# Buy vs Lease



## Raikkonen (Jan 20, 2004)

Greg I think you are off on the "money in your pocket" statement. Ok so let's say you invest the money instead of paying it up front and you make 15% it's not a ton. I on the other hand at the end of 3 years have a car worth proabbaly $29k you have nothing but a turn-in. In that same time you will have spent more than $10k in car payments for sure. You would have to earn about 20% or more on your money to even come close to equally paying for the entire car up front. Plus I have no payment each month that I can invest when you are forced to cough up anywhere from $450 to $650 depeneding on what you put down. Everyone has their opinion but if you have the $40k+ sitting around I think there is no easier way of doing things.
It's up to the individual but I don't think you are dumb or smart by going one way or another.


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## Frank Rizzo (Aug 2, 2003)

Raikkonen said:


> .............It's up to the individual but I don't think you are dumb or smart by going one way or another.


My reference to him being a genius is that he "gets it" in regards to leasing - and so many people don't.

How leasing got/gets it's bad name: - people who should not be leasing, get "buried" in a lease that is only $20/mo cheaper than if they financed to buy. They do no reasearch and get "turned over" to leasing during the sales pitch - because they focus on the payment and nothing else. When they find out - whamO, they are pissed, but they can not do anything about it. Example: there is a Nissan dealer near me that advertises pre-owned Altimas and Maximas with incredibly low payments in their ad. If you look close - it is a 72 (!!!!) month lease. This is the definition of malfeasance.

Cars are a poor investiment no matter what. All you want to do is minimize your losses. By far the best way to do this is to buy with cash and keep the car untill it disintegrates. The next best plan (IMHO) is leasing new every 3 years - with the emphasis that the car has to be a good "leaser" (i.e. high residual - or - aka Ford Focus = not a good leaser). I've gotten some incredible factory incentives on leases that drive the cost of the car waaaay below what it would cost to finance to buy and sell at the end of the term. Those are the deals I look for.

Caution: It's really easy to get buried on a lease. If you don't know it inside and out, you should consider not leasing. FYI: I financed my BMW and leased my wife's Jetta.


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## Namikis (Jan 26, 2004)

Raikkonen said:


> Greg I think you are off on the "money in your pocket" statement. Ok so let's say you invest the money instead of paying it up front and you make 15% it's not a ton. I on the other hand at the end of 3 years have a car worth proabbaly $29k you have nothing but a turn-in. In that same time you will have spent more than $10k in car payments for sure. You would have to earn about 20% or more on your money to even come close to equally paying for the entire car up front. Plus I have no payment each month that I can invest when you are forced to cough up anywhere from $450 to $650 depeneding on what you put down. Everyone has their opinion but if you have the $40k+ sitting around I think there is no easier way of doing things.
> It's up to the individual but I don't think you are dumb or smart by going one way or another.


This is exactly my point. If you have the money, be your own bank and lease it t yourself. How do you guys BMW leasing makes all the money they do? it is a sucker deal regardless of the leasing factor 99% of the time! Leasing is a good option of it can help on the tax treatment (deduction of the lease as a work expense), but most of us cannot claim that - so, I will continue to buy my bimmers with cash as along as I can afford it.

N


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## SizzlerMA (Sep 23, 2003)

Frank Rizzo said:


> By far the best way to do this is to buy with cash and keep the car untill it disintegrates.


Buying with cash is a BAD idea. If you do so, you get no GAP insurance! What if your car is totalled in the first year? You're hosed, eh! Better get a loan at say 4% or so, with GAP insurance built in, and invest the cash at 4% is US savings bonds, whose interest is federal tax free. That seems like the safest position . . .


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## swchang (Oct 5, 2003)

Frank Rizzo said:


> Cars are a poor investiment no matter what. All you want to do is minimize your losses. By far the best way to do this is to buy with cash and keep the car untill it disintegrates. The next best plan (IMHO) is leasing new every 3 years - with the emphasis that the car has to be a good "leaser" (i.e. high residual - or - aka Ford Focus = not a good leaser). I've gotten some incredible factory incentives on leases that drive the cost of the car waaaay below what it would cost to finance to buy and sell at the end of the term. Those are the deals I look for.


