[aspiring335]

Please find one example of a nine-year-old BMW for sale for close to zero dollars. The cheapest I could find was a 2001 325i sedan with 200,000 kms for $8k

Originally Posted by Alex_bm

That's not what meant.

You are saying that keeping BMW for 5 additional years after warranty expires would be cheaper than leasing a new one every 3 - 4 years.

Let's take for example 328i worth 50k after pdi and taxes.

First scenario:
You went and financed the car and kept it for 9 years. After 9 years car's value is close to 0. Overall it cost you around $55,000 including loan interest.

Second scenario:
You leased your car the whole time. Monthly payment is around $650 a month to cover pdi, taxes, etc. Over 9 year time period you paid $70,000.

The difference is $15,000, That translates to $3,000 per year for after warranty ownership period.
That $3,000 covers scheduled maintenance (free when you lease), wear and tear costs such as brakes (not an issue when you lease and take the wear coverage) plus any additional repairs you might need to do.

If you are lucky you might actually get to keep 50-100$ in your pocket. Looking at piece of mind owning a new car, fuel cost savings running newer and more effecient engine, and of course that smell of new make you think twice before commiting to a car for the next 9 years...


Interesting. You mention you are worried about reliability hence the desire to lease and remain in warranty. Leasing at 700-900/mth translates to $8400+ a year (not counting tax deductions) but you get the picture. I would seriously doubt maintenance would cost you $5-6k per year EVERY year. I used to think this way and realized I just liked new cars.......the maintenance reliability story over time does not hold water. I am certain keeping at BMW past warranty for say 5 additional years costs far less in maintenance than leasing a new one.

[Alex_bm]

Found fully loaded 2000 328 privately sold coupe for 5k. Not sure how much it would actually sell for.

http://www.autotrader.ca/used_cars_C...ributes=photos,,

It's a good point though, BMW's always worth some-thing. You need to add those few grand into calculations.

Originally Posted by aspiring335

Please find one example of a nine-year-old BMW for sale for close to zero dollars. The cheapest I could find was a 2001 325i sedan with 200,000 kms for $8k

[Bimmer Al]

Originally Posted by Alex_bm

Found fully loaded 2000 328 privately sold coupe for 5k. Not sure how much it would actually sell for.

http://www.autotrader.ca/used_cars_C...ributes=photos,,

It's a good point though, BMW's always worth some-thing. You need to add those few grand into calculations.

Every car is worth"something". I would not discount the fact that after all those years you will still get $5-10k for a car that has not been in an accident.

Hey I used to lease (5 cars in a row). I spent a small fortune on leasing. Ask your accountant if from a pure dollars and cents perspective over a 8-10 year period what you should do. They will almost always say buy and hold.

Also you need to add in the freight, PDI and lease admin fees that you lay out every time you lease a new car. That is pure money down the toilet.

[Alex_bm]

I actually did my accountant when I leased the first time. My accountant opinion was the same as yours. I also made my own calculations.
As I mentioned earlier in the thread if you plan to keep the same car for a period of 6 year and more, it would be almost always cheaper to buy the car.

The monetary benefits however become insignificant in certain situations when you partially tax deduct your lease payment/car value depriciation.

I am not denying the fact that I love driving a new car, especially new BMW. Heck, I would replace it every year or two if I could

I guess what I'm saying is that one should assess his own situation before committing to any deal, as opposed to realying on some-one else's opinion.

Many would say lease is "bad", owning is "good". The main thing here is what works for you personally.

Originally Posted by Bimmer Al

Every car is worth"something". I would not discount the fact that after all those years you will still get $5-10k for a car that has not been in an accident.

Hey I used to lease (5 cars in a row). I spent a small fortune on leasing. Ask your accountant if from a pure dollars and cents perspective over a 8-10 year period what you should do. They will almost always say buy and hold.

Also you need to add in the freight, PDI and lease admin fees that you lay out every time you lease a new car. That is pure money down the toilet.

[A.Kon]

FYI - I think you're calculations do not paint an accurate picture.

You are comparing leasing at 5.9% vs buying out right and therefore paying 0% interest. I didn't double check your depreciation or tax deduction calculations (I'm no accountant but it seems you might be so I will assume those are correct), but you are comparing an apple to an orange. You actually need to level the playing ground and equate the actual payments.

