Buy Vs Lease ? Check this out

These leasing threads always crack me up. Some folks just get too darn emotional.

Having owned a leasing company in the past I can tell you a few things.

Whether you lease, finance, or purchase outright, a valid argument can be made for all three. None of these options is wrong. It just depends on your fianancial situation and personal wealth.

Whether you finance or lease it is purely a numbers game and I can assure you the leasing/finance company is making plenty of money either way. There is no free ride.

In the case of BMW, and a few other makes, the manufacturer is passing lease incentives to the leasing company (BMWFS) to offer more attractive residuals. This is the only way expensive cars can be moved to lower income brackets without cheapening the brand. Granted there are those that are more affluent and can afford any BMW they wish regardless of finance route. However, leasing has become more and more a lower income bracket solution.

The big issue for BMW and other companies is time. Right now things look pretty good. With the cost of money being low, and leasing becoming more popular, the car companies are going to have a boat load of used cars to unload. GM and Ford thought they were smart in the 70's/80's by dumping excess cars to the rental markets like Hertz. In the end, it hurt them quite badly. BMW has no ace in the hole. Nor does Lexus. It is a house of cards that will get corrected in due time. You cannot continue to rely on customers who cannot afford to buy your car by subsidizing their purchase. What happens, as in the case of GM, customers over time expect the same financial incentives. It is very hard for GM to move any vehicle without some kind of incentive.

So right now, at this point in time, leasing a BMW is a great deal. Moreso than say a Honda Accord. However, we have to acknowledge when comparing leasing to financing, that we have the understanding that leasing a BMW is heavily subsidized and is not indicative of a typical lease vs. buy scenario.

It is anyone's guess as to how long BMW can offer leases on 3/5 series that are comparable to a Honda Accord.

Originally Posted by Andrew*Debbie

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.

I agree with you that taking advantage of the MF on the Z4 is great. I think you did agree with me that leasing a car for more than 3 years isn't very beneficial considering the residuals and MF's. I never hinted at purchasing at lease end however.

I however wouldn't see the benefit in buying a Z4 at the residual value for it is based off of MSRP and not your cap cost. You can get a Z4 for what 1000 over invoice (or less). Thus let's say you save 4 grand between your cap cost and msrp. Well your residual is based off of that 4 grand more difference. So you esentially stretched out your financing 3 years of a low payment but then boom after that if you purchase at lease end you are hit with much larger payments. So although yes I would say jump on the Z4 lease for 3 years, why purchase it at lease end? It is more attractive at the outset but that much more less attractive at the end of the lease.

The ONLY way I would purchase at lease end is IF you are convinced you can make money on the sale. This is providing you enjoy advertising your car, showing it, arranging your schedule to do so. I think the overwhelming majority don't want to do that, thus they lease, which is no hassle(providing no excess wear/tear ect).

Using attractive leases to get into cars is great and to our advantage as consumers, RARELY is it attractive to purchase at lease end. But to each his own.

Originally Posted by sdbrandon

These leasing threads always crack me up. Some folks just get too darn emotional.

Having owned a leasing company in the past I can tell you a few things.

Whether you lease, finance, or purchase outright, a valid argument can be made for all three. None of these options is wrong. It just depends on your fianancial situation and personal wealth.

Whether you finance or lease it is purely a numbers game and I can assure you the leasing/finance company is making plenty of money either way. There is no free ride.

In the case of BMW, and a few other makes, the manufacturer is passing lease incentives to the leasing company (BMWFS) to offer more attractive residuals. This is the only way expensive cars can be moved to lower income brackets without cheapening the brand. Granted there are those that are more affluent and can afford any BMW they wish regardless of finance route. However, leasing has become more and more a lower income bracket solution.

The big issue for BMW and other companies is time. Right now things look pretty good. With the cost of money being low, and leasing becoming more popular, the car companies are going to have a boat load of used cars to unload. GM and Ford thought they were smart in the 70's/80's by dumping excess cars to the rental markets like Hertz. In the end, it hurt them quite badly. BMW has no ace in the hole. Nor does Lexus. It is a house of cards that will get corrected in due time. You cannot continue to rely on customers who cannot afford to buy your car by subsidizing their purchase. What happens, as in the case of GM, customers over time expect the same financial incentives. It is very hard for GM to move any vehicle without some kind of incentive.