I thought buying 2-3 yr used cars and driving them till they die was the best strategy in terms of best value for your money... Am I wrong? :dunno:


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## missing23 (Feb 1, 2002)

Well, respectfully, some of you guys are proving my point...you shouldn't lease because you don't really understand it! I'll show you how paying cash is a bad option if you get the RIGHT lease deal.

To answer your question, at some MF's BMW is NOT making money (or at least market) because how else can you explain my MF of 0.0005? They (BMW the manufacturer) are SUBSIDIZING it to move cars! BMW dealers (since they are marking up the buy rate) are making $ off the vast majority of people that don't know how to lease well.

Basically a lease is the difference between what you paid for the car and what it is worth at the end of time period with some interest being charged.

Now, on my 36 month/18K mile lease, this difference is $16800 and I will pay a little over $1100 for my interest charge over the term. Simplifying things I am betting that I could take that $16800 and make more than $1100 on it over the next 36 months...and with the way the market is going I have already done that!

People always say that people at the end of leases have nothing...well, that is wrong...what they have is an option...an option to purchase the car at residual which might be attractive if the car has really maintained value and if they have kept miles down, etc (I have done this before and had EQUITY on a lease, imagine that!)...on the other hand they have the option to turn it in if they want to for whatever reason...in my latest case I'm betting that the residual is also being SUBSIDIZED because I know it would be a challenge to sell my 3 year old ZHP with 54000 miles on it for the residual of 23200.

So the lease can really be 'insurance'...say you paid cash for the car equal to the cap I paid and drive it the 54K miles I will...well you don't have the option to turn it in and it will probably be worth way less than the $23K residual I got so you really lost out by paying cash.

If you do the lease right and analyze your situation right it is the best way to go if you like new cars every three years, always being under warranty, etc.


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## missing23 (Feb 1, 2002)

Raikkonen said:


> Greg I think you are off on the "money in your pocket" statement. Ok so let's say you invest the money instead of paying it up front and you make 15% it's not a ton. I on the other hand at the end of 3 years have a car worth proabbaly $29k you have nothing but a turn-in. In that same time you will have spent more than $10k in car payments for sure. You would have to earn about 20% or more on your money to even come close to equally paying for the entire car up front. Plus I have no payment each month that I can invest when you are forced to cough up anywhere from $450 to $650 depeneding on what you put down. Everyone has their opinion but if you have the $40k+ sitting around I think there is no easier way of doing things.
> It's up to the individual but I don't think you are dumb or smart by going one way or another.


First off you are making a guess on the value which has no guarantee to it. You do have no payment but you also don't have the $40K plus state tax in your pocket either to invest! That is a HUGE difference dude. I'd rather pay my $500 a month and have the $40K placed in some investment. At a 15% annual return on the $40K I am 'paying' for my car.

Also instead of that huge outlay I'm only paying $18K total over three years (NOTHING down as you don't want to put anything down on a lease) on a $41K+ plus car putting 54K miles on it to have an option at lease end on what I want to do. I am also only paying $1400 on state tax whereas I would had to have paid $3400 if I would have paid cash.

Paying cash really only makes sense if you keep the car for at least 5-6 years and put relatively low miles on it if you ever want to sell it. (REVISION TO THIS: Paying cash makes sense if leases really suck (low residual and high MF) on the car you want, for example a GM car...unless HIGHLY subsidized you NEVER want to lease a GM car!)


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## missing23 (Feb 1, 2002)

Namikis said:


> This is exactly my point. If you have the money, be your own bank and lease it t yourself. How do you guys BMW leasing makes all the money they do? it is a sucker deal regardless of the leasing factor 99% of the time! Leasing is a good option of it can help on the tax treatment (deduction of the lease as a work expense), but most of us cannot claim that - so, I will continue to buy my bimmers with cash as along as I can afford it.
> 
> N


Dude, respectfully, you really don't know leasing and you are really much better paying cash. A sucker deal though?! Geesh, it is ALL about the MF (and cap). Would you be happy giving someone an interest rate of 1%? No you wouldn't. BMW subsidizes leases to move cars at certain times and they also offer an MSD program. They are not making $ off the money portion of these leases, they are making money off the margin of the car itself.


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## postoak (Mar 5, 2002)

Greg - you can talk until you're blue in the face and some people won't get it. 

I have a question for you since you seem to be up on this. Why is it considered so bad to go over mileage on a lease? Am I missing something? If you're paying what works out to, say, 42 cents/mile for use of your car under the original lease terms and over mileage is, say, 20 cents/mile, why is that a tragedy?


