4.6% financing today (please post if you do ). 
It only gets better if you run the numbers for 36 months or the MSRP is higher.

I know this is rough and hence will be a little off, but basicaly I think that if the MF is low enough to cover the aquistion fee then lease to buy is worth considering


----------



## bmwKbiker (Nov 5, 2006)

schley said:


> A big issue you don't address is what about the CPO warranty you aren't getting if you lease with intent to purchase. That has to be factored in there, as if you are going to purchase at lease end, why not just purchase a cpo of your vehicle instead? If you are goign to get your lease return CPO'd it will cost you before you purchase it back.


I also don't follow this. 
If I buy on delivery or at lease end I think the warranty is the same?
It isn't going to expire just because I purchase the vehicle at lease end (or a least that was my impression). 
For example I don't think buying (paying the residual &tax) at the end of a two year lease causes the warranty to suddenly do a cinderall act.

Wouldn't it make more sense to simply buy an extended warranty then trying to get the leased vehicle CPO'd

Maybe I'm misinformed how purchasing at lease end impacts the warranty but I had assumed the existing original manufactures warranty would still be in force.

If I buy the vehicle I leased then I also know its real history, use and any service problems.
If I get rear ended and have a bent frame on the last month of the lease then I turn the car in.


----------



## schley (May 26, 2005)

bmwKbiker said:


> I also don't follow this.
> If I buy on delivery or at lease end I think the warranty is the same?
> It isn't going to expire just because I purchase the vehicle at lease end (or a least that was my impression).
> For example I don't think buying (paying the residual &tax) at the end of a two year lease causes the warranty to suddenly do a cinderall act.
> ...


Nothing happens to the warranty and purchasing an extended warranty is still feasible as is extended maintenance.

Instead of buying an extended warranty for a car you are going to keep, why not buy a CPO that is for sale. This will certainly be cheaper or you will be able to negotiate it cheaper as residual value at lease end is rarely accurate, it is overinflated.

This way you don't lose the negotiated savings you worked so hard for on the depreciation amount, by being forced into buying the residual at 70% of msrp for example. As we already discussed there is NO DISCOUNT on the residual it is based off of msrp and you don't get the CPO warranty and must pay for the extended warranty.

Screw that turn yours in and just buy the a same model cpo if you like your car. You can get it for cheaper almost 100% of the time than having to jerk around with having to pay the full residual of msrp and get it either CPO'd or buy the extended warranty.

I't not saying you can't like your car and want to keep that model. But financially you are screwing yourself more times than not by a big margain by not just buying a CPO of that model as you can get a better price for the same car (and you don't have to worry about having to cpo it yourself or getting an overpriced extended warranty).


----------



## bmwKbiker (Nov 5, 2006)

schley said:


> Instead of buying an extended warranty for a car you are going to keep, why not buy a CPO that is for sale. This will certainly be cheaper or you will be able to negotiate it cheaper as residual value at lease end is rarely accurate, it is overinflated.


If this is true then you are correct.

But when I turn my Z4 in next fall I expect it will end up back in a dealer lot with a asking price that is multple thousands of dollars over my residual. If the car actually sells for that is another question. In this case I don't care I'm moving on. If I didn't have to pay sales tax on the residual I would do the buy out just so I could resell it private party.

Another two to three years from now I will have to take a hard look at the residual (335) verses what the market value is. Overinflated is relative, sure the vehicle might not sell wholesale for the residual but low mileage used BMWs are pretty pricey at a BMW dealer. I know I was shopping for a used one before I went with the lease.

My point is that if the MF is subsidized then leasing with the possibly for a end of lease buy out may be better both financially and from a flexibility standpoint (your point really) than a direct purchase. If someone buys at lease end they don't lose any of their orignal cap cost discount regardless of the residual percentage, compared to a direct purchase.

Yes if the residual is inflated then swapping out the vehicle makes sense. 
I'm not so sure that this is always true. 
The residual on a 2yr old 328i is probably currently inflated. 
I don't think you can guarantee the same is true for a 335i two or three years from today.


----------



## bimmer12safrad (Feb 13, 2006)

And the mumbo jumbo that keeps this topic confusing yet interesting continues. Happy Holidays All


----------



## emdreiSMG (Dec 10, 2003)

First of all, a two year lease is an anomaly, so any figures pertaining to a 24 month term are likely different.
You should however check what X3's are selling for. I bet they aren't far off that 70% residual figure 2 years later/at maturity.
Leasing works very well for me, and I know the formula backwards and forwards. You should learn it too.


----------



## schley (May 26, 2005)

bmwKbiker said:


> If this is true then you are correct.
> 
> But when I turn my Z4 in next fall I expect it will end up back in a dealer lot with a asking price that is multple thousands of dollars over my residual. If the car actually sells for that is another question. In this case I don't care I'm moving on. If I didn't have to pay sales tax on the residual I would do the buy out just so I could resell it private party.
> 
> ...


If you buy your leaseout at lease end thinking you are going to sell it to a private party then you are goign to have to add sales tax to your purchase and then the private party is ALSO going to have to pay sales tax when he buys it from you and gets the title. Also unless you got the car CPO'd in the process (which is at least 1k) that private party is going to have to get an extended warranty at a cost of 2-4k depending on the car. It doens't work out. At least not for anyone with any financial savy.

A cpo car is marked up 5k or more at least over what a dealer has in it. Thus that is why a car would be more on the lot but you can negotiate at least 10% off the cpo car and closer to 20%. Now you have a car that is less than your lease buyout AND a cpo warranty.