So right now, at this point in time, leasing a BMW is a great deal. Moreso than say a Honda Accord. However, we have to acknowledge when comparing leasing to financing, that we have the understanding that leasing a BMW is heavily subsidized and is not indicative of a typical lease vs. buy scenario.

It is anyone's guess as to how long BMW can offer leases on 3/5 series that are comparable to a Honda Accord.

I would agree with you, and I have a strong feeling that the way BMW is able to offer attractive leases is because they make out very well selling them as CPO's. You lease to the lower bracket consumer when it is new, then another comes along and can afford the CPO. So in essence they are making it more affordable on both ends and as a result increase their leases/cpo business.

I think many people don't realize how good leasing bmw's are now. It is more attractive than the mercedes as I said earlier for mercedes has a 5-6% holdback on their cars and negotiating under invoice cap cost for the savy buyer is the norm. But if you purchase at lease end you are getting hammered for the residual is based off of the artificially high MSRP. So like you stated above bmw is offering incentives to get people into cars they can't afford to purchase, and getting them back to cpo and make more profit. Mercedes is not lowering msrp to keep their value high and ensure they will get back their leases to cpo as well.

You are correct and I wholeheartedly agree that how to get yourself into your vehicle is a personal dynamic decision. However IMO the majority of people would behoove themselves to take advantage of a lease as opposed to financing. What that percentage is, I don't know, but I certainly think it is more than half, or possibly as much as 3/4, and thus my opinion.

Originally Posted by schley

I don't know, but I certainly think it is more than half, or possibly as much as 3/4, and thus my opinion.

Last I read about 30% lease acrossed all brands. It settled down to 20% a few years ago. I doubt it is much more than 30% now. However, I have not seen any statistics recently.

Back in 2004, the lease breakdown was like this

5% - American cars were leased
10% - Japanese
30% - European (Clearly a case of keeping up with the Jones)

If you think about it, if 80% leased on a regular basis, that is a lot of people not in the market for a used or new car. Leasing makes sense when a small percentage do so. If everyone leased, there would be no used car market and leases would be "lease to own." There has to be a secondary market to pick up off-lease vehicles. BMW is highly leveraged if they are in fact leasing 30% of the vehicles. If the CPO goes south for a couple years, they will lose a fortune.

Originally Posted by chuck92103

Last I read about 30% lease. It settled down to 20% a few years ago. I doubt it is much more than 30% now. However, I have not seen any statistics recently.

If you think about it, if 80% leased on a regular basis, that is a lot of people not in the market for a used or new car. Leasing makes sense when a small percentage do so. If everyone leased, there would be no used car market and leases would be "lease to own." There has to be a secondary market to pick up off-lease vehicles.

I guess I should restate for you are correct. Those people who are making a decision either to buy or to lease. More than half or 3/4 of them would be better off leasing. Knowing that there are scenarios where finance is certainly more advantageous than leasing, however I think many people don't understand leases and how to evaluate it vs. buying. If they were more enlightened like you chuck and others, it would become clear one way or the other, and again IMO i certainly think more than half it would be more advantageous to lease. I'm one of the victims of ignorance as I bought my car and in retrospect I should have leased, but I didn't fully understand leases as I do now.

chuck:
I strongly disagree with the observation that people lease BMWs because they can not afford them. As a lot of math here as already proven, BMW leases are designed to keep the initial cost of ownership low. BMW is then able to turn around the in-factory warranty cars as CPO and sell them at a premium again.

In general the more expensive the car, (or for that matter any depreciating asset,) the more sensible it is to lease. You do not carry any risk of a diminished value if the car is in an accident. I would want at least a 25% discount to FMV if I am buying 1 year old M5 which has been in an accident. You also take away the risk of higher depreciation than what the residual suggests because of unforseen circumstances (higher gas prices and 2 year old Expiditions anyone?). Plus you save on the 8-9% sales tax you would have paid when you bought the car. The promotional money factors sweeten the lease deals even further.

It is also easier to get out of a lease if circumstances so dictate assuming you got a good deal up-front. I did not lose money on my Z4 lease transfer when personal circumstances meant that I needed to get a 4-seater. If I had to sell the car I would have definitely been a bit under.

I bought my first BMW with cash; did not even finance it. After that I am leasing them. It makes no financial sense to buy them unless you plan to keep them for 8+ years.

In lower priced brands, leasing might be the way to get people who can not afford to buy into new cars. I doubt it is the same for BMWs and other higher priced brands where a lot more folks lease intead of buying.