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## JST (Dec 19, 2001)

Frank Rizzo said:


> My reference to him being a genius is that he "gets it" in regards to leasing - and so many people don't.
> 
> How leasing got/gets it's bad name: - people who should not be leasing, get "buried" in a lease that is only $20/mo cheaper than if they financed to buy. They do no reasearch and get "turned over" to leasing during the sales pitch - because they focus on the payment and nothing else. When they find out - whamO, they are pissed, but they can not do anything about it. Example: there is a Nissan dealer near me that advertises pre-owned Altimas and Maximas with incredibly low payments in their ad. If you look close - it is a 72 (!!!!) month lease. This is the definition of malfeasance.
> 
> ...


This is very true. One additional point: While there are often incentives that make leasing Car X more attractive than it otherwise would be, it is usually the case that cars that don't "lease well" don't buy well, either. A car usually has low residuals because it doesn't hold it's value well--you can either recognize this cost on a monthly basis with a high lease rate, or you can recognize it when you try to sell (or trade) the car and get hosed. For an example of this, compare the lease cost of an Audi A4 with the lease cost of a BMW 330--they may have the same or similar MSRPs, but Audis typically cost substantially more on a per month basis than BMWs because they don't hold their value as well.

IMHO, one of the advantages of leasing is that you are negotiating the trade in value of the vehicle before you buy the vehicle, when you still have much of the leverage (because the dealer is itching to make the deal). Once you own the car and try and trade it (or sell it), you are trying to persuade the dealer to take used goods off your hands.

Another situation where leasing makes sense is when you want to get a car with unpopular options (such as, e.g., a manual transmission Cadillac CTS). This car would be nearly impossible to move on the used car market, but since residuals are aggregated for the entire model line, when you lease you aren't bearing the full weight of the unpopularity of your option choice.

One situation where leasing likely *doesn't* make sense is when a car is particularly popular. Dealers and manufacturers in these cases tend to pack the lease by under-setting the residual and overcharging on the MF.


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## missing23 (Feb 1, 2002)

postoak said:


> Greg - you can talk until you're blue in the face and some people won't get it.
> 
> I have a question for you since you seem to be up on this. Why is it considered so bad to go over mileage on a lease? Am I missing something? If you're paying what works out to, say, 42 cents/mile for use of your car under the original lease terms and over mileage is, say, 20 cents/mile, why is that a tragedy?


 :rofl: TRUE! I'm a goof!

Anyways, I don't think it is necessarily bad to go overmiles (but not WAY overmiles) because even if you paid cash for that car you are paying for overmileage there too as you will get less for the car on resale...and if you go overmiles you just pay it and walk away whereas if you own it you have to try and sell a higher mileage car...both can work out you just need to know what you are doing as always.

Keep in mind that overmileage occurs during the lease term and actually ends up being an adder to the .42 or whatever for some portion of the lease.


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## jk330i (Aug 13, 2002)

hey greg good stuff! btw, how did you get a deal of 18k mile/year on your zhp lease? Since you seem to know the ins-and-outs of leasing, I'm curious to know what kind of deal you got. can you PM me pls?


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## missing23 (Feb 1, 2002)

jk330i said:


> hey greg good stuff! btw, how did you get a deal of 18k mile/year on your zhp lease? Since you seem to know the ins-and-outs of leasing, I'm curious to know what kind of deal you got. can you PM me pls?


BMW has set residuals for up to 15K miles per year. For anything above that they multiply the additional miles you use by $0.15 and subtract from the 15K residual.

So, say your MSRP is $41620 and the 36 month 15K residual is 0.59 or $24555. Well if you want 18K miles per year take 9000 miles (the additional miles you want over the term of the lease) and multiply by 0.15 and subtract this ($1350) from the above residual. You will now be using a residual of 23205 to calculate your lease payment.

Now, BMW offers really nice leases as say I don't go over the standard 45K miles, well they will pay me the $1350 back! You may say why give BMW a free loan by buying miles that you don't use, well upfront miles cost only $0.15 and after the fact miles cost $0.20 I believe (I don't have my lease with me.)

