09-17-2010, 04:00 PM
Location: Not In Kansas Any More
Join Date: Dec 2005
Mein Auto: 535iX M Sport; 328i Wagon
The answer is you are ignoring the time value of money.
Originally Posted by solstice
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?
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.
2014 328i Sport Wagon
, Glacier / Black, ZSL, ZD2, ZD3, ZDH, ZLP, ZPP, ZTP, and H-K
2011 535xi M Sport
TiAg / Black, ZPP, ZP2, ZCV, ZCW, ZDA, 2TB, 6NR, 465, 5DL, and a Partridge in a Pear Tree
2011 X5 35D
2008 ///M3 Vert
2008 X5 3.0
2007 X5 3.0
2006 X5 3.0
2006 550iA SP
2003 540iA M-Sport
Last edited by quackbury; 09-17-2010 at 04:04 PM.