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-   -   Buy Vs Lease ? Check this out (http://www.bimmerfest.com/forums/showthread.php?t=150794)

mclaren 06-09-2006 01:28 PM

Buy Vs Lease ? Check this out
 
For this execise I'm going to assume you could get 5% on a 3 year CD which you can and you could put your lease payments in an account paying 5% which you probably can't. I'm also going to use numbers from my recent Z4 lease.

Buy: $45.870 + 7% tax +$200 ( for whatever ) = $49,280.90
3 year 5% CD with 20% income tax = $55,495.22

Lease
3 year 5% CD of drive off of $4633.02 = $5,217.24
35 payments of $528.48 at 5% = $19,594.63
Payoff $29,332 + 7% tax = $31,374.54
Return 7 security deposits = -$3,850
Total Leasing cost = $52,336.41

Savings of Lease vs Buy = $3158.81

The money factor on the lease was .00021 (.0005 - 7*.00007 + .0002 )
which is the key to the savings.

Anything wrong with this ?

BayAreaBMWFan 06-09-2006 02:05 PM

Nothing significantly wrong but for the fact that the future value of your monthly lease payments will be higher at a discount rate of 5%.

BMW gave you an interest rate of 0.5% and that is where the savings are coming from.

Leasing often makes a lot of sense especially when you have free money like in this case.

Andrew*Debbie 06-10-2006 04:53 AM

I've said this before. Sometimes lease to own makes sense.


If you actually do this, you may be able to get the car for less than the residual. I've read posts that sometimes BMWFS will offer to sell you the car for less than the residual.

Also ask your dealer for the CPO price.

exchequer 06-10-2006 10:21 AM

I can't get your lease numbers to work out in a lease calculator, which may not be surprising since I'm a leasing n00b. I get a $587 payment which includes $38 in tax compared to your $528.48 payment. Do you mind walking me through your lease numbers? I have to make this decisions soon and I was leaning toward buying, but this could sway my thinking. Thanks!

Here are the numbers I used:
Base Cap Cost: $49280
Cap Cost Reduction: $4633 (driveoff) - $3850 (returned security deposits) = $783
Residual: $29332
MF: 0.00021
Term: 36 months
Tax Rate: 7%

Here in the info you originally posted so it will be eaiser to reference without scrolling:
Quote:

Buy: $45.870 + 7% tax +$200 ( for whatever ) = $49,280.90
3 year 5% CD with 20% income tax = $55,495.22

Lease
3 year 5% CD of drive off of $4633.02 = $5,217.24
35 payments of $528.48 at 5% = $19,594.63
Payoff $29,332 + 7% tax = $31,374.54
Return 7 security deposits = -$3,850
Total Leasing cost = $52,336.41

Savings of Lease vs Buy = $3158.81

The money factor on the lease was .00021 (.0005 - 7*.00007 + .0002 )
which is the key to the savings.

chuck92103 06-10-2006 10:52 AM

Quote:

Originally Posted by mclaren
For this execise I'm going to assume you could get 5% on a 3 year CD which you can and you could put your lease payments in an account paying 5% which you probably can't. I'm also going to use numbers from my recent Z4 lease.

Buy: $45.870 + 7% tax +$200 ( for whatever ) = $49,280.90
3 year 5% CD with 20% income tax = $55,495.22

Lease
3 year 5% CD of drive off of $4633.02 = $5,217.24
35 payments of $528.48 at 5% = $19,594.63
Payoff $29,332 + 7% tax = $31,374.54
Return 7 security deposits = -$3,850
Total Leasing cost = $52,336.41

Savings of Lease vs Buy = $3158.81

The money factor on the lease was .00021 (.0005 - 7*.00007 + .0002 )
which is the key to the savings.

Anything wrong with this ?

Not quite. You forget that on a 3 year lease, you will need to buy tires before turning the car in. Also, any damage will have to be repaired. Tires alone can easily cost $1000. Plus when you re-lease at 3 years, you are incurring the setup charges again. So the 4th year (1st year of new lease) you would be behind.

However, nothing wrong with buying or leasing. Leasing will always be cheaper on a monthly basis because you are renting not buying. It is a bell curve however. If you look at 3 year window, the lease option looks attractive. If you look at a 6-12 year window, finance option looks better. Just depends if you want a new car every few years or if you want to hold onto it for awhile. Right now money is cheap, so leasing is very attractive to some folks. However, in a few years we may see very high interest rates in which case those who financed today will be in a much better position than those negotiatiing car deals at higher money rates.

suzer 06-10-2006 01:42 PM

Quote:

Originally Posted by chuck92103
Not quite. You forget that on a 3 year lease, you will need to buy tires before turning the car in. Also, any damage will have to be repaired.