Hope this helps, I can't explain anything in a couple sentences! :tsk:


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## jk330i (Aug 13, 2002)

You make me feel like I got jipped on my lease, which I did! And the more I hear it :bawling: 

this was two years ago:
2002 330i $40385
12 yr/36000 miles MF .00240 Res.60


I see now things have changed for the competitive market and everyone's buying Bimmers in my area.


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## missing23 (Feb 1, 2002)

jk330i said:


> You make me feel like I got jipped on my lease, which I did! And the more I hear it :bawling:
> 
> this was two years ago:
> 2002 330i $40385
> ...


I don't know whether you got a bad deal or not AT that time...MF's may have been that high back then (a 5.76% interest is still not that bad)...and residuals may not have been subsidized as much as lately...that is why I say you really need to know what current residuals and MF buy rates are to really know if you are getting a good deal...most people don't want to do all the research so that is why they probably shouldn't lease...I negotiated my lease for at least 2-3 months while waiting for my car to come in!

Also most BMW dealers don't talk about Multiple Security Deposits (probably because they don't understand them themselves, well at least most of their salespeople)...which at the time allowed me to shave 0.0001 for each additional payment amount I put down for a security deposit up to 9. So, my dealer quoted me 0.0014 for the MF which was marked up two points (half what BMW allows them to mark it up) from 0.0012 for their 'profit' which I was OK with and then I put down 9 additional security deposits lowering the MF to 0.0005 which is about a 1% rate...so a great deal AT the time.

I am NOT saying leasing is the way to go in all cases...it just makes a lot of sense when residuals are high (60% range for 3 year 15K leases) and MF's are low (a few points below existing money rates).


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## jk330i (Aug 13, 2002)

actually at the time BMWFS had offered .00190 MF, however since I had no idea at the time they were offering this rate, the dealer did not disclose this information. The dealer did not even tell me that I had an option for MSD's and just asked if I wanted to put a down. It was my mistake for not having done the research, but I've learned so much since then. I just wish I had purchased a car equipped with SP and bi-xenons


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## missing23 (Feb 1, 2002)

jk330i said:


> actually at the time BMWFS had offered .00190 MF, however since I had no idea at the time they were offering this rate, the dealer did not disclose this information. The dealer did not even tell me that I had an option for MSD's and just asked if I wanted to put a down. It was my mistake for not having done the research, but I've learned so much since then. I just wish I had purchased a car equipped with SP and bi-xenons


Oh well, you won't 'screw' up again huh?!

Anyways BMW puts these residual and MF sheets out every month to their sales people...don't cut a deal with them until they show you this sheet in the future (I made my guy show it to me or NO deal!)...the residual is set in stone but let them know you are willing to pay a point or two, NOT four, above the MF buy rate and they should work with you...then work them on the cap!


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## jk330i (Aug 13, 2002)

thanks for the advice, that helps mucho!  

btw, point or two above MF buy rate, what does that exactly mean? heh


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## missing23 (Feb 1, 2002)

jk330i said:


> thanks for the advice, that helps mucho!
> 
> btw, point or two above MF buy rate, what does that exactly mean? heh


Well if the buy rate is 0.001 dealers can mark it up 0.0004 or to a max of 0.0014...by a point or two I mean 0.0001 increments...I think 0.0012 would be fair for example...the dealer makes some $ and I don't pay the max they could mark it up.


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## Frank Rizzo (Aug 2, 2003)

SizzlerMA said:


> Buying with cash is a BAD idea. If you do so, you get no GAP insurance! What if your car is totalled in the first year? You're hosed, eh! Better get a loan at say 4% or so, with GAP insurance built in, and invest the cash at 4% is US savings bonds, whose interest is federal tax free. That seems like the safest position . . .


....the you have INSURANCE issues, not vehicle valuation problems. My insurance covers ACV, ot payoff - whatever is higher...I'll never get caught holding the bag. If you negoitated correctly you should *rarely*be upside down on a good car.

Another caution about leasing: To some it is kinda like a never ending circle because you constantly lever off the "old" car to lease a new one. For me - I use that to my advantage, and I've never had to pay any additinal "wear and tear" items on a lease turn in - I even turned in a car with body damage - BUT I was always leasing another unit.......as soon as I was tired of that brand and wanted to drop the keys and run, they inspected by the book...not unfairly, mind you - just by the letter of the lease.

Please list some bad lease examples:

Aztek... (actually anthing made by Pontiac........well, really anthing made by General Motors)


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