I don't give a rat's ass if anyone follows this advice for it isn't my money to waste. But if you want to make a good financial decision it would behoove you to do so.

bmw residuals ARE inflated the most obvious example is the x3 with a 75% 2 year residual at 30k miles, and a 65% 3 year residual at 45k miles. NO WAY in helll is it worth that as a percentage of MSRP.

I will say that there are examples where leasing with the intention to buy can work out but they are few and far between......

Don't mean to piss anyone off, sorry and happy holidays.


----------



## X3 Skier (Aug 21, 2005)

schley said:


> bmw residuals ARE inflated the most obvious example is the x3 with a 75% 2 year residual at 30k miles, and a 65% 3 year residual at 45k miles. NO WAY in helll is it worth that as a percentage of MSRP.


Don't know what its worth as I have not tried to sell it as yet but I just looked up my 2005 X3 Premium Package with 25000 on the clock and which went for $36000 MSRP. Edmunds computes from ~$26000 (72%) as a trade in to ~$29500 as a private party sale (82%) to ~$32000 (89%) as a CPO'd vehicle. Don't know squat about leasing and don't care either but it sounds like 75% is a pretty good number.

Of course, paying cash with the ED Discount and negotiated discount let's one drive it for two years for about $100 a month IF I could sell it for what Edmunds claims. This also does not count the tax savings from a section 179 write off. One reason I don't lease. :thumbup:

Cheers


----------



## bmwKbiker (Nov 5, 2006)

schley said:


> If you buy your leaseout at lease end thinking you are going to sell it to a private party then you are goign to have to add sales tax to your purchase and then the private party is ALSO going to have to pay sales tax when he buys it from you and gets the title. Also unless you got the car CPO'd in the process (which is at least 1k) that private party is going to have to get an extended warranty at a cost of 2-4k depending on the car. It doens't work out. At least not for anyone with any financial savy.
> 
> Don't mean to piss anyone off, sorry and happy holidays.


Hello?
If you read my last post 1st paragraph:
*If I didn't have to pay sales tax *on the residual I would do the buy out just so I could resell it private party. 
The next purchaser *always* pays sales take this includes the return the lease and by a different vehicle (same model) scenario. I expect one would also pay sales tax of the cost of CPOing the lease vehicle through a return and repurchse.

If a hypothetical vehicle is worth more of less than the residual is a subjective viewpoint.
It may be a difficult call for a particular car at lease end, its by no means a certainty 2 or 3years out. I'm not a dealer so I won't try to claim the residual values are high or low.
I would expect BMWFS does their best to get it right. Your viewpoint would say the lose money on a majority of the returned vehicles at lease end. Just imagine what would happen in the residual was 99%

If a lease return hits the lot with 5K in dealer profit what makes you so sure you can bargin the price back to the original residual?

My point is that if the MF is favorable including the aquistion cost adder. Then a potential buyer might wish to consider lease to buy. That individual has a lot of options at the lease end 

Return the car based on new needs or because it is a lemon
Return the car because the market value is lower than the residual
Buy the lease out because they want the car and the residual is below or at market value

happy holidays


----------



## bmwKbiker (Nov 5, 2006)

schley said:


> If you buy your leaseout at lease end thinking you are going to sell it to a private party then you are goign to have to add sales tax to your purchase and then the private party is ALSO going to have to pay sales tax when he buys it from you and gets the title. Also unless you got the car CPO'd in the process (which is at least 1k) that private party is going to have to get an extended warranty at a cost of 2-4k depending on the car. It doens't work out. At least not for anyone with any financial savy.
> 
> Don't mean to piss anyone off, sorry and happy holidays.


Hello?
If you read my last post 1st paragraph:
*If I didn't have to pay sales tax *on the residual I would do the buy out just so I could resell it private party. 
The next purchaser *always* pays sales tax this includes the return the lease and purchasing a different vehicle (same model) scenario. I expect one would also pay sales tax of the cost of CPOing the lease vehicle through a return and repurchase.

If a hypothetical vehicle is worth more of less than the residual is a subjective viewpoint.
It may be a difficult call for a particular car at lease end, its by no means a certainty 2 or 3years out. I'm not a dealer so I won't try to claim the residual values are high or low.
I would expect BMWFS does their best to get it right. Your viewpoint would say BMWFS loses money on a majority of the returned vehicles at lease end. Just imagine what would happen if the residual was 99%

If a lease return hits the lot with 5K in dealer profit what makes you so sure you can bargin the price back to the original residual?

My point is that if the MF is favorable including the aquistion cost adder then a potential buyer might wish to consider lease to buy. 
That individual has a lot of options at the lease end 

Return the car based on new needs or because it is a lemon
Return the car because the market value is lower than the residual
Buy the lease out because they want the car and the residual is below or at market value
Call option three the two/three year test drive

happy holidays


----------



## schley (May 26, 2005)

bmwKbiker said:


> Hello?
> If you read my last post 1st paragraph:
> *If I didn't have to pay sales tax *on the residual I would do the buy out just so I could resell it private party.
> The next purchaser *always* pays sales tax this includes the return the lease and by a different vehicle (same model) scenario. I expect one would also pay sales tax of the cost of CPOing the lease vehicle through a return and repurchase.
> ...


I'm sure many people would like to live in fantasy land as well and not have to pay sales tax if you buy your lease return only to try and sell yourself to a private party. It doesn't exist but in sales tax exempt states.

The trick for bmw is that they want their leased vehicles returned so they have a cpo market. They want to turn around and cpo them to make more profit and appeal to the buyer who can't afford a new purchase or lease. That is why their residuals are inflated, they don't have the intention of trying to match exactly the market in 2/3 years they slightly inflate to insure that they will most likely get back the leased vehicle at turn in and turn around and CPO the car adn boom another sale and more profit.