You only have to buy tires when you turn it in if they are below the wear level indicated on the turn-in sheet. I didn't buy tires on the X5 I leased for 3-years, they were fine.

AND if you bought the car, you'd be buying tires, too, when the wear began to negatively effect driving.

BayAreaBMWFan 06-10-2006 02:43 PM

Quote:

Originally Posted by suzer
You only have to buy tires when you turn it in if they are below the wear level indicated on the turn-in sheet. I didn't buy tires on the X5 I leased for 3-years, they were fine.

AND if you bought the car, you'd be buying tires, too, when the wear began to negatively effect driving.

Chuck's point is that you pay for the tires when you buy the car and then you pay for them again when you replace them. However if the tires are replaced close to the lease turn in time, you never get to use them!

For BMWs with the free maintenance, ED options, BMWCCA rebates, good lease rates and periodic specials, leasing is an attractive option versus owning for 5-6 years. Of course if you keep the car for 8-10 years it is likely to cost you less. But it is a toss up between buying for 5-6 years versus leasing for 3 years especially if you have to pay high sales tax.

jl5555 06-10-2006 03:02 PM

Your example is comparing apples to oranges. You are trying to compare the economics of leasing (at a very favorable lease finance rate) to the economics of investing in a depreciating asset. Of course the economics that include leverage will win out in such a comparison. But for the sake of comparing two like things your exercise is not very useful.

Ideally you would be looking at lease finance purchase vs. debt finance purchase. (this is what most people do anyway.) People who plunk large amounts of cash down on depreciating assets are fools (and listen to Suzy Orman much too much).

When you realize that lease finance and debt finance purchase are essentially the same you'll understand that as long as the finance rates and expected residuals are the same for the two options the economics will be essentially equal. In your situation, you have a lease finance rate and residual subsudized by BMW hoping to move metal. Thus the skewed economics in favor of leasing.

I can make the economic case that even leasing a new car every three years could be nearly equal to purchasing the car and owning if for 9 years.

martingalemetho 06-10-2006 03:15 PM

Even if you plan to keep the car, leasing will be a good deal. Say you have the $49k to spend. Option 1 is to buy outright you would pay $49k today. Option 2 is to lease and pay $4600 today and put your other $42400 in the bank (say ING for 4.25%). Then out of the saving account make the payments and finally the residual payoff. In three years you will own the car and have several thousand left.

mclaren 06-10-2006 05:23 PM

Quote:

Originally Posted by exchequer
I can't get your lease numbers to work out in a lease calculator, which may not be surprising since I'm a leasing n00b. I get a $587 payment which includes $38 in tax compared to your $528.48 payment. Do you mind walking me through your lease numbers? I have to make this decisions soon and I was leaning toward buying, but this could sway my thinking. Thanks!

Here are the numbers I used:
Base Cap Cost: $49280
Cap Cost Reduction: $4633 (driveoff) - $3850 (returned security deposits) = $783
Residual: $29332
MF: 0.00021
Term: 36 months
Tax Rate: 7%

Here in the info you originally posted so it will be eaiser to reference without scrolling:

You didn't figure the lease correctly.
The cap cost is $45870 + $625 (Lease Aquisistion )= $46495.;)

chuck92103 06-10-2006 06:11 PM

The cheapest vehicle is still and will always be the one that is paid off.

A paid off BMW costs approx. $200 per month to maintain. Much less than any lease.

A paid off car costs always trumps a financed or leased one. :thumbup:

BayAreaBMWFan 06-10-2006 06:57 PM

Quote:

Originally Posted by chuck92103
The cheapest vehicle is still and will always be the one that is paid off.

A paid off BMW costs approx. $200 per month to maintain. Much less than any lease.

A paid off car costs always trumps a financed or leased one. :thumbup:

If a paid off BMW costs $200 to mantain then it is almost a no-brainer to lease one every three years instead of paying it off. The lease of a new BMW includes the depreciation, the finance charge, the sales tax, the maintenance and the warranty. Even a used BMW will depreciate unless it is more than 6-7 years old. Though the depreciation will be lower I am quite sure that the difference is not going to be more than $200. The general rule of the thumb is 40% every three years. So a new car will be worth 60% of its MSRP after 3 years. A three year old car will be worth 36% of MSRP after another 3 years, resulting in another 24% (of MSRP) in depreciation. Though there is a 16% difference in depreciation between the first 3 years and the next three years, most smart buyers never pay MSRP on their cars (ED folks pay 88-90%). Thow in the free maintenance and repairs and you have a winner in the under-warranty lease.

