To MSD or not to MSD...2 options.

[I_am_I_said]

I definitely see the advantage in buying my rate down and saving on the mthly payment, but I'm having a hard time swallowing the fact that I would have to put about 6k down to do the max MSDs to save 50 bucks a month....any opinions on these 2 deals?


2008 335i Sedan Automatic

Premium
Sport
NAV
iPod

36 months/12k miles


Option 1:

MSRP 47,850
adjusted cap price 44,615
6,244 down. This includes 4,400 in MSDs.
548 a month including tax


Option 2:
MSRP 48,350
adjusted cap price 44,337
2,500 down. Includes all fees/registration and about 1,300 in cap reduction.
599 a month including tax.



These 2 options are on different cars, but very similar, the only difference is option 2 has front seat warmers and option one doesn't. Also, from 2 different dealers...the CA on option 2 says I am crazy to put 6k down on option 1.

Both are using the step OC.

Any strong opinions on these 2 options?

[ZoomVT]

Are the MF and reiduals the same for both deals? are the other fees the same? in any case, i understand its a tough pill to swallow but if you have the money then it is smarter to use MSDs. you will never see a dime of the 2500 again, but you will see all of your MSDs with option 1.

according to my math, 7MSDs on the first deal would be 3,850, i dont know where 6244 comes from.

[I_am_I_said]

according to my math, 7MSDs on the first deal would be 3,850, i dont know where 6244 comes from.

I am a first time BMW lessee so I have to pay an addtl SD. So it would actualy be 8 MSDs at 550 each totaling to 4400 in MSDs. The other 1800 or so are all the fees and registrations.

I mean, basic math says option 1 will cost me 21,654 total and option 2 will come out to 23,465, so I guess the MSD program is the wiser move...I just don't want to put 6k+ down on a lease, even if 4400 is refundable...

[ZoomVT]

625 Acquisition fee
900 Tax (roughly calculated at 6%, dont know your state tax rate)
what other fees are you paying?

are you sure you are getting the right deal on the Money Factor? what about the actual cost of the car? right now you should be able to get a car at about 500-1000 over cost, which is roughly 800 BELOW invoice if your car has an Automatic Transmission.

at first looks, your deal is not too far off from there though.
again, if you have the money, you should do the MSDs, otherwise you can consider a 328 instead. it should save you another 50 bucks/mo or so.

[I_am_I_said]

both options are below invoice. First option is about 1200 below invoice if you include the step OC. I am fairly confident these are rock bottom deals, some other dealers stopped returning my calls after I sent them these offers...I just can't decide which one to do..

Oh, and the MF on the first option (max MSDs) is 0.00101

I have to dig up the MF on the other one.

[bmwKbiker]

I definitely see the advantage in buying my rate down and saving on the mthly payment, but I'm having a hard time swallowing the fact that I would have to put about 6k down to do the max MSDs to save 50 bucks a month....any opinions on these 2 deals?


Note the other car is still 2.5K down on top of that, they aren't the same car.

Take two identical cars, same lease terms the only thing that is different is MSD
Just to make the point, some hypothetical numbers, choosen to roughly match you numbers:
CAR A: $0 down, payment $599/mon.
CAR B: 0 down + $4800 (1 + 7 MSDs) payment $549/mon.

For a deposting $4800, hell call it 5k you get a return on $50 a month.

$50/$5000 = 1/100 = 0.01 = 1% per month or ~12% annual return, ZERO risk & tax free return.
You get your $5k back at the end of the lease!

Tell me where else you can get this kind of risk free (& tax free) return on your money and I'll consider the possibility MSD aren't such a good deal.
Or more likely I'll consider the proposed alternative investment to be a scam.

Yes, my numbers are hypothetical, but go to the MSD sticky and you'll see the same points elaborated in great detail.
The MF savings secured with the MSDs represents a significant rate of return for the funds, that are returned at the end of the lease, that can't be replicated elsewhere.
If you don't have 6k (or more) in liquid funds to put into the car, it brings to question the prudence of leasing a vehicle in this price range.

[bmwKbiker]

PS:
Off hand the discount on option #2 doesn look as good as #1,
But it is late and I have had a few beers so I'm not about to try a reverse engineer the numbers from your post.


Stop shopping a payment!
Get both dealers to give you a negotiated sales price (cap cost before any customer funded reduction), for a lease with base rate MF and $625 LAF.
Tell dealer number two you are the customer and if you want to do MSDs that is your choice and you don't give a r*t *ss about his opinion on MSDs.

[I_am_I_said]

PS:
Off hand discount on option #2 doesn look as good as #1.


Stop shopping a payment!
Get both dealers to give you a negotiated sales price, for a lease with base rate MF and $625 LAF.
Tell dealer number two you are the customer and if you want to do MSDs that is your choice and you don't give a r*t *ss about his opinion on MSDs.