It is possible if the MF is low enough and you coudldn't negotiate any discount from msrp that leasing with the intention to buy could be advantageous. That is possible, if all the stars are aligned. It certainly isn't half the time, or a quarter of the time. Less than 10% I would say. But I agree it is possible, and would behoove anyone to look into before making the decision to purchase. Maybe, just maybe they can lease wtih the intention to buy and it might save them a couple hundred bucks a year by doing so.

God bless and happier holidays.


----------



## schley (May 26, 2005)

bmwKbiker said:


> Hello?
> 
> If a lease return hits the lot with 5K in dealer profit what makes you so sure you can bargin the price back to the original residual?


 :hi: HI

That is my point that what you can get a CPO car for is BELOW what the residual is advertised for a new lease.

You lease the x3 for 2 years 75% residual on an msrp of 43k, not fully loaded by any means. Would only have premium package and heated seats only.

At the end of 2 years your residual is 32,250 (plus sales tax) to buy out a 2 year old 30,000 mile x3 that doesn't have the CPO warranty.

I just spent 30 minutes on autotrader to get some info on this and this is what I found.

I found over 45 different 2004 x3's with mileage from 25000-35000. This would put a lease of 2 years and 30k total.

I searched for ONLY cpo's as dealers post their used car inventory on that site.

I rounded each car to the nearest 1,000 mark and then divided that total. The average is $30,500. This is without ANY negotiation at all and with a CPO warranty.

I'm glad I took the time to verify with numbers my assumption as it proved correct.

This is just an example but the premise is that bmw wants the car back so they can sell it again as a CPO. When you buy into that then you can understand why their residuals are set how they are.

god bless :angel:


----------



## scott10s (Oct 12, 2006)

HOLY #*%?!!!!! Sorry I started all that guys. I feel like I owe each of you several minutes of your lives back. You helped me decide what to do though. I'm going to just pay cash....stupid or not..... that's what I've decided to do, so don't try to talk me out of it!!!


----------



## schley (May 26, 2005)

scott10s said:


> HOLY #*%?!!!!! Sorry I started all that guys. I feel like I owe each of you several minutes of your lives back. You helped me decide what to do though. I'm going to just pay cash....stupid or not..... that's what I've decided to do, so don't try to talk me out of it!!!


Cash is pretty good solution if you decided to keep the car for over 5 years. 

I'm a firm believer that if someone's opinion is correct it will stand the test of a discussion. Unfortunately it takes longer on a forum than in person. In order to find the best way takes time and effort to thoroughly examine the pro's and con's and possible scenario's of when 1 factor might swing a decision.


----------



## bmwKbiker (Nov 5, 2006)

Good research Schley. 
You made a good case for this vehicle (X3) at this term (2yr).
I will point out you picked the BMW with the absolute highest residual percentage 
http://bimmer.roadfly.com/bmw/forums/financing/8136836-1.html

For this model your assertion is likely correct BMW wants the vehicle back for resale. 
For anyone that returns the vehicle at lease end an inflated residual is actually a good thing.

Since you went with the best case I will pick out the model that makes my point the best 
What if Scott10s was looking at a cash purchase of a 
2007 BMW 5 Series 530i? 
24 mo/15k mi ***8211; Residual Value 70% of MSRP ***8211; .00050 Base Money Factor Rate 
36 mo/15k mi ***8211; Residual Value 60% of MSRP ***8211; .00050 Base Money Factor Rate 
Lease to buy in this case would be even more of a no brainer. 
He could worry about his residual over/under water at lease end and possibly decide he didn't want to make a long term commitment to the vehicle after all. If he choses to buy a lease end then he got below market financing for the lease term. The deffered cash outlay could be put into MSD (less than 5k) and with the rest put in a 2/3yrCD (at >5%).

I believe this case also stands the discussion test.


----------



## schley (May 26, 2005)

bmwKbiker said:


> Good research Schley.
> You made a good case for this vehicle (X3) at this term (2yr).
> I will point out you picked the BMW with the absolute highest residual percentage
> http://bimmer.roadfly.com/bmw/forums/financing/8136836-1.html
> ...


K now are we going to assume that Scott10 doesn't care about CPO'ing the car or getting an extended warranty on his lease purchase, in since you want a scenario that is best for your point?


----------



## bmwKbiker (Nov 5, 2006)

He said he was going to pay cash hence CPOing isn't an option. Extended warranty is an option with either a direct purchase or lease payout, so what is your point


----------



## schley (May 26, 2005)

bmwKbiker said:


> so what is your point


getting pissed off ?

My point young man is that when factoring this up if you lease with the intention to buy and at lease end you don't get your car cpo'd then that is a cost savings (although at the exspense of not having a cpo warranty). And if he doesn't want it cpo'd then I would simply pull up current cpo's with his exact model and show that the cpo car cost LESS than the residual buyout.

That is why it is important and vital. If he wants to cpo the car before buying it at lease end there will be a cost involved in that and if he doesn't then the reality will be he will have a lesser car at a higher cost , since it will cost more and be void of a cpo warranty. Does that make sense?

What is your scenario that you want to compare I'm not sure what we are even comparing yet.


----------



## schley (May 26, 2005)

bmwKbiker said:


> Good research Schley.
> You made a good case for this vehicle (X3) at this term (2yr).
> I will point out you picked the BMW with the absolute highest residual percentage
> http://bimmer.roadfly.com/bmw/forums/financing/8136836-1.html
> ...


k pick your lease term and let's run the numbers I have a hunch on what will be more advantageous for you but I want to see which you will pick.


----------



## bmwKbiker (Nov 5, 2006)

Schley,
Okay lets do this:thumbup: . But first let me point out that you keep looking at this as an either or situation. If I lease to buy, instead of an outright purchase I still have the option to go your way and turn the car in *AT LEASE END *if the residual is inflated.