To get an idea of what I am talking about, price out the lease for a new car and a lease for a similar three year old car on leasecompare.com. You will be surprised on how close the lease for three year old car is compared to a new car. Throw in ED and BMWCCA rebates into the mix; add special residuals and MF and it is almost a slam dunk. Of course if you plan to drive the car for 10 years you will come out ahead but if your horizon is less you (5-6 years), you are much better off leasing.

760Lifan 06-10-2006 08:01 PM

As it was said before, leasing or buying is always a case-to-case decision. If you can write your payments off, leasing isn't bad. If you want more freedom, financing is the way to go since you can get out of a finance much easier than out of a lease (on a lease, you find yourself upside-down more often than on a financing)...well, since cars are never such a great investment, it's at least smart to pick a BMW with an above average residual...:D

schley 06-11-2006 12:18 AM

Quote:

Originally Posted by 760Lifan
As it was said before, leasing or buying is always a case-to-case decision. If you can write your payments off, leasing isn't bad. If you want more freedom, financing is the way to go since you can get out of a finance much easier than out of a lease (on a lease, you find yourself upside-down more often than on a financing)...well, since cars are never such a great investment, it's at least smart to pick a BMW with an above average residual...:D

Although you can choose to sell your financed car at any time, doing so is a pain in the ass. If you use it to trade in for another vehicle you aren't going to get fair market value. If you choose to sell it to car max you are going to take a bath.

The best case scenario is the one that requires the most time effort ect. Selling it to a private party. Take out ads in newspapers, auto trader ect ect.... wait , show your car, arrange your schedule to allow people just to see it and take it for a spin.

I did finance, although I think now I would have been better off leasing. To get out of a lease, throw it on leasetrader, swapalease and boom, if you got a decent residual and MF then you should only have to pay the lease transfer fee and you are done with it.

If we buy a car we haggle, go back and forth for every last 100. But when we sell, or trade it in, we are just glad to get rid of it to avoid another payment and sell it for 500-1000 (fillin the blank) less than we wanted.

The more I think about lease vs. buy the more I'm inclined to lease, a big reason is not having to worry about what to do with the vehicle I already have. Trade in, sell private ect.

If you are going to keep it for more than 4 years buy, and if not lease it is as simple as that. That is the essence of the comparison and most important factor IMO.

The only bad part of a lease is if you want to purchase at lease end, the residual is based off of MSRP not your purchase price. If a dealer is willing to sell it at 5% off of msrp, then that is the market and the residual should be based off of that number not the artificially high msrp(i know i'm dreaming). They want the car back to again turn around and cpo it to make another profit. If you don't want to purchase then turn it in and start over.

Try leasing a mercedes which have 5-6% holdback, and negotiating 2-3% UNDER invoice is the market for the savy buyer, yet mercedes wants to keep their msrp high and offer holdback rather than just lower the price of the msrp. I think this allows them to get back almost all of their leases, because nobody wants to pay the residual figure at lease turn in, and thus they can turn around and sell them as a cpo.

epoints 06-11-2006 02:15 AM

Getting a headache...
 
Wow... reading this thread is giving me a headache. I am glad that there are somebody out there understanding all these stuffs and making (or saving) $$$.

My question is - as a simple minded person - do I just base on the monthly payment and initial down when I try to decide lease or purchase??? I am looking to keep the 550i for 5 years. I just sold my 911 and it's a bi&*^* going through the process, and it turns out it costs me $650 per month.

TIA,

760Lifan 06-11-2006 11:16 AM

Quote:

Originally Posted by schley
Although you can choose to sell your financed car at any time, doing so is a pain in the ass. If you use it to trade in for another vehicle you aren't going to get fair market value. If you choose to sell it to car max you are going to take a bath.

The best case scenario is the one that requires the most time effort ect. Selling it to a private party. Take out ads in newspapers, auto trader ect ect.... wait , show your car, arrange your schedule to allow people just to see it and take it for a spin.

I did finance, although I think now I would have been better off leasing. To get out of a lease, throw it on leasetrader, swapalease and boom, if you got a decent residual and MF then you should only have to pay the lease transfer fee and you are done with it.