Originally Posted by BayAreaBMWFan

chuck:
I strongly disagree with the observation that people lease BMWs because they can not afford them. As a lot of math here as already proven, BMW leases are designed to keep the initial cost of ownership low. BMW is then able to turn around the in-factory warranty cars as CPO and sell them at a premium again.

In general the more expensive the car, (or for that matter any depreciating asset,) the more sensible it is to lease. You do not carry any risk of a diminished value if the car is in an accident. I would want at least a 25% discount to FMV if I am buying 1 year old M5 which has been in an accident. You also take away the risk of higher depreciation than what the residual suggests because of unforseen circumstances (higher gas prices and 2 year old Expiditions anyone?). Plus you save on the 8-9% sales tax you would have paid when you bought the car. The promotional money factors sweeten the lease deals even further.

It is also easier to get out of a lease if circumstances so dictate assuming you got a good deal up-front. I did not lose money on my Z4 lease transfer when personal circumstances meant that I needed to get a 4-seater. If I had to sell the car I would have definitely been a bit under.

I bought my first BMW with cash; did not even finance it. After that I am leasing them. It makes no financial sense to buy them unless you plan to keep them for 8+ years.
In lower priced brands, leasing might be the way to get people who can not afford to buy into new cars. I doubt it is the same for BMWs and other higher priced brands where a lot more folks lease intead of buying.

Where did you come up with a 8 year pay back? This is a very broad statement to make as each car/financial deal is different. When I run the numbers, in general 4-6 year is the balance.

Originally Posted by sdbrandon

Where did you come up with a 8 year pay back? This is a very broad statement to make as each car/financial deal is different. When I run the numbers, in general 4-6 year is the balance.

Everything I have read agrees with you.

Originally Posted by chuck92103

Everything I have read agrees with you.

Of course you agree with him (sdbrandon). He has a DB9.

Originally Posted by sdbrandon

Where did you come up with a 8 year pay back? This is a very broad statement to make as each car/financial deal is different. When I run the numbers, in general 4-6 year is the balance.

I am talking about the total cost of ownership including repairs and maintenance costs. The tradeoff is between the higher depreciation and finance charges for a new car versus the repair/maintenance cost for old cars.

My calculations suggest that you should either:

Lease for three years with zero out of pocket maintenance/repair costs (except tires)
OR
Buy the car and keep it for at least 8 years.

Buying the car and keeping it for 6 years is not financially smart since there is still a considerable amount of depreciation in years 4-6 while the maintenance and repair costs add up.

Further they are many items which are replaced between 50-100K. If you sell the car after fixing them in years 4-6, you are not getting use of the money you put in to fix it. So if you like to buy, keep the car for at least 8 years to get your money's worth and reap the rewards of lower depreciation and amortization of the money put in repairs. There is not much point in spending a couple of thousands in repair in years 4-6, suffer significant depreciation between years 4-6 and then sell the car off!

Do not forget the economic "cost" of having a generation (or two) older car. This is not an amount to be ignored. Certainly, once your car goes into the older generation technologically, there are a significant number of enhancements that are missing. These are the things we "pay" for with new cars. I don't think it's inappropriate to apply even a $50 per month value to such a consideration.

None of the fellow owners actually discuss mileages. How many miles do you think you are doing drive every year (realistically)? I drive 20,000 miles every year. The cost on extra mileages would bankrupt my wallet before my eyes blink again.

Originally Posted by mason

How many miles do you think you are doing drive every year (realistically)?

After 23 1/2 months our 325i has 23,100 miles on it. We are right on track for 12,000 a year. I plan to turn the car in with 35,500 miles on it.

Originally Posted by mason

None of the fellow owners actually discuss mileages. How many miles do you think you are doing drive every year (realistically)? I drive 20,000 miles every year. The cost on extra mileages would bankrupt my wallet before my eyes blink again.

Well that is 2250 over a 3 year lease or 62.50 per month if you prepay 15000 at .15 cents per mile. Certainly a consideration as you will be out of warranty and free maintenance for the last 10000 miles and perhaps a 2 year lease would be more appealing, but I don't think it will bankrupt you.

BMW leases make great sense if you drive around 15KMiles/year. The difference in residuals is 3% and for a 3 year lease, this corresponds to 15 K extra miles for about $1500 (assuming a $50K car).