Let's go with your Z4  but make it a 2007. Go ahead an use $825 as the aquisition fee it should hurt me right? Purpose any large discount from MSRP you want. (It might help if you make it a multiple of $3600, but its not a big deal.) I claim the leasor will recoup the full discount (minus the aquistion fee) by the end of the lease, regardless of how the vehicle is dispostioned. All I ask is that we go with 36 months.

I got 49,195 as the MSRP with your options (use something else if you want). Options are
1) Full cash purchase
2) Purchase with financing, I think its hard to get 5.5% apr for this and its more like 6% really
3) Lease (once again, we can discuss dispostion but the leasor has 3 years to make that decision if it is a lease)
I'm curious as to what you did when you aquired the Z4?

2007 BMW Z4 Convertible 3.0si / Compare Instant Lease Quotes
24 mo/15k mi ***8211; Residual Value 73% of MSRP ***8211; .00125 Base Money Factor Rate 
36 mo/15k mi ***8211; Residual Value 63% of MSRP ***8211; .00125 Base Money Factor Rate 
48 mo/15k mi ***8211; Residual Value 40% of MSRP ***8211; .00322 Base Money Factor Rate
60 mo/15k mi ***8211; Residual Value 32% of MSRP ***8211; .00322 Base Money Factor Rate

Nice high residuals!, MF is good but NOT great.
(Is it leasor or leasee?)


----------



## schley (May 26, 2005)

bmwKbiker said:


> Schley,
> Okay lets do this:thumbup: . But first let me point out that you keep looking at this as an either or situation. If I lease to buy, instead of an outright purchase I still have the option to go your way and turn the car in *AT LEASE END *if the residual is inflated.
> 
> Let's go with your Z4  but make it a 2007. Go ahead an use $825 as the aquisition fee it should hurt me right? Purpose any large discount from MSRP you want. (It might help if you make it a multiple of $3600, but its not a big deal.) I claim the leasor will recoup the full discount (minus the aquistion fee) by the end of the lease, regardless of how the vehicle is dispostioned. All I ask is that we go with 36 months.
> ...


K z4 it is. those numbers on the z4 are GREAT. 3% apr without msd's! Those residuals are the 2nd highest next to the x3 example I used.

K before we begin I will explain why I leased my z4. I had a 06 e90 that I took ED on in August of 05. I loved it but had a payment of 820 and never used the backseat. I realized I don't need the backseat and didn't ever want a bmw out of warranty. I then realized although too late that I'm a better lease candidate than a purchase buyer.

I sold my e90 for what I owed (lucky) and jumped on the september lease deals with 2k dealer incentive. MF were .0005 and I did MSD's to get it down to .00008 ended up with 399.99 a month payments. My msrp is 49345.

I propose we obviously don't use a dealer incentive but we can use a 2007 z4si equipped like mine for an msrp of 49895. We will use the december bmwfs captive lease rates and for 15k 3 years it is a residual 63% and a mf of .00125.

I'm going to be as creative as possible and brainstorm exactly the different possibilities on both sides of the fence and we will find out which is the best decision. Let the figuring begin:thumbup:

K Let's negotiate:

3k off of msrp (easier to work with, I don't want to find the invoice costs and it doesn't matter really as this will suffice)
825 acquistion 
buy rate
Max msd's for a first time bmwfs customer, meaning 8 total

Let's use the credit union I did when I bought my e90, as if we are going to be exhaustive let's research and find the best rate for a loan. 4 years 5.5%, pretty good.

http://www.telcomcu.com/ASP/rates.asp

The dmv fees, maco fees are a wash so we don't need to add them in.

Taxes let's use 7.75% for purchase and monthly for lease.


----------



## schley (May 26, 2005)

K here are the lease numbers

http://www.autoleaseadvisers.com/ca...use_tax=7.75&license=&stage=1&submit=Continue

I did a small cap cost reduction to make it the most attractive and I'm sure you don't want to go down to 10k miles as you want to use as much depreciation at this MF as possible to help your scenario.

549.97 a month
19799 total payments
5033 due at signing
4400 you get back

total outlay over that time period is:

20432

Now you have to also factor in the money used for msd's, cap cost reduction and tax on that which is 4480. This could be put into the bank at let's say 6% interest and keep it consistent. Compounded annually it is just under 700 thus let's use 700.

so we add that 700 in this scenario as part of our outlay

21132 for the 3 years of leasing

Also the residual is $31,433.85 and we can then finance this at 5.5% over 4 years

731.04 per month 
35090 total payments for 4 years

Thus we have 21132 for 3 years of leasing 
35090 total payments for 4 years

total is - 56222 over 7 total years

Any problems thus far or anything I'm missing?


----------



## schley (May 26, 2005)

here are the purchase numbers

46895 purchase price
7.75% tax
50529.36 total loan financed at:

4 years
5.5% interest 

comes to:
1175.13 per month

56406.24 total amount of payments over 4 years


----------



## schley (May 26, 2005)

Now the cash price

46895 including 7.75% is 50529

50529 is your initial outlay and let's use the 6% interest added to this as it is money we are losing by not being able to invest it and add it to the example. 

1st for the 4 year finance

year 1 - 53561
year 2 - 56774
year 3 - 60180
year 4 - 63791

Wow that isn't what i was expecting but I guess considering the MF and interest rate are both below what you could earn your in interest with your money it will be that much.

Thus 63791 is the cost of paying for your car over 4 years with cash in initial payments and then the loss of $ in interest from that payment in full.