I'm not shopping payment, it may seem that way because I tried to simplify all the details for this post, but I am looking at all the details. Keep in mind, the main premise of this post was to debate the MSDs, not just the payments.

The 6k in liquidity is not an issue, I can afford much more than a 3 series, I was just expecting to put a lot less than 6k down on this lease when I started this process. However, you have a great point on the 12% return, even if it's 7 or 8% that ain't bad considering it's 0 risk and a lot better than a CD right now.

[bmwKbiker]

However, you have a great point on the 12% return, even if it's 7 or 8% that ain't bad considering it's 0 risk and a lot better than a CD right now.

Okay, that is the bottom line.
It really is a no brainer if you run the numbers;)

[I_am_I_said]

and thanks for all the feedback this past week, bmwKbiker. You have been one of the more helpful people on this board. I am amazed how much I have learned this last week...
:thumbup:

[Robotechnology]

The only money you're putting "down" on the lease are the inception fees. The MSD's essentially represent placing money into a time deposit (CD) account for the length of your lease term. You may want to look at it that way instead.

[dlubin]

If you have the cash available, the rate reduction makes putting max MSD's down a very good deal. There's little risk of losing them, and my only frustration is that BMWFS won't roll them over - in other words my lease ended, and I have to wait up to 4 weeks for the refund, so I had to front another batch of MSD's for my new BMW lease.

[BH_Cubed]

I've also been debating wether or not to do msd, I have the money to put down or msd, but if i can even get the 7-8% return with msd it's worth it. I just have one question though, the security deposit is calculated on the base monthy payment corret round up to nearest $100?

for example:
if my base monthly payments is $590, but with tax, it puts over $600, is the security deposit $600 or $700.

Much thanks for all the info. :thumbup:

[ElDuderino]

You're only getting about 7% return on your money, which is pretty good, but not so great that you can't pass it up.

[ZoomVT]

I've also been debating wether or not to do msd, I have the money to put down or msd, but if i can even get the 7-8% return with msd it's worth it. I just have one question though, the security deposit is calculated on the base monthy payment corret round up to nearest $100?

for example:
if my base monthly payments is $590, but with tax, it puts over $600, is the security deposit $600 or $700.

Much thanks for all the info. :thumbup:


I believe is round up to the nearest $50. so if it is 590 then SD is 600, but if it is 540 then SD would be 550.

[BH_Cubed]

You're only getting about 7% return on your money, which is pretty good, but not so great that you can't pass it up.

I agree, i was taking the 7-8% as a minimum, still better than most CD's, savings accounts, etc. getting money back at all on a depreciating asset is better than putting the money down, which you won't get back at all.

[BH_Cubed]

I believe is round up to the nearest $50. so if it is 590 then SD is 600, but if it is 540 then SD would be 550.

that sounds better, i thought i read somewhere on this board that it was round up to nearest $100. Can any dealers, CA's confirm this or if the security deposit is calculated before or after taxes?

[aaleaman]

I asked a similar question - and here is the response I got, which may or may not be correct:

1. MSDs are rounded up in $50 increments, so $540 goes to $550, not $600.

2. They are calculated on your FINAL payment, meaning after taxes, but also after the MSDs themselves.

Example: Your payment is $590 without taxes. Adding the tax raises it to $610. In this case your MSD price would be $650 each. If you do enough MSDs, however, to lower your Money Factor enough to send your payment back down to $599 (even with taxes), then your MSD amount would be $600 again.

MSDs can be a great option if you're trying to fit more car into a smaller budget (i.e. "I won't go over $600/month"). As an investment tool, they're nice, but not the greatest thing since sliced bread, which some here make them out to be. I personally would rather have the use of my $3,000-$5,000 for three years rather than the extra percentage point or two I could eke out via MSD. I can invest it if I want and earn almost as good a return (or even better, depending on the investment), or I can have that cash on hand to spend on anything from iPhones to home repair to my first few monthly lease payments.

That said, it's an entirely personal decision, and everyone's circumstances are different.

[BH_Cubed]

thanks for the reply

so, it's the whole chicken before the egg thing, lol

That's exactly what I'm trying to do. I'm trying to get as much cas as I can for my money.

I agree, it's not the greatest investment, just something to consider, and as you say it's not for everybody.

[bmwKbiker]

Note that because MSD reduce your payment the savings represents a TAX FREE return on the captial that is tied up in them.

[aaleaman]

Note that because MSD reduce your payment the savings represents a TAX FREE return on the captial that is tied up in them.

This is correct. MSDs do generate a tax free return. It's worth noting, however, that 401(k)s, 403(b)s, IRAs, variable annuities, some real estate investments and certain oil & gas programs also offer tax free (or tax-deferred) returns, and any one of those things MAY OR MAY NOT represent a better choice for any given investor/car lease customer. It's also worth noting that forgoing any return at all (be it tax free or not) may also be a better choice.