You can buy extra miles at 16c/mile during the lease and 15c/mile before the lease starts. Given the higher underlying cost of these cars, paying $1500 for 10K miles may not be a bad deal. A 2 year old car with 30K miles is definitely worth $3000 more than a car with 50K miles. If you buy extra miles above 15K/year and do not use them, you get a refund.

If these conditions are true, do you recommend lease vs. buy?

- drive at most 10k miles per year
- commute 8 miles round trip to train station
- drive car to weekend golf or day trip
- in past, have a new car every 5 years.
- longest car kept 7 years
- two kids (4 and 6) ==> different topic (330 vs. 530?)
- have cash to pay for it
- hate to go through car selling process
- fun factor is important ===> different topic again (smg vs. step)
- most of cars owned are either finance or paid
- never done leasing before because don't understand all the numbers

your advice?

Originally Posted by epoints

If these conditions are true, do you recommend lease vs. buy?

- drive at most 10k miles per year
- commute 8 miles round trip to train station
- drive car to weekend golf or day trip
- in past, have a new car every 5 years.
- longest car kept 7 years
- two kids (4 and 6) ==> different topic (330 vs. 530?)
- have cash to pay for it
- hate to go through car selling process
- fun factor is important ===> different topic again (smg vs. step)
- most of cars owned are either finance or paid
- never done leasing before because don't understand all the numbers

your advice?

You are a low mileage driver. In your case the lease equation, as measured by per mile costs is not that sweet as a person who drives 15KMiles/year. Hence it is not that clear-cut a choice.

You need to keep the following facts in mind:

- The value of a BMW takes a significant hit when the car goes out of warranty. This is also reflected in the residuals which BMWFS offers. Since you have sold cars which are 5-6 years old, you will have some data on what you get for the car when you sell it as a percentage of the original MSRP.

- You pay 8-9% sales tax on the price of the car which can be substantial on a 550. On a lease you pay tax on the lease payment only. Note that if the lease has a high money factor, the interest portion can be fairly high and is also taxed. So the sales tax advantage is reduced some what.

- How much do you typically spend in repairs after the warranty expires? On a higher mileage car, the repair costs might be much more than a car which has less than 50K miles.

- Are you willing to do European Delivery to reduce your initial cost of purchase and amortize the 7-8% saving over a shorter lease term?

- Are you willing to wait for the right lease incentive? You can extend your BMWFS lease by 2 months, no questions asked and for another 4 months if you have a car on order. If you are doing a European Delivery, this gives you a 6 (edit) month window to pick the appropriate lease program (4 months before the expiration of the current lease and 2 months after). BMW heavily subsidizes their leases and you should wait for the right program.

- What is your post-tax rate of return on investments? If you are a savvy investor who makes a good return on investment than paying the least for the car and investing the money makes sense. However if you money makes 5% in a CD with a post-tax return of 3%, then perhaps financing/leasing a car makes less sense.

- Can you write-off your lease as a business expense? Leases are much easier to write-off at tax time than purchased/financed cars.

Since you have been keeping cars for 5-6 years, you will have collected some data about how much you spend in repairs and maintenance after the new car coverage expires. You will also have some data on the resale value. You should use that information to calculate the average depreciation over the life of ownership and the average out of pocket costs of maintaining the car.

Compare that the current residuals. A rule of thumb is to assume an ED sale price of 90% and a 36 month residual of 60% so an average annual depreciation of 10%. If your average depreciation plus maintenance costs are in the same ballpark (10% per year) you might as well lease. You will not have the hassle of selling the car at the end and do not carry any of the risks associated with owning a high value depreciating asset (diminished value after an accident, uncertain resale value etc.).

Calculating the lease numbers is easy after you have a spreadsheet set up.

if you buy though, you can sell off the car when you're ready.... so with taht in mind, I think it's cheaper to buy in the long run

My dad is Mr. Frugal so he refuses to do all that financing/leasing stuff. He just pays for cars all upfront. But then again he isn't a car man so that rarely happens.

this is kinda like renting/buying a house, it's always better to buy cause you'll get money back but some peole can't afford a house obviously so they HAVE to rent.... except for a house you can make profit

Originally Posted by bertbert2oo6

.

this is kinda like renting/buying a house, it's always better to buy cause you'll get money back but some peole can't afford a house obviously so they HAVE to rent.... except for a house you can make profit

A house is an appreciating asset (at least the land is). A car is a depreciating asset. Plus a house has tax advantages. You just can not compare the two.