56406.24 total amount of payments over 4 years

Now what I'm curious is that if I do the same analysis of gaining $ in interest on whatever part of 50529 hasn't been used for payments each month, how that will affect it. Will the same amount of $ in interest be gained over 4 years using that 50529 as will be lost considering it goes down by the 1175 each month?

Anyone have an amoritzation calculator to help here?


----------



## bmwKbiker (Nov 5, 2006)

schley said:


> K here are the lease numbers
> 
> http://www.autoleaseadvisers.com/ca...use_tax=7.75&license=&stage=1&submit=Continue
> 
> ...


The lease #s are good. 
Except tax is 8.25% in my county makes deffering the tax payment a slightly bigger advantage.

Personally I wouldn't financing the buy out. I'd just pay cash. 
Of course may not be an option for everybody.


----------



## schley (May 26, 2005)

bmwKbiker said:


> The lease #s are good.
> Except tax is 8.25% in my county makes deffering the tax payment a slightly bigger advantage.
> 
> Personally I wouldn't financing the buy out. I'd just pay cash.
> Of course may not be an option for everybody.


well I wouldn't be able to pay cash at all either. Actually it is better if you finance it as you are losing .5% interest between the 5.5% interest on the loan payment and 6% you can make investing it elsewhere.

Is 6% too high?


----------



## bmwKbiker (Nov 5, 2006)

schley said:


> well I wouldn't be able to pay cash at all either. Actually it is better if you finance it as you are losing .5% interest between the 5.5% interest on the loan payment and 6% you can make investing it elsewhere.
> 
> Is 6% too high?


I didn't write that well, 
If I bought out the lease I would pay cash at termination. 
Yes 6% is to high. A CD is like 5.25% plus that income will be taxed.


----------



## bmwKbiker (Nov 5, 2006)

Three year straight lease with 8.25% tax:
AutoLease
Out the door: $5754.35 (8 MSDs)
Payment w/tax: 529.35
Residual (Ballon Payment) 31433.85
8.25% Tax on Residual: $2593.29
Total cost over three years:
Total outlay: 5754.35 + (529.35x35) + 31433.85 + 2593.29 = $58308.74 (~60% of this is deffered for three years) 
Oh yeah I get my $4400 back 
Total final cost $53908.74

From my bank:
Amount: $50,764.00 
Term: 36 months 
Rate Type: Fixed 
Your Rate:1 5.84 % 
Payment: $1,540.66 :yikes: 
Finance Charge: $4,699.76 
Total Loan Cost: $55,463.76

So straight financing is already more expensive than the lease and the lease/buy is back end loaded.
Just before I buy it out I have an extra $34000 in the back collecting interest. 
34000 * 0.04 (tax adjusted yield) = $1360
So I'm guessing deffering using the lease with at residual buy out (aka ballon payment)
will produce a something like $2,000 (after tax) in a zero risk (FDIC) savings vehicle.
This is still a fair comparision, if someone can swing the 3 year payments then could also save up the residual amount during that same period.

Plus with the lease one can always pull a Schley at lease end an decide the vehicle isn't worth its residual.


----------



## bmwKbiker (Nov 5, 2006)

My first bank financing isn't fair.
I should include a comparable down payment.

I'll call it $5764
Then
Amount: $45,000.00 
Term: 36 months
Rate Type: Fixed 
Your Rate:1 5.84 % 
Payment: $1,365.73:yikes: 
Finance Charge: $4,166.28 
Total Loan Cost: $49,166.28 
These rates include a .25% discount if you use automatic payments on this loan. 

Total cost of a financed purchase 49166.28 + 5764 = 54930.28.
Which is still $1000 more than the lease/buy. 
Before we even start account for the time value of the money.

Opposed to a straight finance (assuming someone could actually make the payments) 
with the lease each month they can put about $836 in the bank to save up for that ballon payment.


----------



## bmwKbiker (Nov 5, 2006)

Just to finish this. 

If someone had the full 51K in the bank.
By leasing the the vehicle as opposed to a cash purchase they would retain the time value of about 34K. Actually they would retain ~45K at inception decreasing to ~34K at lease end.
Even at 4%
42K x 0.04 = 1680
38K x 0.04 = 1520
34K x 0.04 = 1360
1yr + 2yr + 3yr = $4560

If the money was already in the bank. 
They could buy a 3yr 5.25% CD with the funds than rather than pay BMW up front.
Hell if you put 34K (the future ballon buyout) in a CD it would pay (pre-tax) about $150 a month. You could have this transfered to you checking account a use it to make part of the lease payment.


----------



## schley (May 26, 2005)

bmwKbiker said:


> Just to finish this.
> 
> If someone had the full 51K in the bank.
> By leasing the the vehicle as opposed to a cash purchase they would retain the time value of about 34K. Actually they would retain ~45K at inception decreasing to ~34K at lease end.
> ...


I like the 150 auto going into checking account no doubt. I guess a big factor is assuming that we have the 52k cash from the beginning with each example regardless of

1. cash purchase
2. 4 year finance
3. lease with intention to buy

So when we put factor in there we have to account for interest on the unused portion of the 52k in option 2/3. This makes it a fair comparison since in my calculations (although 6%) the total cost of a cash purchase was over 60k.

I'm not certain if there is a good calculator you have that could amoritize interest on 52k 5% annualy with 1175 being pulled out each month for 48 months. That would give us the exact figure.

The same with the lease scenario. We actually might find it better to pay cash at lease end or finance the residual depending on these figures. What do you think?


----------



## bmwKbiker (Nov 5, 2006)

schley said:


> I like the 150 auto going into checking account no doubt. I guess a big factor is assuming that we have the 52k cash from the beginning with each example regardless of
> 
> 1. cash purchase
> 2. 4 year finance
> ...