If we buy a car we haggle, go back and forth for every last 100. But when we sell, or trade it in, we are just glad to get rid of it to avoid another payment and sell it for 500-1000 (fillin the blank) less than we wanted.

The more I think about lease vs. buy the more I'm inclined to lease, a big reason is not having to worry about what to do with the vehicle I already have. Trade in, sell private ect.

If you are going to keep it for more than 4 years buy, and if not lease it is as simple as that. That is the essence of the comparison and most important factor IMO.

The only bad part of a lease is if you want to purchase at lease end, the residual is based off of MSRP not your purchase price. If a dealer is willing to sell it at 5% off of msrp, then that is the market and the residual should be based off of that number not the artificially high msrp(i know i'm dreaming). They want the car back to again turn around and cpo it to make another profit. If you don't want to purchase then turn it in and start over.

Try leasing a mercedes which have 5-6% holdback, and negotiating 2-3% UNDER invoice is the market for the savy buyer, yet mercedes wants to keep their msrp high and offer holdback rather than just lower the price of the msrp. I think this allows them to get back almost all of their leases, because nobody wants to pay the residual figure at lease turn in, and thus they can turn around and sell them as a cpo.

I agree! As I said, there is no formula telling you "leasing is always better" or the other way round....We did both - one car is leased, the others are financed.

The key to success is doing your homework...:thumbup:

760Lifan 06-11-2006 11:23 AM

Quote:

Originally Posted by epoints
My question is - as a simple minded person - do I just base on the monthly payment and initial down when I try to decide lease or purchase???

That's a big NO NO..:nono: This is exactly what dealers want you to think. If they start "O.K., let's take a piece of paper and work out your monthly payments..." , beware! They have so many different possibilities to hide their profit neatly in your payments...:thumbdwn: If you check out this board, you'll know what I'm taling about...

Quote:

Originally Posted by epoints
I am looking to keep the 550i for 5 years. I just sold my 911 and it's a bi&*^* going through the process, and it turns out it costs me $650 per month.
TIA,

Since 5 years are obviously exceeding the magical 4-year timeline, I'd suggest financing..

schley 06-11-2006 11:46 AM

Quote:

Originally Posted by 760Lifan
That's a big NO NO..:nono: This is exactly what dealers want you to think. If they start "O.K., let's take a piece of paper and work out your monthly payments..." , beware! They have so many different possibilities to hide their profit neatly in your payments...:thumbdwn: If you check out this board, you'll know what I'm taling about...



Since 5 years are obviously exceeding the magical 4-year timeline, I'd suggest financing..

I agree that 5 years is too long to lease. Actually since the residuals and MF are so poor on BMW's after year 3 then really anything above and beyond 3 years is cause to finance.

chuck92103 06-11-2006 11:48 AM

When comparing buy vs. lease numbers, one should use the 15k miles per year rate and not the 12 since buyers do not have to worry about this. Part of having a car is being able to enjoy it and not have to park it when miles creep up.

If you are the type to drive less then 10k miles per year, then you should account for the loss of use some way I would think. i.e. you are paying for something that you are not using.

For example, if your total lease cost for 36 months is $500 per month. In three years you would pay $18,000. Assuming 12k miles per year limit, you are paying to drive the car 36k miles. Each mile costs you $0.50 cents (not including potential tire replacement).

If you in fact only drove the car 10k miles per year and 30k miles total over the life of the lease, you left 6k miles on the table. This equates to $3k dollars paid for unused miles. That is a lot of money. :yikes:

schley 06-11-2006 11:56 AM

Quote:

Originally Posted by chuck92103
When comparing buy vs. lease numbers, one should use the 15k miles per year rate and not the 12 since buyers do not have to worry about this. Part of having a car is being able to enjoy it and not have to park it when miles creep up.

If you are the type to drive less then 10k miles per year, then you should account for the loss of use some way I would think. i.e. you are paying for something that you are not using.

For example, if your total lease cost for 36 months is $500 per month. In three years you would pay $18,000. Assuming 12k miles per year limit, you are paying to drive the car 36k miles. Each mile costs you $0.50 cents (not including potential tire replacement).

If you in fact only drove the car 10k miles per year and 30k miles total over the life of the lease, you left 6k miles on the table. This equates to $3k dollars paid for unused miles. That is a lot of money. :yikes:

So you are suggesting that anyone who drives less should finance as opposed to lease? Not sure what you mean. As you know you can raise the residual 2% for 12k and 3% for 10k. Over milage at 20 cents per mile at lease end or 15 cents at outset, or 16 cents during, unless you have a 7 series.

