My Calculations on Cost of Ownership Lease vs. Finance

[Suave]

Originally Posted by kramsterman

I own my own company, drive less then 8k miles a year and plan to have the car for at least 3 years. Whats the best option for me?

I use my car for business as well and drive 10k or less miles. Leasing is the way to go hands down! If anybody tells you otherwise they know nothing about financing and running a business. period.

[kramsterman]

Originally Posted by Suave

I use my car for business as well and drive 10k or less miles. Leasing is the way to go hands down! If anybody tells you otherwise they know nothing about financing and running a business. period.

Are you able to write-off the entire lease payment AND the miles you drive it for business?

[Suave]

Originally Posted by kramsterman

Are you able to write-off the entire lease payment AND the miles you drive it for business?

Depends. Please see this link for all your answers:
https://turbotax.intuit.com/tax-tool.../INF12071.html

[firstkill]

Originally Posted by kramsterman

Are you able to write-off the entire lease payment AND the miles you drive it for business?

you got a few options.

we do not know what type of business you own. If its "car" related you can buy or lease and write off 100% (just need to justify to the IRS if you get audited) the car is owned by the business.

if you are a "professional" that has an S-corp or LLC that is getting Any car except for a truck/van/suv or work type vehicle then you are suppose to only write off how much of the car is devoted to business use.

its up to you and your accountant to calculate that number. I use 80%

more expensive the car, write off gas/insurance/registration/maintence
cheaper the car, just use milage deduction ( I think its 52cents a mile)

[Money2536]

Originally Posted by Suave

I use my car for business as well and drive 10k or less miles. Leasing is the way to go hands down! If anybody tells you otherwise they know nothing about financing and running a business. period.

That is unless you are simply taking the standard mileage deduction. Then it doesn't matter if you lease/finance/hold title.

Taking actual expenses, although tedious, could certainly net a better result. Correct me if I'm wrong, but the main advantage of leasing through your business is the lack of having to recapture depreciation when the vehicle is taken out of use (sold).

[acuteperformance]

Yea when you sell the car you get taxed heavily.

[IS350]

Originally Posted by Money2536

Please check my work, but it seems clear to me that I'll be better off Financing than Leasing assuming the current 36 month offer and purchase at MSRP. Of course the big unknown is what a 36,000 mile 3 year-old version of the car I'm ordering would be worth.

Lease Option: For me the pro of the lease option is simple. I have a known value on what the car will be worth when it's time to turn the car in. I also tend to stress less about an accident. The big con of course is the rental argument with limits on mileage.

MSRP: $65,950
Residual Percentage at 12,000 Miles: 57%
Residual Value: $37,591.50
Percent off MSRP: 0.00%
Negotiated Price: $65,950
Down Payment: $0
Net Cap Cost (Neg. Price – Down Payment): $65,950
Depreciation: $28,358.50
Lease Term: 36 Months
Monthly Depreciation Payment: $787.74

Finance Cost = Net Cap Cost + Residual: 103,541.50
Interest Rate (APR): .00130 X 2400 = 1.944%
Money Factor: 0.00081
Monthly Finance Fee: $83.87

Monthly Payment: $871.61
Sales Tax: 6%: $52.30
Total Monthly Payment: $923.91

7 MSD: $950 X 7 = $6,650
Title, Registration, and Other Fees: ~$1,000
Incentives/Rebates: $0 (Assuming there are none.)

Drive-off (1st month’s payment + Fees + Maximum MSD): $8,573.91

3 Year Cost of Ownership: $1,000 + $33,260.76 = $34,260.76


Finance Option: The big pro to financing is open ended options. I can sell it when I want and drive it when I want. I take such good car of my cars that I never have a hard time selling them when I'm done. I can also reduce the cost of ownership on the next vehicle by trading the car and saving the future sales tax.

36,000 Miles 2.19% APR 72 Month Loan

Purchase Price: $65,950 MSRP
Tax: $4,017
Title, Registration, and Other Fees: ~$1,000
Total: $70,967

Monthly Payment: $1,052.73 including Tax

Payments Made: $37,898.28
Remaining Lien: $36,647.65 after 3 Years
Sale Price Estimate: $45,000
Net Positive Cash Flow After Sale: $45,000 - $36,647.65 = $8,352.35

Total Cash Outlay After 3 Years: $37,898.28 - $8352.35 = $29,645.93

Informative! I'm getting ready to buy/lease an M4 Monday.
One observation, you can sell your lease at any point, I did at 30 months into my E92 M3 lease and pocketed a few grand.

In exchange for the $725 acquisition fee (dealer profit, according to Bmw financial) I do like the idea that I'm only commiting to 3 years of payments (unless I can find a buyer prior) vs. Financing.

In my last m3 payment 700 of the 889 went toward reducing the residual (buyout price) surely finance would more aggressively reduce the principle balance.

Certainly benefits to both sides!

Eager to hear any perspectives!

[r20]

Originally Posted by Money2536

Please check my work, but it seems clear to me that I'll be better off Financing than Leasing assuming the current 36 month offer and purchase at MSRP. Of course the big unknown is what a 36,000 mile 3 year-old version of the car I'm ordering would be worth.

Lease Option:
MSRP: $65,950

3 Year Cost of Ownership: $1,000 + $33,260.76 = $34,260.76


Finance Option:

Total Cash Outlay After 3 Years: $37,898.28 - $8352.35 = $29,645.93

I just wanted to come say thanks to Matt for this post.

I've been a big fan of the YouTube channel and recently hit you up on linkedin.

When I use a financial planner, you'll be my man.

But back to this post... this analysis is even better with 3 years of foresight.

The value of m3s have held so well, that buying (vs leasing) was the right choice.

You can't find a clean 2015 for under 48k near me.

Thanks again Matt. Ditch the Ford and come back to BMW, we need a guy like you in the community.

[trendy26]

A couple things to note: you can get out of a lease at any point if you negotiate your car to the point where you cover much of the initial depreciation right off the bat. Case in point, I got almost $10k off my M4, which on a $72k build gives me a little equity from the start. Whereas if you get a more optioned out car, you won't be in as good of a situation, as the options depreciate at a much faster rate due to buyers not putting a premium on them.

Secondly, nobody is factoring the risk involved with the Finance option. Hypothetically, you get into an accident, and the car is repairable, you are going to take quite the hit on the value of the car, whereas that risk shifts to BMW under the leasing scenario. I myself lease, not to solely have the lower payment, but to give me the flexibility without much risk on keeping the car short term.

[F1fan]

I think the biggest issue with your analysis is that you are assuming pretty much the worst leasing terms possible, and comparing those with reasonably good financing terms. Leasing really comes out ahead of financing if you can be patient and lock in an order when the residual and rebates are good.

For instance, I am paying only $735/mo (including 9% tax) with no money down other than max MSDs on an F80 ZCP with a bunch of M Perf parts. The key was negotiating down to invoice + $1,000, stacking a bunch of discounts (employee fleet, driving event, lease option, etc.), and then ordering when residual was 60%+. With numbers like that, leasing came out to be WAY cheaper for me.