It gets harder to compare when the terms are different.

If you have really have the cash for the car and if spending it doesn't make something else fall off the plate like a 401K contribution then paying cash verses a traditional finance simply becomes a comparsion of how you would otherwise invest the money. Sure you could get over 5% but can you do better than 5% after you pay taxes on the investment income? Maybe, but certainly not risk free though so :thumbdwn: (my opinion). Paying up front is alot like investing at the finance rate, but the return isn't taxed because you are avoiding the finance interest not collecting it. When the lease rate looks like 2 or 3% though the picture changes.

At the end of the lease it is re-evaluation time with lots of options. Reset and forget about what you sunk into the lease. As you pointed out waking away or even swapping into a similar vehicle might actually make sense even if you had planned to buy.

For these numbers with the MSDs it is at little less than 30K out of pocket to buy the residual (including tax). If an eventual purchase is the (original) plan then the purchaser needs to plan for the exit (purchase). Yes it could be financed but for 36/48 the payments are still going to be higher than what the lease was. But if you at paid down some of it then re-finance could be managable. I didn't want to roll this in to the comparison be cause it hides the advantage of the lease in the early years. The lease is subsidized, one strategy would be to make a savings payment every month. $250 a month for 36 months comes to 9K before any interest. With 9 or 10K going towards the residual purchase the new loan might look level (or even below) compared to the lease (plus the $250 savings payment). This would take some discipline the individual would have to treat the savings like another payment.

Others will simply want that shinney new 2010 model (that is what BMW wants them to go for). Some people think it is fine and they should get at new car ever 3 years. But there are extra cost incurred in jumping in an out of cars and anyone that follows that track every time will never have any equity in the vehicle, once again that is just my opinion not hard cold numbers.


----------



## brkf (May 26, 2003)

Curious - tired so maybe I overlooked it - in your cash price and 4 year loan numbers did you include the projected value of the car? 

In other words, you guys said the payment would be $1100 a month for a 4 year loan. So if you put 50k into the car for it brand new and then dropped $1000 a month into an account making only 4.5% for 4 years, where do you stand?

I see 56k in the bank and you car is worth at least 22k. Maybe you've spent 2k in repairs one year out of warranty. I see positive cash, including the car's value of at least 76k. :dunno:

With a lease, drop 45k into the bank, 5k into lease, $500 a month in savings and 3 years later you should have about 70k in the bank. 

The last option seems to be putting 50k in the bank and paying for the car over 4 years at 1100 a month. Hmm, actually you end 4 years with almost 60k in cash, maybe 2k spent on repairs and a car worth maybe 22k. 

Naturally, all this assumes you have the dough and you're trying to decide if you should buy, lease or loan.


----------



## schley (May 26, 2005)

blueguydotcom said:


> Curious - tired so maybe I overlooked it - in your cash price and 4 year loan numbers did you include the projected value of the car?
> 
> In other words, say you $1100 a month for a 4 year loan. So if you put 50k into the car for it brand new and then dropped $1000 a month into an account making only 4.5% for 4 years, where do you stand?
> 
> ...


I didn't factor that into the equation for any of the examples. So what you are saying is how much is the car (asset) worth when the car is totally paid for? And then put that into the equation?..... sorry it is late... but this analysis could uncover some key figures that are hallmarks of when a purchase should be considered over a lease with intent to purchase or cash buy. Not sure but we are at a good fact finding pace.


----------



## MP3_E46 (Oct 30, 2003)

These threads are always funny, can someone start a leather v's -ette too :lmao: 

Our last E90 cost $150 per month in depreciation over ten months and I had ~$33K in equity not earning interest for 12 months (6% x $30K = $1980 or $198/month). So that is $348/month for ten months overship of a new BMW - can you leasers get that cheap?

My '03 325 has lost a about $200/month over four years and I have had $27000 not making interest over those years - still cheaper than leasing right? Most importantly I choose _when_ we change the cars, and that gives us much more negotiating power.


----------



## bmwKbiker (Nov 5, 2006)

MP3_E46 said:


> These threads are always funny, can someone start a leather v's -ette too :lmao:
> 
> Our last E90 cost $150 per month in depreciation over ten months and I had ~$33K in equity not earning interest for 12 months (6% x $30K = $1980 or $198/month). So that is $348/month for ten months overship of a new BMW - can you leasers get that cheap?
> 
> My '03 325 has lost a about $200/month over four years and I have had $27000 not making interest over those years - still cheaper than leasing right? Most importantly I choose _when_ we change the cars, and that gives us much more negotiating power.


If you have the cash on hand then puchasing does usually represent a good return on your money. 
I already said it works out to a return ~= to the finance rate tax free. Plus you are not hit with the aquistion fee.

You can get into a New E90 (328) with a $329 payment (2500 cap deprication) so your first example isn't necessarily cheaper.

Only losing $1500 to get into at out of a 40K vehicle doesn't sound typical either. 
If you traded the E90 in it gets really hard to know if you gave up a potential discount on the new vehicle purchase for a higher trade-in value.
Did you negotiate $xxx over invoice befor you started talking trade-in value?


----------



## MP3_E46 (Oct 30, 2003)

bmwKbiker said:


> You can get into a New E90 (328) at for for $329 with 2500 cap deprication so your first example isn't necessarily cheaper.


On a ten month lease with AT, paint and CWP? I'= would like to see the numbers 

Ten months into ownership we decided a wagon was a better cars for our needs - if we leased I think it would have been an failry expensive proposition.


----------



## chrischeung (Sep 1, 2002)

*Another option*



MP3_E46 said:


> On a ten month lease with AT, paint and CWP? I'= would like to see the numbers
> 
> Ten months into ownership we decided a wagon was a better cars for our needs - if we leased I think it would have been an failry expensive proposition.