[mclaren]

The thing about MSDs is you get a 10+% return, tax free, with no risk of loss. I could name other things one could do with the same amount of money that might give a higher return but they all have risk of loss and are taxable unless in a tax deferred account and even then the tax will be paid someday. The bottom line is there is NO WAY to get the return of MSDs on a risk and tax adjusted basis and that's the truth.

[2002CiC]

The thing about MSDs is you get a 10+% return, tax free, with no risk of loss. I could name other things one could do with the same amount of money that might give a higher return but they all have risk of loss and are taxable unless in a tax deferred account and even then the tax will be paid someday. The bottom line is there is NO WAY to get the return of MSDs on a risk and tax adjusted basis and that's the truth.

I agree. it is a no brainer if you have $$ to invest. If on the other hand you will defer paying a credit card bill at a 19% rate in order to do MSDs, you are then losing $$. It is ALWAYS about opportunity with MSDs. If you could pay off a 6% debt with money you would otherwise put towards MSDs, you would be saving $$ by NOT doing so because your 12% return on your MSDs beats 6%. It is as easy as that! Park your $$ at the highest RELATIVE interest rate you can get.

[ElDuderino]

The thing about MSDs is you get a 10+% return, tax free, with no risk of loss. I could name other things one could do with the same amount of money that might give a higher return but they all have risk of loss and are taxable unless in a tax deferred account and even then the tax will be paid someday. The bottom line is there is NO WAY to get the return of MSDs on a risk and tax adjusted basis and that's the truth.I have a hard time getting anything up to 10% returns. I have an excel sheet set up and I'm just looking at 335s, but everything pretty much ranges from 7-8%. Can you get that high a return by doing MSDs on other vehicles?

[bmwKbiker]

I have a hard time getting anything up to 10% returns. I have an excel sheet set up and I'm just looking at 335s, but everything pretty much ranges from 7-8%. Can you get that high a return by doing MSDs on other vehicles?

It is a leverage thing. The max MSD rate reduction (0.00049) is roughly equal to 1.2% reduction in "APR". This savings however is applied to the entire cap_cost + resduial number. I think, I haven't run the numbers, a longer lease will produce more leverage, due to the fact it will lower the amount of the security deposits while providing the same monthly savings in lease interest(RENT).

[bmwKbiker]

I agree. it is a no brainer if you have $$ to invest. If on the other hand you will defer paying a credit card bill at a 19% rate in order to do MSDs, you are then losing $$. It is ALWAYS about opportunity with MSDs. If you could pay off a 6% debt with money you would otherwise put towards MSDs, you would be saving $$ by NOT doing so because your 12% return on your MSDs beats 6%. It is as easy as that! Park your $$ at the highest RELATIVE interest rate you can get.

True, but if you defer leasing a BMW to pay the credit card bill off your better off still.
Not leasing a BMW can result in a instant tax-free return on your money equivalent to the rate you are paying on your highest interest borrowing.;)

Financing/leasing a vehicle may make sense, or even be a necessity for some. I question the finacial prudence of choosing the fiance or lease a BMW while regularly paying high interest rates on other debits. There is a implied assumption by most on this board that someone looking to acquire a 35K+ automobile isn't living paycheck to paycheck or already buried under a pile of high interest revolving debit. I conceed that this assumption will not always be true.

[2002CiC]

True, but if you defer leasing a BMW to pay the credit card bill off your better off still.
Not leasing a BMW can result in a instant tax-free return on your money equivalent to the rate you are paying on your highest interest borrowing.;)

Financing/leasing a vehicle may make sense, or even be a necessity for some. I question the finacial prudence of choosing the fiance or lease a BMW while regularly paying high interest rates on other debits. There is a implied assumption by most on this board that someone looking to acquire a 35K+ automobile isn't living paycheck to paycheck or already buried under a pile of high interest revolving debit. I conceed that this assumption will not always be true.


Well-put on all counts. Save $$, buy a bike. On the last point, this assumption incorrect in more cases than one would expect. There are folks running around with iPhones in 100K cars who can't even pay rent!

[BH_Cubed]

one of the reasons i was considering doing msd's is that i don't have much revolving debt. the most debt i have is student loans at %2.9 interest and it's not all that much, credit cards are paid off, and the remaining balance on my current lease(6 months). i would never do msds that i could not recoup in a reasonable amount of time though.

could some explain to me how msd are risk free though? i mean are there any circumstances where you wouldn't get your msd's back?

for example:
total loss on the car due to accident?
if you trade the car in before the end of the lease?

Also any overage/excessive wear fees are deducted from msds at lease turn in too right?

thanks for the info