But first of all, to clarify, most people here are not asking about buying out right vs leasing, they are asking about financing vs leasing.

Some key things everyone must understand about a lease:
- Under a lease, the interest rate is typically 1% higher than financing, the higher the interest rate, the higher the monthly payments and wasted money going to BMW
- Under a lease, there is a fixed residual value (say roughly 50% of the purchase price) due at the end of say a 3 year term. This means if the car is $30k, BMW will require you to pay $15,000 at the end of the term; like a balloon finance. To look at it another way, they are still lending you $30,000 to buy the car, but saying that you only need to pay $15,000 over the next years, and then $15,000 at the end of the 3 year term; hence why the payments are lower under a lease vs. finance.
- Under finance, the entire $30k is amortized over the term with $0 due at the end.

If you look at a 36 month term, $30,000 purchase price, 50% residual and lease rate of 5.9%, finance rate of 4.9% the monthly payments are:
- lease = $529.40/mth including 13% tax
- finance = $1,014.49/mth including 13% tax

Now if I'm not mistaken you don't need to consider the actual depreciation value of the car since under both scenarios, the actual value of the car in 2 years (regardless if the owner leased it or financed) is the same. for the accountingbook value you report for taxes, the depreciation value allows for more tax deductability besides just the payments.

With these numbers, you can then recalculate your tax benefits in your calculation algorithm. Under a situation of an out right buy out, of course you are are ahead because you don't pay any interest.


Next point about a lease - which is a big point here, BMW sets a residual value based on the latest information they have on the value of their used cars. For e.g. for my e93 they set the residual to 50% based on the kms I drive.

If the ACTUAL value of the car 3 years from now is greater than 50% this means the car is worth more than my final payment - which makes sense from BMW's perspective and this is what they want.

If the ACTUAL value of the car 3 years from now is less than 50%, this means the car is worth less than my final payment - i.e. BMW is telling me that if I want to keep my car I have to pay them more than that actual value of the car; no one in their right mind would do this ... this happened in 2008 and 2009 to BMW and most other car manufacturers (and will happen in 2010 too). People simply handed the keys back to BMW because the residual values these companies set 3 or 4 years ago were too high and the used car market prices completely fell far below the residual values. People with e90s with $30k residuals but the car was only worth $25k RETAIL - who in their right mind would buy back their car in this scenario?

There's a lot of threads on this forum asking if they should buyout their lease or just return it - I think most people here handed the keys over and simply signed up for a new lease because it made no sense to pay BMW more for something than it's actually worth in the used car market.

In the end, I agree with your conclusion that the tax savings of leasing are not as significant as some people may lead you to believe, but to say that buying out right is financially more sensible than leasing at 5.9% does not give anyone profound information.


I think what people are actually asking about is leasing vs financing over a 3 or 4 year term. And the bottom line answer to that question is that:
A lease provides for lower monthly payments with a large balloon payment and higher interest rate. Finance lets you own the car forever, but you will have a higher monthly payment over the term, but at a lower interest rate.

In the end it comes down to the preference of the buyer and how long they intend to keep the car. I would say if you are keeping it less than 4 years, lease makes a little more sense despite the higher interest rate. If it's more than 5 years, then finance is the way to go assuming you can lock in a good rate. If you're in between 4-5 years it's a coin toss IMO and comes down to preferences of owning vs. security in residual value.

[ians]

Originally Posted by Alex_bm

Found fully loaded 2000 328 privately sold coupe for 5k. Not sure how much it would actually sell for.

http://www.autotrader.ca/used_cars_C...ributes=photos,,

It's a good point though, BMW's always worth some-thing. You need to add those few grand into calculations.