Can you transfer the lease? My lease is transferrable. I'm going to get out of my 2006 530i into a 2007 525i and save $100 a month, plus extending the term on the new lease. But, its a bit of extra work tracking all this stuff. So, for simplicity, I agree buying does have its benefits.


----------



## bmwKbiker (Nov 5, 2006)

MP3_E46 said:


> On a ten month lease with AT, paint and CWP? I'= would like to see the numbers
> 
> Ten months into ownership we decided a wagon was a better cars for our needs - if we leased I think it would have been an failry expensive proposition.


No you can't a lease at less than 24m and yes you would take a bath anyways.

Plesae tell how much over invioce to you pay for that wagon (BMW?) and what was your in and out cost of the E90 (sic?)


----------



## MP3_E46 (Oct 30, 2003)

My wife leased once we were thinking of returning to UK; the dealer said that is was easy to end the lease - just turn the car in and make all the remaining payments  Back then I knew zero about leasing, but asked if we could trade it or sell privately (~a2->4K loss I calculated) and the dealer said that it was not permitted. From what I hear now the dealer was probably lying and having fun winding me up, but I still believe escaping from the clutches any lease contract is not going to be child's play without taking a financial hosing.

>>But, its a bit of extra work tracking all this stuff.
That is what really gets me, leasing just seems to complex and the savings seem suspect too :dunno: Maybe if I were 15 years younger I'd look at leasing? Life is complicated enough already for me at least :banghead:


----------



## MP3_E46 (Oct 30, 2003)

bmwKbiker said:


> No you can't a lease at less than 24m and yes you would take a bath anyways.
> 
> Plesae tell how much over invioce to you pay for that wagon (BMW?) and what was your in and out cost of the E90 (sic?)


That is what I thought.

Over invoice was on the low-end of the 'standard range' quote on this forum with no extra fees + we got the $500 CCA rebate. Including tax we received almost exactly $1500 less for the E90 after ten months and 8.5K miles - maybe I could have broke even selling privately but we were happy with the dealer's offer (ok we beat him up a bit over a few weeks). The car was ED too which obviously makes a difference. :eeps: Apples and oranges I know....


----------



## bmwKbiker (Nov 5, 2006)

MP3_E46 said:


> That is what I thought.
> 
> Over invoice was on the low-end of the 'standard range' quote on this forum with no extra fees + we got the $500 CCA rebate. Including tax we received almost exactly $1500 less for the E90 after ten months and 8.5K miles - maybe I could have broke even selling privately but we were happy with the dealer's offer (ok we beat him up a bit over a few weeks). The car was ED too which obviously makes a difference. :eeps: Apples and oranges I know....


Well you have at least drop the $500 CCA out of any comparision. That is available for leases also
You must have done really well on the initial E90 purchase price (oh I see ED, that makes comparisions really unfair!)
I also don't know the sale tax rate in Georgia, but sales tax can really hurt if you keep switching vehicles by purchasing.


----------



## bmwKbiker (Nov 5, 2006)

Schley,
Last spin, Scenario
I have got the 6K (MSDs or DP) no other cash for the vehicle but decide I can float up to $800 a month for a payment.

45K loan (direct from my bank)
Amount: $45,000.00 $45,000.00 $45,000.00 $45,000.00 $45,000.00 
Term: 36 months 48 months 60 months * 72 months *84 months 
Rate Type: Fixed Fixed Fixed Fixed Fixed 
Your Rate:1 5.84 % 6.49 % 6.49 % *6.74 %* 7.24 % 
Payment: $1,365.73 $1,066.97 $880.27 *$761.60 *$684.46 
Finance Charge: $4,166.28 $6,214.56 $7,816.20 *$9,835.20 *$12,494.64 
Total Loan Cost: $49,166.28 $51,214.56 $52,816.20 *$54,835.20 *$57,494.64 
These rates include a .25% discount if you use automatic payments on this loan.

So a direct finance at 6 years gives me a $761 payment.

Instead I do 3year lease followed by a 3yr re-finance of the residual:
My lease number was $539 and change
In addition to the lease payment I'll put aside another $200 a month *739 < 761*
When the lease ends 36 x200 = $7200, and I credit myself $800 in interest for a total of $8k
~30K - 8K(savings) = 22K to refinance

Amount: $22,000.00 
Term: 36 months 
Rate Type: Fixed 
Your Rate:1 6.09 % 
Payment: $670.18 
Finance Charge: $2,126.48 
Total Loan Cost: $24,126.48

New payment $670.18 ($100 less than the 72month finance for the final 3 years).

Persoanlly I wouldn't stretch out the financing on a depreciating asset this long. 
But would work towards 5years or even try to save enough during the lease to buy out with cash. (my bank calculator wouldn't do 24months on a refinance).

But this demostrates that leasing can a effective purchase path (if the MF is right). On top of that there is the option window between lease and refinance to change your mind. Versus making a 6 year commitment.

The saving interest was too high I should have used $300 and a 7.5K total. but I'm too lazy to re-run the whole thing.
Actualy lets just say I save $215 a month during the lease term that gets me to $7740 before any bank interest.
Better yet 36*(761-539)= $7992 and I have the $8K even if I just put it in a 0% checking account! 
It still stands the discussion test (i.e. bimmerfest forum review)


----------



## schley (May 26, 2005)

bmwKbiker said:


> Schley,
> Last spin, Scenario
> I have got the 6K (MSDs or DP) no other cash for the vehicle but decide I can float up to $800 a month for a payment.
> 
> ...


good job of making like terms 6 years. this makes it easier to understand although we can both see that there are shorter terms that would make the most sense.

