Thread: disposition fee
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Old 09-17-2010, 03:00 PM
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quackbury quackbury is offline
///Monkeyazz Duck
Location: Not In Kansas Any More
Join Date: Dec 2005
Posts: 5,270
Mein Auto: 540i; 428 GC; Twin X1's
Originally Posted by solstice View Post
I've never leased or financed a car but the depreciation of my E60 535i turned out to be ~$650/month after three years when I traded it. It sounds like leasing payments are closer to a grand a month. How can that be better, especially when taken all the other restrictions with leasing into account?
The answer is you are ignoring the time value of money.

Historically, if you had invested the cash you paid for the 535 into equities, fixed income, or even real estate, it would have appreciated over 3 years. Assume you paid $64,000 for the 535, and sold it 3 years later for $40,000. If you had invested that capital instead, and it had appreciated just 4.00%/year, it would have grown in value to $72,000 after 3 years. So your real opportunity cost would be $72,000 - $40,000 = $32,000 or +/- $900/month. In 2007 you could lease a nicely-equipped 535 for $800 to $850/month, so economically it would have been a wash.

But the beauty of leasing is that it takes all the guesswork out at the end of the term. You don't have to worry that the car you fell in love with in 2008 is no longer desirable, and you don't have to haggle over trade-in price (or worse, deal with the tire kickers if you sell the car privately).

In retrospect, you lucked out. The capital you sank into the 535 in 2008 would have DEPRECIATED over the past 3 years if you'd put it into most traditional investments back then. But that's the exception, rather than the rule.

And of course the downside of leasing is that it is a fairly complex transaction, and a whole lot of folks get fleeced by entering into it without a full understanding of how it works.

Current BMW's:
2017 540i MSport
2016 428 GC MSport
2015 X1 28i xDrive
2015 X1 35i xDrive

Prior BMW's
2014 535i MSport
2014 328i SportWagon
2011 535ix MSport
2011 X5 35D
2008 ///M3 Vert
2008 X5 3.0
2007 X5 3.0
2006 X5 3.0
2006 550iA SP
2003 540iA M-Technic

Last edited by quackbury; 09-17-2010 at 03:04 PM.
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