I traded in my fully loaded prefect condition (exterior & interior) 00 328i with only 130000km in for my 335i for $7000 2 yr ago. And some dealers not even want to take it as trade in at all because when they test drove it, it rattle like no tomorrow! Once I know Parkview willing to take it as trade in, I just And also I spent at least $3k a new to maintain it and I already paid $4k for the useless extended warranty! So if I can get a deal with 2.9% lease (I put down 9 security deposit so it dropped to 2%) and 61% residual, 5% discount + waive those lease, document...etc bs fee, so after I dump the pos as a downpayment, my payment is $460 tax in on my E92 335i Navi (not a fully loaded but not bare too). So if not the US car flooded the market and make BMW drop the residual for ~10%, it is way better to lease a new one every 3yr if I can catch the timing when the lease rate is low

[aspiring335]

Not sure if this is directed at me or one of the other posters?

My calculations were based on a lease payment of $800 / month and a finance payment for a $30k car with zero down at 5.9%. I used $800 and $30k since these are the maximum value on which you are allowed to base your deduction in Canada.

In turn, people are typically not in a position to choose between spending either $500 / month or $1,000 / month as your lease vs. loan numbers show for a $30k car. But they might very well be looking at a loan of $1,030 / month (purchase of $30k car over 36 months including taxes) vs. a lease of $904 / month ($800 plus taxes). The depreciation is extremely relevant here since at the end of three years you have spent a similar amount but in one scenario you have a lower tax deduction but outright ownership of an asset that still has significant value; on the other side you have a higher tax deduction and possibly a sliver of equity in the value of the leased vehicle, but likely not.

It is important to make this point because I constantly hear people going on about how leasing makes sense from a tax perspective, when really all they are doing is validating their own decision to lease so they can drive a nice, new car.

In turn, very few people, unless they are lying on their return, can actually write off a really significant portion of their monthly payment (or their depreciation). The average person I hear talking about the tax benefits of leasing often commutes every day to the same office, sits there for eight hours then drives home. A few client meetings here and there might add up to a couple of thousand clicks a year that are genuinely business use. Anyone who has a decent job that really requires a lot of driving will almost always receive a mileage allowance or other direct compensation for their use of their personal vehicle.

Finally I continue to believe that writing off a portion of your lease payment or depreciation is simply not as good a tax planning solution as receiving a tax-free mileage allowance that is completely independent of what you pay every month for your lease or loan.

Originally Posted by A.Kon

FYI - I think you're calculations do not paint an accurate picture.

You are comparing leasing at 5.9% vs buying out right and therefore paying 0% interest. I didn't double check your depreciation or tax deduction calculations (I'm no accountant but it seems you might be so I will assume those are correct), but you are comparing an apple to an orange. You actually need to level the playing ground and equate the actual payments.

But first of all, to clarify, most people here are not asking about buying out right vs leasing, they are asking about financing vs leasing.

Some key things everyone must understand about a lease:
- Under a lease, the interest rate is typically 1% higher than financing, the higher the interest rate, the higher the monthly payments and wasted money going to BMW
- Under a lease, there is a fixed residual value (say roughly 50% of the purchase price) due at the end of say a 3 year term. This means if the car is $30k, BMW will require you to pay $15,000 at the end of the term; like a balloon finance. To look at it another way, they are still lending you $30,000 to buy the car, but saying that you only need to pay $15,000 over the next years, and then $15,000 at the end of the 3 year term; hence why the payments are lower under a lease vs. finance.
- Under finance, the entire $30k is amortized over the term with $0 due at the end.

If you look at a 36 month term, $30,000 purchase price, 50% residual and lease rate of 5.9%, finance rate of 4.9% the monthly payments are:
- lease = $529.40/mth including 13% tax
- finance = $1,014.49/mth including 13% tax

Now if I'm not mistaken you don't need to consider the actual depreciation value of the car since under both scenarios, the actual value of the car in 2 years (regardless if the owner leased it or financed) is the same. for the accountingbook value you report for taxes, the depreciation value allows for more tax deductability besides just the payments.

With these numbers, you can then recalculate your tax benefits in your calculation algorithm. Under a situation of an out right buy out, of course you are are ahead because you don't pay any interest.


Next point about a lease - which is a big point here, BMW sets a residual value based on the latest information they have on the value of their used cars. For e.g. for my e93 they set the residual to 50% based on the kms I drive.

If the ACTUAL value of the car 3 years from now is greater than 50% this means the car is worth more than my final payment - which makes sense from BMW's perspective and this is what they want.