I think we can boil it down to :

The MF certainly has to be low, without a doubt. If it is low enough and you could still possibly be better leasing with intention to buy even if you can't negotiate much off of msrp. This is importnat for your residual at lease end will have NO SAVINGS from msrp. Thus there are two ways you must try and make up some savings in leasing with intention to buy. Have to get the MF low and get as big of a negotiaged break at cap cost lease inception for it won't have any room for negotiatino at lease end.

I also think that one can get a CPO of the same vehicle for cheaper than the residual buy out at lease end however almost all the time IMO.

This was a healthy exercise and there are scenarios where lease with intention to buy is better than a straight finance. BUT lease with the intention to buy another CPO as opposed to buying the car you are leasing is a better scenario.

What do you think?


----------



## MP3_E46 (Oct 30, 2003)

bmwKbiker said:


> I also don't know the sale tax rate in Georgia, but sales tax can really hurt if you keep switching vehicles by purchasing.


Depends on the county; it was 6% when we bought that car.

GA makes it better when trading in a car because the we only pay the tax on 'new car cost' - 'trade in value'. When trading a year old car the tax saved is large. Interestingly the dealer advertised our old E90 at $5K more than we paid and it disappeared from their website in about four weeks!! Everyone was a winner in that trade :thumbup:

Thanks to you and Schley for the numbers; I'll be saving this thread to my laptop so I can look at it @ the in-laws this weekend. FYI: You know I use a spreadsheet right, http://www.dotnetworkaholic.com/NON+TECH+Science+Of+Buying+A+New+Car+Update+Following+Flames.aspx


----------



## bmwKbiker (Nov 5, 2006)

MP3_E46 said:


> Depends on the county; it was 6% when we bought that car.
> 
> GA makes it better when trading in a car because the we only pay the tax on 'new car cost' - 'trade in value'.


That a huge positive for buying verses leasing. If the trade in upgrade is 2K your tax cost is $120.

I my county in California a $40K new car purchase wil net you a $3300 tax bill even if your trade in was valued at $39,999. 
This makes leasing more attractive if you want to flop vehicles often, because you only pay tax on the payment and any original cap cost reduction.

I guess I shouldn't complain in some states tax is due up front on the full vehicle value even for leases.


----------



## bmwKbiker (Nov 5, 2006)

Schley,
The residual is a big factor (the driving) in your turn the lease in and get a similar CPO scenario. If it is high it works if it realistic or low the swap is going to cost you. I'm fine with that, you made your point that at least some residuals are inflated.

If an individual actually goes through with a purchase in the lease to buy scenario then any reasonable residual won't have a big effect. For the lease to buy it simply becomes a pay BMWFS now or pay them later question, eventually BMWFS gets the full cap cost back. If the MF is low enough an inflated residual is also good for the to be owner he gets to use more BMWFS money (and keep his own) at a very low cost of funds. *This scenario also holds up regardless of if the negotiated discount is high, low or zero. *If someone could negotiate the a discount such that the aquistion cost = residual the lease payment would simply be the rent about $60 using our numbers (with $0 depreciation). $2160 over 3years, yes your finacing starts to get cheaper, but the individual would't have to stash a whole lot in a bank account to cover a $60 month lease payment.

Then at lease end it we are once again be back to your scenario should the individual walk away, swap or buyout based solely of the market value verses residual comparision. Once again this is not an either or situation. With low MF planning for lease to buy becomes a have your cake at eat it too situation. At the end of the lease if you are bored with the remaining cake or its stale (no longer worth the residual) give it back to the baker (BMWFS). If you really like the cake and you can't get a simalar half eaten cake cheaper then finish it off. (Note the other cake might not taste quite as good as it looks, you know a lot more about the cake you already have).


----------



## schley (May 26, 2005)

bmwKbiker said:


> Schley,
> The residual is a big factor (the driving) in your turn the lease in and get a similar CPO scenario. If it is high it works if it realistic or low the swap is going to cost you. I'm fine with that, you made your point that at least some residuals are inflated.
> 
> If an individual actually goes through with a purchase in the lease to buy scenario then any reasonable residual won't have a big effect. For the lease to buy it simply becomes a pay BMWFS now or pay them later question, eventually BMWFS gets the full cap cost back. If the MF is low enough an inflated residual is also good for the to be owner he gets to use more BMWFS money (and keep his own) at a very low cost of funds. *This scenario also holds up regardless of if the negotiated discount is high, low or zero. *If someone could negotiate the a discount such that the aquistion cost = residual the lease payment would simply be the rent about $60 using our numbers (with $0 depreciation). $2160 over 3years, yes your finacing starts to get cheaper, but the individual would't have to stash a whole lot in a bank account to cover a $60 month lease payment.
> ...


I agree that if the mf is low then a lease is a cheap way to go. The residual is a driving factor and combining that with the high residual and getting into a lease isn't bad at all.

If we start with the premise that I'm going to drive this particular car for 7 years and go through the three different options with a 4th being turn in the leased car and buy the same model as a CPO, we shouldn't assume a cash scenario as that levels the playing field as most can't even afford that.

In that case we have to look at having a payment under 800 for the entire time of ownership either in a lease or purchase and rule out the cash purchase.

Then you would have to finance the residual in a lease turn in and if that apr is high and the MF for the original lease is average that doesn't help.

I think anyone should run the numbers and look at the three scenarios
1. lease and purchase at lease end
2. lease and turn in at lease end, then buy same model cpo
3. purchase with financing

Run those scenarios and find what is best......In our example I think #2 was the best but not by a huge margin. But this can vary and #1 can be advantageous if the MF is right and the discount on msrp isn't much if anything.

Good exercise.


----------