So if you get the 12 k in your above example vs the 10 k your payment for that same car would be 1% more residual value, thus your payment would be a fraction cheaper and would have alower rent charge.

I think I understand your example however not sure if you are saying finance in which scenario vs lease. ):dunno:

chuck92103 06-11-2006 06:27 PM

Quote:

Originally Posted by schley
So you are suggesting that anyone who drives less should finance as opposed to lease? Not sure what you mean. As you know you can raise the residual 2% for 12k and 3% for 10k. Over milage at 20 cents per mile at lease end or 15 cents at outset, or 16 cents during, unless you have a 7 series.

So if you get the 12 k in your above example vs the 10 k your payment for that same car would be 1% more residual value, thus your payment would be a fraction cheaper and would have alower rent charge.

I think I understand your example however not sure if you are saying finance in which scenario vs lease. ):dunno:

You are correct. It is just some folks use the lowest/best lease numbers when comparing to financing which may not be realistic depending on driving habits. When leasing, I think it is difficult at best to try and guess how many miles you will or won't drive in 3 years. Job changes, vacations, road trips, etc.

DJ_INHALE 06-11-2006 07:59 PM

I would just like to say great thread.

Alot of good info here

jl5555 06-11-2006 10:44 PM

Quote:

Originally Posted by DJ_INHALE
I would just like to say great thread.

Alot of good info here

I would agree with you except for anything that Chuck has to say, he's thoroughly misinformed and should be ignored on this topic.

Look mileage is irrelevant to the concept of leasing vs. buying (or lease financing vs. debt financing). BMW and other lease operations offer 10k, 12k and 15k residuals because the car is worth less if you drive it more. I don't care if you own the car, the same principle applies. It's somewhat inhibiting that there are only 3 distinctive levels of depreciation for leases, but don't forget you can pay per mile above those levels. They're not priced very attractively, but the concept is there.

Bayareafan made an excellent point (at Chuck's expense) that if one assumes an older BMW will cost $200 per month to maintain, then the economics of leasing (or buying depending) every 2-3 years become much more appealing. This strikes at the heart of those who believe that keeping a car for 9-10 years represents economic nirvana for car owners. I say hogwash to that. You not only pay for continued maintenance, but you forgo some economic benefit due to technological changes in the car. IE: what dollar amount would you ascribe to the difference in technology between a 1996 BMW and a 2006 BMW (same general model)?

As I said above, I can very easily make the economic case for ongoing car replacement.

BayAreaBMWFan 06-11-2006 11:42 PM

Quote:

Originally Posted by jl5555
Bayareafan made an excellent point (at Chuck's expense) that if one assumes an older BMW will cost $200 per month to maintain, then the economics of leasing (or buying depending) every 2-3 years become much more appealing. This strikes at the heart of those who believe that keeping a car for 9-10 years represents economic nirvana for car owners. I say hogwash to that. You not only pay for continued maintenance, but you forgo some economic benefit due to technological changes in the car. IE: what dollar amount would you ascribe to the difference in technology between a 1996 BMW and a 2006 BMW (same general model)?

As I said above, I can very easily make the economic case for ongoing car replacement.

I feel that up to 6 years there is no financial case to be made. If you are keeping it for 10 years then the low depreciation after the 6th year really helps and your maintenance and repair costs may not be large enough to justify a new car. But they you are driving an old car with the risks of a major mechanical breakdown, new electronics not working properly and more important, the airbags and other safety electronics running towards the end of their life.

chuck has a valid point earlier that leases make maximum financial value if you drive 15K/year. With a new car you pay for depreciation just because changes in model years lower the value of the car; if you do not add miles during this period you are givien up that depreciation without making much use of it. As the car gets old, the model year becomes less relevant and the milage/condition becomes more important in determining its value.

Andrew*Debbie 06-12-2006 07:16 AM

Quote:

Originally Posted by schley
I agree that 5 years is too long to lease. Actually since the residuals and MF are so poor on BMW's after year 3 then really anything above and beyond 3 years is cause to finance.


Sure, but why not take advantage of the nearly free money on a Z4 lease?

Lease the car for 3 years at less than 2% APR. With 7 MSD's the rate is under 1%.
If you have zero credit card debt, invest the difference between the lease payment and a loan payment.

If you still want to keep the car at the end of the lease, negoiate the best possible purchase deal. At worst, you buy the car at the residual.

Use the MSD refund towards the purchase. If you invested the difference between the lease payment and loan payment, cash that out and use towards purchse. Finance the rest.


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