If the ACTUAL value of the car 3 years from now is less than 50%, this means the car is worth less than my final payment - i.e. BMW is telling me that if I want to keep my car I have to pay them more than that actual value of the car; no one in their right mind would do this ... this happened in 2008 and 2009 to BMW and most other car manufacturers (and will happen in 2010 too). People simply handed the keys back to BMW because the residual values these companies set 3 or 4 years ago were too high and the used car market prices completely fell far below the residual values. People with e90s with $30k residuals but the car was only worth $25k RETAIL - who in their right mind would buy back their car in this scenario?

There's a lot of threads on this forum asking if they should buyout their lease or just return it - I think most people here handed the keys over and simply signed up for a new lease because it made no sense to pay BMW more for something than it's actually worth in the used car market.

In the end, I agree with your conclusion that the tax savings of leasing are not as significant as some people may lead you to believe, but to say that buying out right is financially more sensible than leasing at 5.9% does not give anyone profound information.


I think what people are actually asking about is leasing vs financing over a 3 or 4 year term. And the bottom line answer to that question is that:
A lease provides for lower monthly payments with a large balloon payment and higher interest rate. Finance lets you own the car forever, but you will have a higher monthly payment over the term, but at a lower interest rate.

In the end it comes down to the preference of the buyer and how long they intend to keep the car. I would say if you are keeping it less than 4 years, lease makes a little more sense despite the higher interest rate. If it's more than 5 years, then finance is the way to go assuming you can lock in a good rate. If you're in between 4-5 years it's a coin toss IMO and comes down to preferences of owning vs. security in residual value.

[shag]

Originally Posted by Alex_bm

I actually did my accountant when I leased the first time.

I hope she was hot.

[Alex_bm]

Haha, that wasa typo. Don't tell my wife

Btw, she is not hot at all

Originally Posted by shag

I hope she was hot.

[Alex_bm]

I was in a situation where my total mileage for the year was around 12k. Out of that 50% was for business purposes.
Paying my-self for mileage didn't look as a good option at all.

Again, all situations are different.

Originally Posted by aspiring335

Not sure if this is directed at me or one of the other posters?

My calculations were based on a lease payment of $800 / month and a finance payment for a $30k car with zero down at 5.9%. I used $800 and $30k since these are the maximum value on which you are allowed to base your deduction in Canada.

In turn, people are typically not in a position to choose between spending either $500 / month or $1,000 / month as your lease vs. loan numbers show for a $30k car. But they might very well be looking at a loan of $1,030 / month (purchase of $30k car over 36 months including taxes) vs. a lease of $904 / month ($800 plus taxes). The depreciation is extremely relevant here since at the end of three years you have spent a similar amount but in one scenario you have a lower tax deduction but outright ownership of an asset that still has significant value; on the other side you have a higher tax deduction and possibly a sliver of equity in the value of the leased vehicle, but likely not.

It is important to make this point because I constantly hear people going on about how leasing makes sense from a tax perspective, when really all they are doing is validating their own decision to lease so they can drive a nice, new car.

In turn, very few people, unless they are lying on their return, can actually write off a really significant portion of their monthly payment (or their depreciation). The average person I hear talking about the tax benefits of leasing often commutes every day to the same office, sits there for eight hours then drives home. A few client meetings here and there might add up to a couple of thousand clicks a year that are genuinely business use. Anyone who has a decent job that really requires a lot of driving will almost always receive a mileage allowance or other direct compensation for their use of their personal vehicle.

Finally I continue to believe that writing off a portion of your lease payment or depreciation is simply not as good a tax planning solution as receiving a tax-free mileage allowance that is completely independent of what you pay every month for your lease or loan.

[dpwr]

one more thing to keep in mind.... if you get into accident and they will repair half of your car it will kill more value on a resale, not to mention it will never drive the same, where with lease you just give it back with no worries

[Alex_bm]

That's very good point. And the more you drive the higher the chances of getting in one.
I got in an accident with my car that was purchased and I know the feeling. When you lease it's less personal, no big deal.

Originally Posted by dpwr

one more thing to keep in mind.... if you get into accident and they will repair half of your car it will kill more value on a resale, not to mention it will never drive the same, where with lease you just give it back with no worries