- The value of a BMW takes a significant hit when the car goes out of warranty. This is also reflected in the residuals which BMWFS offers. Since you have sold cars which are 5-6 years old, you will have some data on what you get for the car when you sell it as a percentage of the original MSRP.

Most of my cars are Japanese brand which hold value a bit better, except when there is mechanical problem, it does take a big hit.

- How much do you typically spend in repairs after the warranty expires? On a higher mileage car, the repair costs might be much more than a car which has less than 50K miles.

this is definitely true. On my Toyota minivan which trade-in price of $7k, the replacement of ABS would cost $2500.

- Are you willing to do European Delivery to reduce your initial cost of purchase and amortize the 7-8% saving over a shorter lease term?

I am planning to do ED.

- Are you willing to wait for the right lease incentive? You can extend your BMWFS lease by 2 months, no questions asked and for another 4 months if you have a car on order. If you are doing a European Delivery, this gives you a 5 month window to pick the appropriate lease program (3 months before the expiration of the current lease and 2 months after). BMW heavily subsidizes their leases and you should wait for the right program.

I don't quite get this. Are you saying, for example for ED, I can order the car and decide on lease term when the car is redeliver? (3month order + 2 month on shipping?)

- What is your post-tax rate of return on investments? If you are a savvy investor who makes a good return on investment than paying the least for the car and investing the money makes sense. However if you money makes 5% in a CD with a post-tax return of 3%, then perhaps financing/leasing a car makes less sense.

I plan to have the $$ put into a 5% CD to subsidize the monthly payments.

- Can you write-off your lease as a business expense? Leases are much easier to write-off at tax time than purchased/financed cars.

I cannot write-off.

....

Compare that the current residuals. A rule of thumb is to assume an ED sale price of 90% and a 36 month residual of 60% so an average annual depreciation of 10%. If your average depreciation plus maintenance costs are in the same ballpark (10% per year) you might as well lease. You will not have the hassle of selling the car at the end and do not carry any of the risks associated with owning a high value depreciating asset (diminished value after an accident, uncertain resale value etc.).

Calculating the lease numbers is easy after you have a spreadsheet set up.

This is good advice.... Thanks.

Originally Posted by epoints

- - Are you willing to wait for the right lease incentive? You can extend your BMWFS lease by 2 months, no questions asked and for another 4 months if you have a car on order. If you are doing a European Delivery, this gives you a 6 (edit) month window to pick the appropriate lease program (4 months before the expiration of the current lease and 2 months after). BMW heavily subsidizes their leases and you should wait for the right program.

I don't quite get this. Are you saying, for example for ED, I can order the car and decide on lease term when the car is redeliver? (3month order + 2 month on shipping?)

What I meant was that there is a window of 6 (not 5 as I earlier wrote) months around the expiration of the current lease in which you can place your ED order without turning in your existing car. You can use it to get a favorable rate on your lease.

You need to follow the lease programs to see what the average deal is in terms of the money factor (interest rate) and residual (depreciation). Then when you see a month where the rates are favorable you lock in the good rates and order the car.

Assuming you will be serially leasing BMWs you have a window of 6 months around the expiry of the current lease to pick the month when you lock in the lease rates. You can order the ED car up to 4 months before the expiry of the current lease and you will get it around the time your lease expires. Or you can delay the order and extend the current lease. You can extend that up to two months after the expiration of the current lease since a two month extension is automatic. If you order the car during this two month period you can extend the existing lease for another four months till you receive your ED car.

As a result you have six different months availabe during which you can lock in the lease rates. Note that even if you lock in the rates and order, you can get a better deal if the rates improve till the time you pick up the car. By chosing a month in which the lease rates are favorable you can reduce your lease payments.

By the way, do not forget to join the BMW CCA to get the rebate checks on new cars.

Originally Posted by BayAreaBMWFan

A house is an appreciating asset (at least the land is). A car is a depreciating asset. Plus a house has tax advantages. You just can not compare the two.

Bingo - exactly what I wanted to say..

Buy what appreciates (house.) Rent what depreciates (car.)

You need to follow the lease programs to see what the average deal is in terms of the money factor (interest rate) and residual (depreciation). Then when you see a month where the rates are favorable you lock in the good rates and order the car.

Are these lease program publicized by BMWUSA or individual dealers have their own?

Originally Posted by epoints

Are these lease program publicized by BMWUSA or individual dealers have their own?

Lease Program Posted Here..

They are released by BMWFS to the dealers and find their way here in a sticky which is updated monthly.